From 1st July 2020, there are some significant changes being made to the Job Retention Scheme.
Here are the details….
Closing to new entrants
Firstly, and importantly, the JRS is closed to new entrants from 30th June.
More precisely, that means that, because of the minimum furlough period of 3 weeks, the final date by which an employer can furlough an employee for the first time is 10th June.
But don’t worry – if you’ve already furloughed your staff, your employees are not new entrants, so there’s no issue.
The government have announced flexible furlough, where employees can work fewer hours that their normal hours, and claim the remaining percentage through the JRS scheme.
For example, if an employee works 40% of the time, they’re paid normally by their employer, then can claim 60% of the JRS, i.e. 60% x 80% of the normal salary. This would be then capped at 60% of the £2,500 cap, being £1,500.
The way that this percentage is calculated is quite complex, and is covered below.
Claims up to 30th June
Any claims up to 30th June would have to be made by 31st July at the latest.
It also seems that claims up to 30th June would need to be made separately from claims for any periods after 30th June, when the legislation is changing.
Tapering down of the JRS
The government will reduce support provided through the JRS from August to October, and the scheme will then cease entirely from 31st October.
- In July, there will still be 80% of support up to the £2,500 cap, and the government will also cover employers NICs and employers pension contributions, just as is happening currently
- In August, the government will stop covering employers NICs and employers pension contributions, but will continue supporting 80% of the salary, up to £2,500.
- In September, the percentage supported will drop to 70% with a cap of £2,187.50, and still not cover NICs or pension contributions
- In October, the percentage supported will drop to 60% with a cap of £1,875, and still not cover NICs or pension contributions
Employers will therefore have to cover the shortfall between this reduced support and the 80% that employees need to receive.
Calculation of usual working hours and furlough hours
- If not working at all, you don’t have to work this out, as all hours are furlough hours, so you can claim 80% of the wage, as previously
- If your employees are flexibly furloughed, you’ll need to work out their usual hours. There are 2 different calculations for this, depending on whether they work fixed or variable hours, as shown below.
Fixed hours (i.e. pay doesn’t vary according to number of hours worked):
- For our example, let’s say that the employee is contracted to work 37 hours per week
- Start with the working hours your employee was contracted for at the end of the last pay period ending on or before 19th March (most likely for the month of Feb). So in our example, this would be 37
- Divide by number of days in ‘repeated working pattern’, including non-working days. In our example, this would be 7, as the employee is contracted to work 37 hours per week.
- Multiply by number of calendar days in the pay period. For July, this would be 31.
- Therefore, usual hours is (37 / 7) x 31 = 163.85.
- You then round up to the next whole number, so 164.
- Usual hours will be the higher of:
- the average number of hours worked in the tax year 2019/20
- the corresponding calendar period in the tax year 2019/20 (e.g. for July 2020, look at July 2019).
- You include any hours of leave for which the employee was paid their full contracted rate
- To calculate the first approach (average number of hours worked in the tax year 2019/20):
- Start with number of hours worked in 2019/20 tax year up to the earlier of the date the employee was furloughed and the end of the tax year
- Divide by number of calendar days the employee was employed by you in the tax year, up to the earlier of the date the employee was furloughed and the end of the tax year (so 366 if they were employed for the full tax year)
- Multiply by the number of calendar days in the pay period you’re claiming for (so for July, that would be 31)
- Round up to the next whole number
- To calculate the second approach (corresponding calendar period in the previous tax year (2019/20):
- If the pay period you are claiming for starts and ends on the same calendar days as the identified period in the 2019/20 tax year, use the number of hours they worked in that period (so if you’re claming for the full month of July 2020, use the number of hours worked in the full month of July 2019.
- If the pay period doesn’t start and end on the same calendar day, the calculation is a little more complex – get in touch with your CFO360 contact to find out more.
How does this impact directors?
The difficulty for directors is that they don’t have contracted hours (e.g. 37 hours per week).
However, we also predict that most directors will either be working full time, or fully furloughed.
For those that are working only part of the week, and therefore still flexibly furloughed, we are waiting until later in July to see if there is further HMRC guidance released.
Other points to note
To claim under the revised Job Retention Scheme (from 1st July) you need to have discussed and agreed with your employee that they have been furloughed. We’ve provided a template letter here. Note that this is a template only, and you need to ensure that it is compliant with HR law and your HR policies.