New Furlough Scheme from 1 July 2020

New Furlough Scheme from 1 July 2020

It was late on Friday evening when the expected revisions to the Coronavirus Job Retention Scheme were published, by way of updating a number of different guidance documents.  Whilst the amendments are based on the original scheme, it can be seen from the number and length of guidance documents now available, the revisions are substantial and complex. The changes being introduced from 1 July cover the conditions for an entitlement to make a claim, the amount of the grant available and how the grant will be calculated. The changes will apply regardless of whether the employee will be on ‘full’ or ‘flexible’ furlough and so need to be considered by all companies.

Due to the complexity of the new scheme, as well as employers having to start to contribute towards the costs of their employees remuneration to qualify, the employers costs, whether they carry out the calculations themselves or their advisor prepares the calculations for them will be significantly more than a claim under the current scheme.

It will therefore be important for companies to understand the full scope of the changes to the scheme before deciding whether and how to utilise the flexible furlough opportunities.

These are our first thoughts and comments on the new scheme, there will no doubt be areas of uncertainty and confirmations/clarifications issued over the next few weeks, prior to implementation and also once the scheme is live,  and we will update this note as these are released.

Main points:

  • The CJRS will close on 31 October 2020. It is now too late to put employees on furlough for first time, unless they are returning from maternity or other family leave.
  • Only employers who have furloughed employees for a full three-week period prior to 30 June will be able to make a claim under the second phase. Claims for this first phase must be made by 31 July. Claims for the period from 1 July cannot be made until 1 July.
  • From 1 July, employees can be moved to a part-work, part-furlough arrangement (“flexible furloughing”). When working, employees will be paid their normal wage, whilst they will receive the furlough grant for the remainder of their usual working hours.
  • For June and July, the government will continue to pay 80% of wages up to a cap of £2,500 for the hours the employee is on furlough, as well as employer National Insurance contributions and pension contributions for the hours the employee is on furlough. Employers will have to pay employees for the hours they work
  • From 1 August, employers will be required to contribute employer national insurance and pension contributions. In September, employers will also be required to contribute 10% of wages and the government will contribute 70%. For October, the employer contribution increases to 20% and the government will contribute 60%.  The employer contribution is mandatory if the furlough grant claim is to be made.
  • From 1 July, claims cannot straddle two calendar months and the number of employees an employer can claim for in any claim period cannot exceed the maximum number they have claimed for under any previous claim.

A new written flexible furloughing arrangement will be required for relevant employees. The agreement will need to cover the hours they will be working and the hours they will be furloughed.

  • Employers will need to provide details of hours usually and actually worked when making a claim under the scheme.  These calculations are likely to be complex, so a system will be required for calculating hours worked and not worked.
  • The number of employees an employer can claim for in any claim period cannot exceed the maximum number they have claimed for under any previous claim under the current CJRS (subject to returners from maternity or paternity leave).
  • Claim periods cannot overlap a calendar month. If a pay period spans the month end then two claims have to be made in relation to that pay period.

HMRC guidance

There are several guides that have been updated many times, most of which were further updated on Friday evening:

Options re furlough from 1 July 2020

  1. Employees can remain on full furlough until the scheme closes at the end of October.
  2. Employers may now agree a new flexible furloughing arrangement with employees to take effect from 1 July. Employees on flexible furlough will be able to work part-time and be on part-time furlough.
  3. Rather than part time, employers may rotate employees between full furlough and work, or
  4. End furlough altogether for some employees and bring them back to their previous normal hours at work, while other employees remain on full

Options 1, 3 and 4 mean that the calculations required for the flexible furloughing scheme will not be required.

Provided an employee has been previously furloughed for a consecutive 3-week period at any time between 1 March and 30 June they may be furloughed from 1 July

Making the claim

Until 1 July, employees must be furloughed for a minimum of 3 consecutive weeks and claims through the portal must be made for a minimum 3-week claim period. Furlough periods which began before 1 July must be for a minimum of 3 weeks even if that minimum period ends after 1 July.

