Fretting about flexible furlough?

With this in mind, here we try and help those employers make sense of the basics of flexible furlough (and in the process, hopefully tell you what you need to know!)

What has changed about the furlough scheme?

Flexible furlough starts from 1 July onwards. Under the flexible furloughing system:

• employees will be allowed to work part-time for their employer from July
• employers will be asked to bear some of the costs associated with the Job Retention Scheme (JRS) from August

The amount an employee works from July can be decided by the employer to suit their needs – it may be that you don't want them to work at all, which is fine. Employers will pay the wages for the time employees are in work and can apply for a JRS grant to cover the rest of the 'furloughed' time.

From 1 August 2020, the level of grant available to cover any 'furloughed' time will be reduced each month as follows:

	August	September	October
Government contribution: employer NICs and pension contributions	No	No	No
Government contribution: wages	80% up to £2,500	70% up to £2,187.50	60% up to £1,875
Employer contribution: employer NICs and pension contributions	Yes	Yes	Yes
Employer contribution: wages	–	10% up to £312.50	20% up to £625
Employee receives	80% up to £2,500 per month	80% up to £2,500 per month	80% up to £2,500 per month

You can only consider an employee as eligible to be covered under the flexible furlough system if they have been previously furloughed, as at 30 June 2020, at least once, for a minimum of three weeks. A more detailed description of the eligibility conditions is given in our previous article Flexible furloughing: what is it and why is 10 June important?.

Where can I find HMRC's guidance on flexible furlough?

Rather than have a separate and distinct suite of guidance covering flexible furlough, information about how flexible furlough works has mostly been weaved into the existing guidance, which makes it hard to find and follow.

As a result, there is now huge a collection of guidance on the Job Retention Scheme available on GOV.UK.

The pages that contain mostly new, or completely new information about flexible furlough are:

• Steps to take before calculating your claim using the CJRS: decide the length of your claim period, find out what to include when calculating wages and work out your employees’ usual and furloughed hours before you calculate how much you can claim.
   
• Calculate how much you should claim: calculate how much you have to pay your furloughed employees for hours on furlough, how much you can claim for employer NICs and pension contributions and how much you can claim back.
   
• Worked examples: including an example showing the full sequence of steps involved in a calculation of the amount you should claim for an employee who is flexibly furloughed.

The underlying scheme rules are contained in a new, comprehensive, Treasury Direction (dated 25 June 2020), which can be found here.

Key changes under the flexible furlough rules

(a) furlough period

From 1 July 2020, the requirement for an employee to be furloughed for at least three weeks to be eligible for inclusion in a JRS grant claim has been removed. There is now no minimum period of furlough, although the three week minimum period subsists for those placed on furlough before 1 July (even if it then carries into July).

As an example, if a weekly paid employee is furloughed say, for a second time, on 15th June 2020 (having been previously furloughed for the period 30 March 2020 to 7 June 2020), then they will still have to complete a minimum three week period of furlough, before flexible furlough can begin. If they return to full time work on say 6 July for a week but are then furloughed again from 13 July, they can be included in their employer's JRS claim covering 13 July, regardless of how long the third period of furlough lasts.

(b) claim period

The period covered by a JRS claim must be at least one week (unless it is at the beginning or end of a calendar month) and must not combine periods from different calendar months.

In the example above, the period from 15th to 30th June will have to be claimed under the 'old' scheme rules (and by 31 July at the latest) and the period 1 July to 5 July will have to be claimed under the new scheme rules – either in a period on its own, or added to the claim the employer will make for the week 6 July to 12 July 2020.

(c) ability to work

To date, employees that were placed on furlough could not undertake any work at all. Under flexible furlough, employees can work on a part-time basis. The government will continue to pay 80% of furloughed employees wages for any of their usual hours they do not work (remembering the monthly cap of £2,500), up until the end of August (although not the Employers NIC or auto enrolment pension contributions for August). We will look at the funding changes in more detail in a future article.

(d) monthly cap for claims

Under the new scheme, the £2,500 monthly cap is proportional to the usual hours not worked, so, for example, consider an employee with monthly wages of £3,750 returning to work part time for 80 hours out of their usual monthly hours of 164 in July. As 80% of their usual wages is £3,000 a month then on first glance you might think that the amount of pay that can be claimed for the hours NOT worked is £3,000 x 84/164 = £1,536 (allowed as it is below the monthly cap of £2,500). But the cap on the amount of grant available is £2,500 x 84/164 = £1,280.48. So, the maximum claim isn’t £1,536 but £1,280.48.

How do I calculate usual hours?

Employers will be required to pay the worker’s normal wages for any hours worked during flexible furlough. A JRS grant can be claimed for any of the worker's 'usual' hours not worked (up to the cap mentioned above). Calculating the employee’s usual working hours, is without doubt, is one of the most tricky aspects of the flexible furlough system so don’t worry if you feel lost or find yourself have to read things several times.

