Flexi-Furlough Get ready for changes to the Job Retention Scheme

On 29 May 2020, the Chancellor announced changes to the Job Retention Scheme (JRS) or furlough leave scheme. We knew that there were changes planned – we had already been warned when the JRS was extended until the end of October 2020, that employers would be expected to contribute to the costs of the scheme as it ran through to October. However, after reading media reports all last week that employers would need to contribute 20% of 80% pay for those employees on furlough leave, the announcement from the Chancellor last Friday perhaps came as a surprise. Let’s put the JRS in context. According to government figures, as of midnight on 24 May 2020, the JRS is supporting 1 million employers and around 8.4 million employees. The total cost of the JRS until 24 May 2020 is £15 billion.

What changes can employers expect until the JRS ceases as of 31 October 2020:

Flexi furlough - From 1 July 2020

From 1 July, employers will be able to bring furloughed employees back to work on a part time or shift basis, whilst still maintain some access to the JRS. Government feel this will help employers as they “dip their toe” in to reopening as some businesses may find it a little stop-start to begin with. This will allow them the opportunity to gradually bring employees back to work rather than make job cuts at this stage. Hours can vary from week to week for those who are brought back. 

The process appears a little complicated and will depend on employers keeping records of what the employee is contracted to work and what hours they did in fact work over the particular JRS claim reference period – these will also need to be reported to HMRC. However, in essence, employers and furloughed employees can agree - in writing – that the employee will return and do some work which will be less than their normal contractual working hours, whilst still be on furlough. Whilst the furloughed employee is working, they are to be paid their normal contractual pay (e.g. 100%) by the employer plus the employer will be responsible for paying NICs etc. due on those amounts for hours worked. However, for any hours the employee is not working, calculated against their normal weekly hours, employers will be able to claim the furlough grant (presumably up to 80% of what’s left), plus the corresponding employer NICs, auto enrolment pension contributions for July – although this will change from August. 

Guidance is expected by 12 June 2020 on the new flex-furlough scheme so watch this space. What we have at this stage is a factsheet - https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/888764/Factsheet_for_SEISS_and_CJRS_schemes.pdf.
However, it would seem that employers will need to have in place a system where they can accurately record hours being worked (and not). At first glance, as well as time recording practicalities, there are issues if employers have introduced a pay cut for existing workers – should returning furloughed workers return on pre-furlough pay or the new reduced pay? We know that in the current version of the HMRC guidance if an employee has previously agreed a pay cut, they cannot be furloughed but this rule will have to change if pay cuts are allowed. It is difficult to see how returning furloughed workers could be paid more than non-furloughed workers. Also, if pay cuts are allowed, what amounts do employers then claim back via the JRS in respect of hours not worked – pre furlough pay for hours not worked or the new reduced pay for hours not worked? So pay cuts and what can be claimed back is unclear.

The £2,500 monthly wage cap is then applied proportionally to the JRS grant for non-working hours. So if the employee is working 50:50, the grant cap would be reduced by 50%. Also when working employees could be entitled to be paid differently than whilst on furlough as the definition of “wages” under the JRS is different to what the employee is usually paid so again, something to consider here too.

Flexi-furlough will continue until the end of the JRS subject to differing caps/grant access/funding as set out below from August 2020.

JRS Scheme is closing to new entrants from 30 June 2020 (put on furlough leave from 10 June 2020!)

Another date – 30 June. The JRS will close to new claimants from 30 June 2020. But, because furlough leave must be for a minimum of 3 weeks, this means that any new entrants must be placed on furlough leave and agree furlough leave/reduction in pay in writing by 10 June. Employers will have until 31st July to make any claims in respect of the period to 30 June. Employers will have until 31 July to make claims for the period up to 30 June.

One point to note, the accompanying factsheet does say that 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.  This might mean that there is an overall limit on the numbers of employees an employer can claim for so employers might need to review their workforces and perhaps this means some workers will have to return to work and come off of furlough before others can join.  Something to watch out for in accompanying guidance. 

Phasing out furlough… From August 2020

From August 2020, the level of the JRS will start to taper. The government have said this tapering will correspond with a return to work of furloughed staff. For June and July 2020, the government will continue to fund 80% of wages (save for any employees who are working flexi-furlough from 1 July 2020).

However, from 1 August, things will start to change – not as dramatically as first feared – but an increase in cost to businesses nonetheless. The tapering will work as follows:

• From August: the government will pay 80% of wages of furloughed staff capped at £2,500 - employers will have to pay employer NICs and pension contributions for the hours the employee does not work
• From September: the government will pay 70% of wages up to a cap of £2,187.50 for the hours the employee does not work - employers will pay 10% of wages (up to £312.50 per furloughed worker) to make up 80% total up to a cap of £2,500* plus employer NICs and pension contributions for hours not worked
• From October: the government will pay 60% of wages up to a cap of £1,875 for the hours the employee does not work - employers will pay 20% of wages (up to £625 per furloughed worker) to make up 80% total up to a cap of £2,500* pay employer NICs and pension contributions for hours not worked

* In all access, the cap will be reduced to the proportion of the hours not worked. 

This graphic appears on HMRC

Employers are still able to top up furlough pay to 100% at their own expenses; however, some may now want to change the terms if the scheme is continuing for workers until 31 October 2020 (but remember you will need to write to employees to inform them).

What should employers be doing?

• If your business still needs to place employees and other qualifying workers on furlough leave and claim under the JRS, then you will need to do so quickly to avoid missing the cut off.
• Revisit your furlough leave letters – do these need to be updated?
• What does bringing furloughed workers back look like? What would it mean to your business? Do you have the work to be able to sustain a return?
• Would a 3-week rotation be better? 
• How are businesses going to decide which employees to bring back – think carefully about selection particularly where employees are vulnerable or who have other responsibilities as schools remain for the most part closed.

As with the JRS, we await guidance; however, I can foresee some difficult calculations will need to be done!