Speaking in Parliament this morning, the Chancellor of the Exchequer announced the introduction from the beginning of November of a new Job Support Scheme. This will replace the existing furlough arrangements, which come to an end on 31 October.
Full details of the Job Support Scheme are not yet available. The Chancellor indicated that guidance would be made available shortly, with full details being finalised prior to November. This note summarises the key points arising from the Chancellor’s announcement and a factsheet published this afternoon by HM Treasury.
How will the Job Support Scheme work?
The aim of the Scheme is to subsidise jobs where employees have not returned to work full-time but are working more than a third of their normal hours. To be eligible to participate, the employee must be in receipt of normal pay for hours actually worked. For the remaining hours not worked the Government and the employer will pay one third of normal pay each (with the employee bearing the additional third – as foregone wages).
Employees working for less than one third of their normal hours will not be eligible to participate. There is therefore a fundamental difference between the structure of the Job Support Scheme and current furlough arrangements.
The Treasury factsheet makes clear that the minimum working hours threshold for participating employees may be adjusted upwards from the beginning of February next year.
A worked example to show how costs will be shared
As an example, if employee A, who would have earned £2,000 a month for working their normal hours instead works part-time from November for a third of those hours (in respect of which they are being paid as normal), the effect of the Job Support Scheme will be as follows (the numbers below are rounded to the nearest pound):
- A will be paid £666 by his employer (being his pay for the work he is doing);
- A will also be paid a further £444 by his employer (being a third of the pay referable to his unworked normal hours);
- A will be paid £444 by the Government (this amount will be paid by the employer but will be funded by the Government);
- A will be required to forego the remaining £444.
The cost is therefore shared between the employer, the employee and the Government. The cost burden for the employer will therefore be materially greater than under the existing furlough arrangements (even after taking into account the increased employer costs that now apply under furlough arrangements).
The HM Treasury factsheet confirms that the employer will also be responsible for employer NIC costs and minimum pension contributions in relation to the portion of pay borne by the Government.
As with the furlough arrangements, the amount covered by the Government will be subject to a cap (to limit the amount of state subsidy payable in respect of high earners). According to the HM Treasury factsheet, the Government’s contribution will be capped at £697.92 per month.
Employers face a difficult choice
The Chancellor made clear in his statement that he was not prepared to support jobs that are only being maintained as a result of the furlough arrangements (ie it is a prerequisite of the new scheme that employees are working and being paid for that work). The clear message is that the scheme is designed only to support “viable jobs”.
Many employers will now need to consider whether there is sufficient work to reinstate employees currently on furlough on at least a third of their normal working hours, recognising that by doing so they have to pay for more than half of their full-time working cost (more than 55 per cent for those working a third of their normal hours, plus employer NIC costs, with the employer cost increasing for those working a greater proportion of their normal hours). If there is insufficient work to support this work pattern or the cost is unaffordable, employers may need to declare redundancies.
How long will the Job Support Scheme last?
It is a six-month scheme, expiring at the end of April 2021.
Can employers who have not participated in the Government’s furlough arrangements take part in the Job Support Scheme?
Yes, provided they qualify (see further below) and have a UK bank account and UK PAYE scheme.
Which employees are eligible to participate?
Affected employees do not need to have previously been on furlough to be eligible for participation in the Job Support Scheme. However they must be on an employer’s PAYE payroll on or before 23 September 2020 (ie the day preceding the Chancellor’s announcement).
It appears that employers will have flexibility to move employers onto and off the Job Support Scheme and work patterns can fluctuate from month to month. Each short-time working arrangement must cover a minimum period of seven days.
Will employees be required to agree to qualifying part-time arrangements?
It is expected that further information will be set out in the forthcoming guidance, but the answer is almost certainly that employees being brought back onto part-time working (and indeed employees whose current hours are being reduced) would need to consent to these arrangements, in line with employment law.
Fewer companies will be able to participate in the Job Support Scheme
In a significant change to the existing furlough arrangements, which apply to any employer, the Job Support Scheme is focused on small and medium-sized companies. Larger companies will only be able to participate if they can show their revenues have been adversely affected by the coronavirus pandemic.
It is not yet clear what factors will be used in categorising companies as small and medium-sized (and whether companies will be looked at on an individual basis or across corporate groups). It may be that the Government will adopt the tests set out in the UK Companies Act (although that can sometimes lead to anomalous results). Nor is it clear how it will be determined whether the revenues of larger companies have been sufficiently damaged to permit them to participate. The Chancellor suggested that to be eligible the employer’s turnover must have fallen during the crisis. It remains to be seen whether there will be a requirement for a minimum percentage reduction in turnover or whether any fall in turnover will be sufficient (and over what period this will be measured).
If companies do wish to participate in the Job Support Scheme, the same sorts of reputational issues as with furlough will need to be considered – in particular whether senior individuals should take a reduction in pay to demonstrate that they are aligned with the wider workforce.
What restrictions will apply to companies who participate in the Job Support Scheme?
It appears that there will be two significant restrictions:
- participating employers will not be able to make employees redundant or put them on notice of redundancy if they are on the Job Support Scheme; and
- larger employers will face restrictions “in terms of capital distributions to shareholders while they are in receipt of money for their workers on this scheme”. The HM Treasury factsheet refers to an “expectation” that large employers will not be making capital distributions while accessing the Job Support Scheme. It is not clear precisely what this means.
We await further details of precisely how these restrictions will work. For example, if an employer decides that it can no longer bear the increased employment costs of the Job Support Scheme, will it be possible to cease further claims for subsidy from the Government and immediately terminate the employee’s employment? Or will the employer need to wait until the end of the life of the Job Support Scheme?
We will provide further analysis on these and other relevant questions once the Government’s guidance is published. As with the furlough arrangements, we anticipate there will be a number of complexities for employers to work through.