Government announces detail of ‘wind-down’ of furlough scheme
The government has now filled in some of the detail as to how the closing phase of the Coronavirus Job Retention Scheme (CJRS) will work.
In mid-May the Chancellor, Rishi Sunak, announced that the CJRS, which opened on 20 March, would come to an end on 31 October 2020. However, employers were promised that they would not face a ‘cliff-edge’ withdrawal of funding and that the scheme would be wound down gradually.
The government has now filled in some of the detail as to how the closing phase of the CJRS will work.
Currently, employers are able to claim 80% of a furloughed employee’s wage costs, to a monthly maximum of £2,500. The government also refunds employer NICs and auto-enrolment pension contributions on this sum. Going forward, the parameters of the scheme will be as follows:
June/July - no change to current funding arrangements.
August - Government will continue to pay 80% of wages to a cap of £2,500. Employers will be required to fund employer NICs and auto-enrolment pension contributions.
September - Government will pay 70% of wages to a cap of £2,187.50. Employers must fund the remaining 10% of wages to make up 80% (capped at £2,500) and employer NICs/auto-enrolment pension contributions.
October - Government will pay 60% of wages to a cap of £1,875.00. Employers must fund the remaining 20% of wages to make up 80% (capped at £2,500) and employer NICs/auto-enrolment pension contributions.
The scheme will close at the end of October.
As currently, employers can choose to top-up employee pay to 100% at their own expense if they wish to do so.
The funding caps referred to above presume that a furloughed employee remains on furlough full-time for the duration of the scheme.
However, from 1 July 2020, in the biggest change to current scheme rules, the CJRS can be accessed more flexibly.
From that date, furloughed employees can be brought back to work part-time, “for any amount of time and any shift pattern”. Crucially, employers must pay in full, as normal, for any hours the employee works. The CJRS will continue to fund the remainder of their normal hours that are not worked. For example, if an employee returns to work two days per week, and remains on furlough three days per week, an employer must pay in full for two days’ work, while the government will fund the other three days.
To make this work in practice, employers will be required to report hours worked, as well as the usual hours an employee would be expected to work in a claim period.
Importantly, from 1 July 2020, claims to the CJRS are no longer permitted to straddle different calendar months.
Government guidance states that “the cap will be proportional to the hours not worked”. Presumably this means that, for example, if a furloughed employee returns to work two days per week and remains furloughed for three days, an employer may claim back no more than three-fifths of the CJRS funding cap in place in any given month. For example, in July, where the cap is £2,500, the maximum claim in this situation would be £1,500. More specific detail on this is expected on 12 June 2020.
Any new flexible furlough arrangements must be agreed with the employee and confirmed in writing.
No new entrants to the CJRS will be accepted after 30 June 2020.
In practice, this means that the latest date on which an employer can furlough an employee for the first time is 10 June 2020 (so the employee can complete the minimum three-week furlough period before 30 June). Claims relating to the period to 30 June must be submitted to the government portal by 31 July.
From 1 July, the scheme will only be available to employers who have previously used it, in respect of employees that have already been furloughed.
Our understanding is that, as long as an employee completes at least one full three-week period of furlough by 30 June, an employer can continue to move them on and off furlough (e.g. on a rotational basis) until the scheme closes at the end of October (subject to the existing proviso that each individual period of furlough lasts at least three weeks).
The wind-down phase of the furlough scheme is more generous than many had expected, with the bulk of furloughed employee wage costs still being met by the government well into the autumn. Many business leaders had anticipated a much steeper taper, requiring employers to take back responsibility for a much larger percentage of salaries in the approach to scheme closure. Many employers will appreciate the extra breathing space to find their feet as businesses start to re-open and commercial activity starts to pick up.
However, some business leaders have criticised the government’s ‘one size fits all’ approach, which is not tailored by sector or industry. The hospitality sector, for example, has still not been given a definite re-opening date, and some pubs, restaurants, cafes and hotels may struggle to make even a modest contribution to employee wage costs while their doors are still closed. Concern has also been expressed that the structured wind-down of the scheme builds in little resilience to respond to a ‘second spike’ of Coronavirus cases and any potential reintroduction of social distancing and/or local lockdown measures.
While ‘flexible furlough’ empowers employers to design a return to work plan that meets business need, it undoubtedly adds a new level of complexity to calculating employee wage costs and making a claim under the government scheme. The government has promised that further detailed guidance will be published on 12 June to assist with this process.
Most UK employers will have some difficult commercial decisions to make in the coming weeks. Employers who have not previously accessed the scheme, or wish to place new employees on furlough, will need to move quickly. Where pay is currently being topped-up to 100%, employers may need to consider whether this remains affordable given the greater mandatory contribution to employees’ current furlough pay that is now on the horizon. The opportunity to make crucial savings through the furlough scheme must be balanced against the need to get employees back to work to revive operations. The next phase of the CJRS promises to be the most challenging yet.
Ben Daniel is Head of Employment, Pensions and Immigration at law firm Weightmans. If you have any questions or concerns, contact Ben at firstname.lastname@example.org or go to https://www.weightmans.com/