Flexible furloughing: what is it and why is 10 June important?
There have been two major changes announced to the government’s Coronavirus Job Retention Scheme (CJRS), which is also sometimes called the furlough scheme. Here, we clarify what has been announced and highlight the 10 June as an extremely important date for employers.
The Chancellor has announced plans to:
- ask employers to bear some of the costs associated with the CJRS from August so that they can begin to reduce government support,
- introduce flexibility within the scheme to allow employees to work part-time for their employer from July (but still qualify for furlough pay for time when they are not working).
Here is our summary of the position for both employees and employers, month by month, following these changes.
This is the last month where CJRS rules continue unaffected by the new announcements.
Furloughed staff are not allowed to do any work for their employer in June while on furlough leave. Given some workplaces have been given the green light to open in June, if employers need some of their furloughed staff to work on a part-time basis they will have to take them off of furlough (observing the employment law formalities) and pay their wages for work done, with no government subsidy for the time when the employees are not working.
From the employee's perspective, going back to work on reduced hours means they may receive less money than they would under the furlough scheme. One option to explore to top up a workers earnings in this situation, may be for them to be paid some of their holiday pay (which should have continued to accrue during furlough).
Employers can put the employees back on furlough in July (assuming they want them to continue to only work part time) so they can claim the subsidy to supplement their employees' wages for the time not worked, although this will mean more employment law formalities.
Until the end of June, employers can claim for 80% of furloughed employees’ wages, up to a cap of £2,500 a month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that wage.
⚠️ Employers need to ensure they have furloughed everyone they might want to flexibly furlough from July by 10 June 2020 – bearing in mind that no flexible furlough claim can contain more employees than any claim up to and including 30 June 2020 – see below for more information. Furthermore 30 June 2020 sees the end of the 'old' furlough rules so employers need to make their claims for any period up to 30 June 2020 by 31 July 2020.
Start of 'flexible' furloughing – CJRS claims from July onwards will be restricted so that they can only include previously furloughed employees.
If employees are unable to return to work, or employers do not have work for them to do, they can remain on 'full' furlough as previously. However employers will be able to bring furloughed employees back to work part-time (again, ensuring the relevant employment law formalities are met) and still claim a grant for furlough pay in respect of the employees for any time they would normally work but can’t.
Employers will have to pay employees for any hours they work – taking into account the changes to the minimum wage, where relevant.
The government will pay 80% of wages up to the cap of £2,500 - as well as Employer National Insurance and pension contributions - for the hours the employee doesn’t work.
What this means is that wages will be capped at £2,500 for those on full furlough. For those who are part time working and part time on furlough, the cap on wages will be proportional to the hours not worked. For example, if the employee is working 10% of their usual hours, we expect that the cap will be 90% of £2,500, so £2,250.
Employers will be required to submit data on the 'usual hours' an employee would be expected to work in a claim period and actual hours worked. It is unclear how employers are expected to arrive at 'usual hours' for workers who do not have usual working patterns. The government has promised to release more guidance on 12 June, so this may contain some answers.
From July, claim periods will be a minimum of a week long. They can be longer, but cannot go into the next calendar month (as from hereon in, the rules change each calendar month). So, for someone paid each month, say on the 15th – who is on furlough under the old scheme and then carries over into the new scheme, their employer will probably need to make several claims for the next few pay periods, as follows:
|15 to 30 June||for pay period to 15 July|
|1 to 15 July|
|16 to 31 July||for pay period to 15 August|
|1 to 15 August|
As July, but although the government will continue to pay 80% of wages (subject to a cap as explained above), employers will have to pay Employer National Insurance and pension contributions. Many smaller employers have some or all of their employer NIC bills covered by the Employment Allowance so they may not see a significant change to their costs in August.
As August but the government will pay 70% of wages not 80%, up to a similarly reduced cap of £2,187.50 (pro rata) for the hours the employee does not work. Employers will pay Employer National Insurance, pension contributions and 10% of wages to make up 80% total up to a cap of £2,500 (pro rata).
