Example of calculations of government grant under the open JSS scheme

Overnight the policy paper on the announcements made by the chancellor yesterday was published, there was little in this not already announced, however it does explain the basis of the usual hours and usual pay calculations that are likely to apply for the purpose of the new JSS calculations.

Where a claim is made based on a % of hours or normal pay – the starting point is to determine what the normal hours and pay are – this is not necessarily straight forward, particularly where employees hours and pay vary over a period.

Anyone who has carried out or seen these calculations for the CJRS will know that these are complex and not always intuitive, and as these calculations will determine employer costs and grant claimed, we have prepared this additional blog to set out what we know so far.  A warning – JSS flexi-furlough was complicated, this is more complex.

Reference Salary

This is made up of regular payments including:

  • regular wages
  • non-discretionary payments for hours worked, including overtime
  • non-discretionary fees
  • non-discretionary commission payments
  • piece rate payments

Calculations cannot include:

  • payments made at the discretion of the employer or a client, where the employer or client was under no contractual obligation to pay, including:
  • any tips, including those distributed through Troncs
  • discretionary bonuses
  • discretionary commission payments
  • non-cash payments
  • non-monetary benefits like benefits in kind (such as a company car) and salary sacrifice schemes (including pension contributions) that reduce an employees’ taxable pay

Reference Salary – fixed paid employees

This is the higher of:

  • the wages payable in the last pay period ending on or before 23 September 2020
  • the wages payable in the last pay period ending on or before 19 March 2020

Reference salary - variable pay employees

This  is the greater of:

  • the wages earned in the same calendar period in the tax year 2019 to 2020
  • the average wages payable in the tax year 2019 to 2020
  • the average wages payable from 1 February 2020 (or the employee’s start date if later) until 23 September 2020

Usual hours calculations – fixed paid employees (pay does not vary according to the number of hours worked)

Usual hours are calculated based upon the greater of:

  • the hours that the employee was contracted for at the end of the last full pay period ending on or before 23 September 2020
  • the hours that the employee was contracted for at the end of the last full pay period ending on or before 19 March 2020, (NB. if employees moved to part time working, this may be varied details not yet released)

This should include hours paid as annual leave and statutory leave.

An example of a fixed paid fixed hour employee is set out below.

Usual hours calculations – variable paid employees

The variable hours calculation applies if either:

  • the employee is not contracted to a fixed number of hours
  • the employee’s pay depends on the number of hours they work

For these employees the number of usual hours is calculated based on the higher of:

  • the number of hours worked in the same calendar period in the tax year 2019 to 2020
  • the average number of hours worked in the tax year 2019 to 2020
  • the average number of hours worked from 1 February 2020 (or the employee’s start date if later) until 23 September 2020

This should include hours paid as annual leave and statutory leave.

The calculation of usual hours is not and cannot be altered if the employee is expecting to work more or fewer hours than this in the future.

Example 1 :Fixed Hours and Fixed Salary Employee

  1. Long serving employee paid £2,250 at the end of every month working 37.5 hours a week
  2. JSS open agreement to work two full days a week (7.5 x 2 = 15 hours) from 2/11/20 to 31/12/20.
  3. Pay for working hours in November = £945.
  4. Pay period: 1/11/20 to 31/12/20

Usual Hours calculation:

  1. For both the last pay period before 23/9/20 and 19/3/20 the number of hours for each week is 37.5.
  2. Divide this by the number of days in this period including non working days: 37.5/7 = 5.36
  3. Multiple this by the number of days that is being claimed for (2/11/20 to 31/12/20) = 29 days x 5.36 = 155.44.
  4. Round this to get to 155 usual working hours.
  5. Actual hours worked in November are 67.5 hours, therefore hours not worked = 155- 67.5 = 87.5.
  6. Percentage of hours worked = 67.5/155 = 43.55% therefore as this is more than 20% the employer can claim.
  7. Reference salary = £2,250 (below cap)

Calculation of amount to be paid for the non working period for November

  1. Reference salary = £2,250
  2. Divide by number of days in the pay period (30 – days in November)
  3. Multiply by number of days subject to the temporary working arrangement (29)
  4. Divided by the usual working hours (155 above)
  5. Multiply by the non working hours (87.5 above)
  6. Multiply by 66.67% = £818.59 – which will be met 5% by the employer contribution and 61.67% by the government grant.

Work out JSS grant

  1. Start with the pay for the non working hours above - £818.59
  2. Divide by 66.67 and multiply by 61.67 = £757.20
  3. The employers compulsory contribution is therefore £818.59-£757.20 = £61.59

The employees gross pay for the month is made up of:

Pay for working hours                  945.00
Pay for non working hours            818.59
Total                                       1,763.59

The policy paper makes it clear these calculations are indicative and full details of sample calculations will not be available until the end of October 2020.

Example 2 : Employee with variable hours and variable pay

  1.  An employee who earns £14.60 per hour paid weekly
  2. JSS open agreement from 12/11/20 to 31/12/20
  3. Usual hours for the period 12/11/20 to 31/11/20 calculated to be 90 hours 
  4. Number of hours worked 12/11/20 to 31/11/20 is 42 hours
  5. This is 46.7%, more than 20% so a claim can be made.

Calculation for the week 16 November 2020 to 22 November 2020 (7 JSS open days)

  1. Higher of number of hours in the same week of the prior year, the average hours in the tax year 2019/20 and the average hours from 1/2/20 to 23/9/20 = 33 hours
  2. Actual hours in this week worked = 15 hours
  3. Therefore hours not worked = 33-15 = 18 hours
  4. For usual pay, take the higher of pay for the same week in the prior year, the average wages in the tax year 2019/20 and the average wages from 1/2/20 to 23/9/20 = £478.50 (less than the weekly cap of £721.15).

Calculation of pay for non-working hours in the pay period

  1. Start with reference salary above = £478.50
  2. Divide by 7 (number of days in a week)
  3. Multiply by 7 (number of days subject to the temporary working arrangement in the pay period)
  4. Divide by 33 – the usual hours for the week
  5. Multiply by 18 – the number of non working hours calculated above
  6. Multiply by 66.67% = £174.01
  7. Government JSS grant = £174.01 x 61.67/66.67 = £160.96
  8. Employer mandatory contribution = £174.01-£160.96 = £13.05

The employees gross pay for the week is made up of:

Pay for working hours              219.00
Pay for non working hours        174.01
Total                                      393.01

The policy paper makes it clear these calculations are indicative and full details of sample calculations will not be available until the end of October 2020.