Flexible furlough is available form 1 July, enabling furloughed workers to return to work on a flexible part time basis.
Up until the JRS (job retention scheme) closes on 31 October, these employees will be entitled to receive:
· Their full contractual pay in relation to any part-time hours worked; and
· 80 percent of their reference salary (capped at £2,500 per month pro rata) in respect of their non-working time/on furlough leave.
- from 1 August 2020 employers will no longer be able to claim the JRS grant in respect of any employer’s NIC and pension contributions. The Company will be liable to pay these.
- Employers must still pay employees at least 80 percent of their reference pay subject to a cap of £2,500 per month pro rata in respect of non-working hours on furlough leave:
- From 1 September the JRS grant will fall to 70 percent of reference salary (subject to a monthly cap of £2,187.50, which will reduce in proportion to any part-time hours worked/paid); and
- From 1 October the JRS grant will further reduce to 60 percent of reference salary (subject to a monthly cap of £1,875, which will again reduce in proportion to any part-time hours worked/paid).
Employers will therefore bear an increasing portion of pay for their furloughed workers’ non-working hours.
Where the employer agreed to make any discretionary ‘top up’ payments (above 80%) to furloughed workers, the cost of these payments – and the associated employer’s NIC and pension contributions – will be borne by the employer as at present.
What are the practical implications?
The flexibility in the new JRS, creates further complexity.
Employee eligibility and flexible furlough
Employees must have been furloughed for at least three weeks prior to 1 July in order to participate in the new scheme, if an employer intends a worker who has not previously been on furlough to be eligible for the JRS after 30 June, that employee must be furloughed for the first time by 10 June at the latest.
This will require careful planning and quick adjustments, and will mean that important decisions which affect individuals’ ongoing eligibility for the scheme must be made beforeHMRC’s guidance is published on 12 June.
Employers must also enter into new written furlough agreements with employees who are to work on a part time basis whilst furloughed. Please let me know if you need a template for this. This must be done in accordance with existing employment law.
In developing flexible furlough plans, employers should ensure their criteria for selecting which furloughed workers will return to work part time – and what hours they work – are fair, reasonable and objective and neither directly, nor indirectly, discriminatory.
Be aware, returning to work part time might potentially leave some employees at a financial disadvantage. This could be the case where, for example, historical overtime forms a significant part of the reference pay on which furlough payments are based, but similar levels of overtime are not currently available. Cases like this will require careful handling and sensitive employee communications.
Calculating and submitting claims
Claims under the new JRS can be submitted from 1 July, and the last claims under the existing scheme must be submitted by 31 July.
When submitting claims in respect of an employee on flexible furlough, the employer will be required to include information on actual hours worked, as well as the usual hours that the employee would have been expected to work under their contract in the relevant claim period. This information will feed into the calculation of the maximum JRS grant. We expect that the 12 June guidance will deal with the calculation of those hours which, for those with irregular hours, may be quite complex.
A minimum claim period of one week will apply under the new JRS, though claims can still be submitted in respect of longer periods. However, claim periods will no longer be able to overlap calendar months.
Importantly, from 1 July the number of employees included in a claim cannot exceed the highest number of employees included in a claim submitted under the current scheme.
When will the details be available?
As noted above, HMRC is expected to publish further guidance on 12 June which addresses flexible furlough
Updates to HMRC’s guidance
HMRC also published several updates to their JRS guidance on 14 May 2020.
- Clarification that claims cannot be submitted more than 14 days before the end of the relevant claim period;
- Confirmation that participating employers must retain their relevant records for six years for possible HMRC review; and
- Guidance on what overtime payments and other ‘non-discretionary payments’ can be included in JRS reference pay.
This last point is an important clarification, as previously it was uncertain what constituted ‘non-discretionary overtime’, which should be included when calculating furloughed workers’ minimum salary payments and the associated JRS grants. HMRC’s guidance now confirms that, overtime payments can be included where the employer was contractually obliged to pay the employee at a set and defined rate for the overtime worked (rather than where the employer was contractually obliged to offer the overtime on a voluntary basis).
The updated guidance also confirms that other contractually enforceable variable payments (e.g. shift allowances) should be included in reference pay.
The treatment of overtime, allowances and similar payments requires careful consideration, and employers should assess the basis on which they calculate their JRS claims in light of this updated guidance. Employers should also consider whether any amendments to past claims might be required once HMRC have introduced this functionality into their JRS portal.
What should employers do?
Extension of the JRS is clearly welcome, and employers will urgently need to consider how the support available affects decisions in relation to managing its workforce.
In particular, if it is indeed the case that employees can only be furloughed over August to October if they were on furlough at the end of July, employers will need to assess the extent to which they might require support from the JRS over the coming five to six months, and plan which employees to furlough – and when – accordingly. This work will need to be undertaken in the coming weeks in order to put plans into action in when the new scheme rules come into force.
Other practical steps that employers who do or might participate in the JRS can take now include:
- Reviewing existing agreements with employees – do existing agreements with employees need to be revised to allow the possibility of furlough continuing into July and beyond? The template sent through previously if the current terms have not changed.
- Getting people back to work – what staffing requirements are forecast from now until the end of October, and is it appropriate to bring furloughed workers back into the business on a full or part time basis?
- Thinking about workforce requirements – does the extension of the JRS affect any planned headcount reductions? Consider implications if the ongoing costs cannot be covered by the company; Do you need to consider restructuring, reducing headcount, commencing redundancy consultations.
- Modelling different levels of employer contributions – what level of subsidy can the business afford? If discretionary payments are currently made over and above furloughed workers’ minimum entitlements, could this continue or should the position be renegotiated to 80%.
- Checking claims – for many employers, calculating their current JRS claims is not straightforward, with common difficulties including:
- Establishing the correct components of furloughed workers’ reference pay (in particular, employers should review past claims in light of HMRC’s recently updated guidance);
- Identifying ‘fixed’ or ‘variable’ rate employees in order to calculate the grant correctly (‘fixed’ rate employees are defined in a similar way to ‘salaried’ workers for National Minimum Wage purposes, which is not always easy to apply in practice); and
- Making deductions from payments to employees (furloughed workers must receive their entire minimum furlough payment in cash, and any deductions made by the employer must be carefully considered to ensure this condition is met).
- Reviewing JRS compliance – are processes and controls robust enough to withstand HMRC review, and can they cope with the additional complexities the prospective changes will introduce?
Please let me know how I can help support you through this challenging time.