As September but the government will pay 60% of wages up to a cap of £1,875 (pro rata) for the hours the employee does not work. Employers will pay Employer National Insurance, pension contributions and 20% of wages to make up 80% total up to a cap of £2,500 (pro rata).
⚠️ Important dates
It’s important to note that the furlough scheme will close to new entrants from 30 June. From this point onwards, employers will only be able to furlough employees that they have furloughed for a full three-week period before 30 June. Therefore a furlough period for any employee who has not previously been furloughed will have to begin by 10 June in order for the three-week minimum furlough period to be completed by 30 June.
If a member of staff has been furloughed for three weeks at any point between 1st March and 30 June, they do not have to be furloughed in the period 10 June to 30 June to be able to be included in future claims under the new rules.
However, there is another reason that you might need to furlough these staff in this period. This is to do with the fact that under the new rules from 1 July, no claim can contain more employees than any claim up to and including 30 June 2020.
So if employers, who have had some work but not had enough work for everyone, have only furloughed, say, 3 out of 5 staff at any one time to date, but now want to bring everyone back to work on part time hours from July, they will need to furlough the other two staff by 10 June 2020 so that all 5 staff are on furlough at the same time. If they don’t do that, then they will only be able to claim for a maximum of 3 staff under flexible furloughing, even though all 5 of them had been furloughed at some point previously.
This may or may not be commercially viable as it could leave them without any staff members at all for a period, but we understand the government's rationale here is to try and ensure that flexible furloughing is not used in respect of staff who haven’t already needed to be furloughed to help their employers get through the coronavirus crisis.
At present, the full guidance and official Treasury direction setting out the scheme has not been published. The calculations, particularly for September and October calculations, will be complex. But we assume (using a simple case!) that it will go something like this:
Charlotte is the only employee of a small travel agent. She works full time on a salary of £24,000. She has been furloughed since April and in the period April to July, her employer has claimed a Job Retention Scheme grant of 80% of the usual monthly salary of £2,000 (so £1,600). There are no employer NIC or Auto Enrolment costs on top, due to the Employment Allowance and the fact that Charlotte has opted out of the pension scheme.
From 1 August 2020, she starts working 2 days a week. Her employer pays her £800 a month, in respect of the 2 days a week she works (£2,000 x 2/5). In August, her employer claims £960 under the Job Retention Scheme (£1,600 x 3/5) for the days she doesn’t work, being less than the cap of £1,500 (£2,500 x 3/5). Her total pay for August is therefore £1,760.
In September, her total pay will still be £1,760, but this will be made up of £920 from her employer's pocket and £840 from the government's pocket (70% of usual monthly salary of £2,000 x 3/5 days not worked) being less than the cap of £1,312.50 (£2,187.50 x 3/5)
The contribution of £920 from her employer, comprises the £800 a month for the two days she is working and then £120 towards the 3 days she is not working (10% of £2,000 x 3/5) to make up the 80% furlough pay. The total furlough pay of £960 is less than the overall cap of £1,500 (£2,500 x 3/5).
In October, her total pay will still be £1,760, but this will be made up of £1,040 from her employer's pocket and £720 from the government's pocket (60% of usual monthly salary of £2,000 x 3/5 days not worked) being less than the cap of £1,125 (£1,875 x 3/5)
The contribution of £1,040 from her employer, comprises the £800 a month for the two days she is working and then £240 towards the 3 days she is not working (20% of £2,000 x 3/5) to make up the 80% furlough pay. The total furlough pay of £960 is less than the overall cap of £1,500 (£2,500 x 3/5).
⚠️ NOTE: This article is based on the initial information published by the Government about the changes. We are waiting for the full guidance and Treasury Direction to be published. We intend for this article to give an outline of the changes, but the rules are complex and employers should ensure they read the detailed guidance and new scheme rules before making any decisions.
Contact: Meredith McCammon (click here to Contact Us)
(First published: 05-06-2020)