Furlough has been the subject of most of the questions I get every day since the 20th March. The rules always leave some areas of grey and interpretation. Adding changes to these rules I am sure will cause more questions, but I hope that this guide helps make some sense of it all.
The notes below are based on Rishi Sunak’s announcement today (29 May) and we may need to update you further as HMRC puts this into legislation. As we found before, the promise doesn’t always carry into law word for word. At the time of writing HMRC are yet to update their guidance for the announcement.
It is important to note that the Furlough Scheme or Coronavirus Job Retention Scheme (CJRS) will effectively run unchanged until 30 June 2020. The main principle to bear in mind is that the gradual shut down of the scheme starts in July and from August furloughed staff will start to cost your business money.
- Employees remain entitled to 80% of average earnings capped at £2,500 per month while furloughed (No change as far as employees are concerned)
- It appears that the February payroll remains the cut off for what staff can be furloughed, meaning there is no change that staff taken on after the February payroll run still cannot be furloughed, it also means that employers operating an annual payroll scheme are still not catered for.
- From the 1st July, applications will only be accepted regarding staff who have already been furloughed. This means staff will have to have been put on furlough by the 10th June and remain furloughed into July in order to be furloughed after the 30 June 2020.This appears to also mean that someone who was previously furloughed but by the 10th June is no longer furloughed, cannot be furloughed again in future months.
- If you have staff who you need now but can’t provide with work after June then you will need to furlough them before 10 June, so included on the June payroll run as furloughed and on the July application for the Furlough Grant, in order to keep them furloughed in August, September and October.
- The period an employee has to remain on furlough is relaxed from 1st July although precise details are yet to be given. This means that from 1st July it appears that employees no longer have to remain on furlough for three continuous weeks and can now alternate between furlough and productive work more frequently. The example given was someone being furloughed for 3 days out of 5 being acceptable but Mr Sunak didn’t confirm how this would impact further furlough payments after the initial return to work. I would recommend waiting until HMRC guidance is released and analysed for before making detailed plans utilising this flexibility.
Increased cost to employers due to reduced furlough grant funding
- From August: The Grant will not cover the Employers National insurance or Employers Pension costs (this would have got very complicated had they not removed this). This means each furloughed member of staff being paid the cap of £2,500 on furlough will now cost the business Employers National Insurance of £244 and Pension of £60.
- In September: HMRC will reduce the grant to employers, meaning that they will effectively pay 87.5% of the gross pay a furloughed member of staff is paid. Someone being paid the maximum of £2,500 in a month would therefore result in an HMRC grant of £2,187.50, the employer being left to fund the remaining £312.50 plus National Insurance of £244 and Pension of £60.How it was announced: HMRC will pay 70% of an employees’ average earnings. As the Furlough covers 80% of average earnings this means HMRC pay 70% of the full pay, the employer pays 10% of the full pay.I feel this is slightly confusing way to explain it, so in real terms, to help you budget for this it is effectively that the grant will cover 87.5% of the amount you are paying a furloughed member of staff.
- In October: HMRC will then only fund 75% of the amount being paid to a furloughed member of staff. So an employee being paid the cap of £2,500 HMRC will fund £1,875, and the employer will have to fund the remaining £625 plus National Insurance of £244 and Pension of £60.Again, the announcement said HMRC will pay 60% of an employee’s average earning leaving the employer to pay 20%, so in real terms, this effectively means that the grant will cover 75% of the amount you are paying a furloughed member of staff.Confusing when there are so many percentages of percentages flying around in an announcement!
Redundancies and furlough
There were no announcements about whether any restrictions are placed on using the Furlough Grant for staff that are on a redundancy notice. From discussions with legal experts, this remains a viable option, provided where a furloughed member of staff is within their redundancy notice period.
Industry specific items to note
There were no details given about any industry specific extensions, exclusions or higher funding. Business in hospitality were given no additional leeway.
What are your options? For each employee you are ultimately left with four options:
- Return staff member to work
- Return to work under reduced hours*
- Switch staff to being “laid off”*
- Make staff redundant
*beware that staff on reduced hours or laid off for four continuous weeks or six out of thirteen weeks can apply for redundancy
The coming weeks will be an important time to talk to us to review the management information you have to build some basic forecasts or plans to know what staffing levels you are likely to need over the summer
You may also benefit from talking to Donna, our head of HR, who can help with contractual and legal issues surrounding bringing staff back on reduced hours or the scarier options of layoffs and redundancies. Email her at email@example.com or call 01474 853 856.
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Josh Curties BA (Hons) ACA | Partner & Principal Advisor | 01474 853856
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