From 1 July, there is no minimum number of weeks or days that an employee must be on furlough.

However, any claim through the portal will need to cover a period of at least one week unless you are claiming for the first few days or last few days in a month. (You can only claim for a period of fewer than 7 days if the claim period includes either the first or last day of the calendar month, and you have already claimed for the period immediately before it.)

Claim periods must start and end within the same calendar month.

From 1 July, you will not be able to claim for more employees than the maximum number you have claimed for under any previous claim.   So if you had been 20 employees on furlough, but have only ever claimed for 10 employees at a time, whilst the other 10 are at work, at present it appears that the claim from 1 July will be restricted to 10 employees at a time from 1 July.

There is an exception where you have an employee returning from maternity leave, or other family leave.

The calculations

The required employer contributions will be as follows:

  • From 1 August: employer national insurance and pension contributions
  • From 1 September: 10% of employee wages (up to £312.50) plus employer national insurance and pension contributions
  • From 1 October: 20% of employee wages (up to £625) plus employer national insurance and pension contributions

The employer contributions from August are mandatory if employees are receiving the grant.

Any working arrangement can be agreed with an employee on flexible furlough, and this can change from week to week.

The grant claim is calculated for the hours your employees are not working calculated by reference to their usual hours worked in a claim period. The grant and cap will be reduced in proportion to the hours not worked. For example, an employee is entitled to 60% of the £2,500 cap if they are furloughed for 60% of their usual hours.

Salaried employees (fixed pay)

For salaried employees, whose pay is fixed and does not vary by hours worked, the guidance says that usual working hours are based on the hours the employee was contracted for at the end of the last pay period ending on or before 19 March 2020.

HMRC has produced examples of how to do the calculations.

The calculations are complicated and require you to take account of non-working days.

Employees whose hours and pay varies?

For employees who work variable hours, usual hours is not based on the hours you predict that they would have worked in the claim period if they had not been furloughed. Nor can you simply agree the usual hours with an employee in their flexible furlough agreement.

Instead, you have to calculate usual hours by looking backwards at the usual hours they worked last year. You must therefore calculate usual hours based on the higher of either:

  • the average number of hours worked in the tax year 2019 to 2020
  • the corresponding calendar period in the tax year 2019 to 2020

HMRC has produced examples of how to do the calculations.

Note that you include any fully paid leave and overtime, provided the overtime payment was not discretionary (this means that you include voluntary overtime provided the employee is paid an agreed contractual rate for overtime). The guidance points out that you should have been providing itemised payslips to employees from April 2019 recording hours worked.

The calculations are complicated and require you to take account of non-working days.

Calculating the furloughed hours to claim for through the scheme?

To calculate the number of not-worked hours (which you can claim for through the furlough scheme), you need to start with the employee’s usual hours in the claim period and subtract the number of hours they actually worked in the claim period (even if this is different to what you agreed).

HMRC has produced examples of how to do the calculations.

The fact that the calculations require you to take account of non-working can mean some of the outcomes are counter intuitive, which can be seen in HMRC’s own detailed worked example of an employee who is flexibly furloughed. The employee in this example is asked to return to work half days, so logic would suggest that the number of working hours and furloughed hours would be the same, and that furloughed hours would be exactly half of the usual working hours. In fact, however, this is not the case. In the example given, this employee is working half days for the whole of July but his actual working hours come out at 92, whereas his furloughed hours come out at 86.

Redundancies?

The employee guidance says that “your employer can still make you redundant while you’re on furlough or afterwards”. It therefore seems that employees can be made redundant and given notice while furloughed, although the guidance does not explicitly say this.

The guidance also confirms that employee representatives may still undertake duties and activities for the purpose of individual or collective representation of employees or other workers while they are on furlough so long as this is not providing services to or generating revenue for the employer or a linked/associated organisation. This confirmation that representatives can take part in collective consultation suggests that individuals must also be able to take part in consultation about redundancies during furlough.