Put simply, there are two different calculations you can use to work out your employees usual hours, depending on whether they work fixed or variable hours. There are specific rules to help you work out which category your employee falls into, but in reality it will probably transpire that those that you treated as fixed or variable for the purposes of calculating furlough pay will be those that you treat as fixed or variable for the purposes of calculating their usual hours.

To calculate the usual working hours for those with fixed hours/pay, you take the number of hours your employee was contracted for in the last full pay period on or before 19 March 2020 as your starting point. 

So, looking again at the example of Charlotte (from our previous article), someone who goes back to work 2 out of 5 days a week, it is (sadly) not a simple case of looking at her workdays and just saying she is working 40% of her time and furloughed for 60% of her time.

Instead, you have to work in hours and calendar days. Assuming Charlotte's employer is claiming for the month 1 July to 31 July, you have to go through the following steps (it is a bit like doing your tax exams!):

1. Start with the number of hours the employee was contracted for at the end of the last pay period ending on or before 19 March 2020 – let's say it is 40 per week for Charlotte (even though she is paid monthly)
2. Divide by 7 (the number of days in the repeating working pattern, including non-working days)
3. Multiply by 31 (the number of calendar days in the pay period (or partial pay period) the employer is claiming for) = 177.14
4. Round up to the next whole number if the outcome isn’t a whole number = 178

Charlotte goes back to work every Monday and Tuesday in July – 8 hours a day, or 16 hours a week.

There are four Mondays and four Tuesdays in July, so she works 64/178 hours in July. This means the hours she doesn’t work in July are 114/178.

This works out as 64% because of the way the days fall in July, rather than the 60% you might expect. (Although it is worth saying that in August and September, it would work out as 106/178 (so 59%) and 100/172 (so 58%) so it pretty much all evens out in the end!)

To calculate the usual working hours for those with variable pay, you take the higher of (a) the average number of hours worked in the tax year 2019 to 2020 or (b) the corresponding calendar period in the tax year 2019 to 2020.

On the basis that most people will make their JRS claims on a pay period by pay period basis, when thinking about (b) be aware that the only real time you are going to get pay periods that absolutely correspond with pay periods in 2019/20 is when you pay your workers calendar monthly. Otherwise, the pay period you are now claiming for will likely span more than one pay period in 2019/20, and you will need to add together pro-rated amounts of hours from both of them. For example if your employee is usually paid weekly on the basis of Monday to Sunday and you are claiming for the week of 6 to 12 July 2020, then you will need to add together 2/7 of the hours worked from week 1 to 7 July 2019 and 5/7 of the hours worked in the week 8 to 14 July 2020 to arrive at a figure to feed into the 'usual' hours calculation for 6 to 12 July 2020.

HMRC say that it should be fairly easy to work out usual hours for variably paid employees because from April 19, employers have had to record hours on payslips.

Realistically, we know that there will be employers who have not recorded hours on payslips (for example, some users of Basic PAYE Tools, which until recently did not produce a payslip, so did not have the facility to record hours).

In these cases you should try to recreate the number of hours your employee worked from other records. So, for example, if your payroll records show your employee’s gross pay in the week commencing 16 November 2019 was £248, and at the same time, you know his pay rate was £8 an hour, you would be able to work out that he worked 31 hours that week (£248/8).

If all else fails, you may have to use a reasonable estimate if you can’t establish usual hours any other way, which hopefully HMRC would accept. You should keep a record of how you have worked out the average number of hours and any assumptions you have had to make so you can explain your calculations to HMRC if necessary in due course.

Where can I get help with flexible furloughing?

If you have questions, HMRC are asking that you don't phone them but instead join a webinar – in which HMRC will take you through the changes, flexible furloughing in simple terms, claim periods and key dates.

You can ask questions using the on-screen text box. But a warning – the questions come in fast and furiously and in their efforts to answer them all, often the replies to the questions from HMRC are just extracts from the guidance already available on GOV.UK.

As such, we suggest if you have any important questions, try the web chat instead (remembering to keep a copy of any guidance given via web chat).

In recognition of the difficult position that low income, small, unrepresented employers may find themselves in, TaxAid the tax charity have set up a helpline where you can ask a qualified, professional tax adviser for specific advice. You should call their main helpline on 0345 120 3779 and choose option 1 ‘need help accessing government support as a result of coronavirus’. Your details will be taken and a call back will be offered the following day to discuss the help you need.

What if I just can’t face flexible furloughing?

Before you get too concerned with flexible furloughing and how you might make it work, please remember the following:

• Consider carefully if you need any employees to come back to work – remember employees can still be kept on full furlough if needed and you will not need to contribute to the cost of this until August at the earliest.
   
• If you have work for some staff but not enough work for all, it is still possible to rotate employees in and out of periods of full work/full furlough, which means you could avoid having to do the usual hours calculations.
   
• Not only is the furloughing scheme becoming more complex but it is becoming more costly (although 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 until September) - it may be that redundancy is an option you are now forced to consider.
   
• Further information on redundancy can be found on GOV.UK and ACAS have produced an advisory booklet called Redundancy Handling that is available from their website. We have some guidance on the payments that might be made in a redundancy situation – although this is aimed at employees, employers may find it useful too.