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The Furlough Scheme - Part Two

View profile for Desley Sherwin
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On Friday 29 May 2020, the Chancellor released details of how the Coronavirus Job Retention Scheme will change in the coming months to try to get people back to work as lockdown restrictions are starting to be lifted.  Everyone knew that the proposal would allow furloughed employees to be able to start doing some work part-time (rather than the current rule that they could not work for their employer at all) and would require employers to start to pay some of the wages for furloughed employees, but I think most of us were surprised by the more generous than expected withdrawal provisions which are designed to try to mitigate the possibility/probability of large-scale job losses.

Furloughed workers will continue to receive 80% of their pay up to £2,500 per month until 31 October 2020 – by which time some people may have been on furlough leave for up to eight months -  but will be allowed to return to work part-time from 1 July 2020 without being penalised financially.

Workers can still be placed on furlough leave by agreement up to 10 June 2020. Anyone not placed on furlough leave after that date will not be able to take part in the furlough scheme.

The concern is that this imminent date may result in a new rush to furlough some employees, so that employers can benefit from the CJRS and, in particular, the ‘flexible furlough’ arrangements that are being introduced from 1 July.

Grants for freelance workers and the self-employed will be similarly extended – see below.

As time goes on, employers’ contributions to the CJRS scheme will increase, so that the contribution by the Government will be tapered:

From 1 July 2020 (a month earlier than previously suggested), workers will be allowed to return to work part-time.

Employer and employee will between themselves work out what hours and shift patterns will be worked, taking into account that staggered start and finish times will become the new norm for some businesses so as to allow a safe return to the workplace.

The employer will be responsible for paying 100% of the employee’s wage for the part-time work undertaken, with furlough pay being paid as before for the rest of the week when on furlough leave.

For example, if employee A returns to work two days per week, employer B will pay 100% x 2/5 of A’s full-time wage; the Government will pay 80% x 3/5 of A’s wage (calculated at no more than £2,500 per month).

My concern is whether employers will have any or sufficient cash reserves to pay staff to work whilst they wait for revenue to be generated.  They may even have to ask employees to agree to defer receipt of some or all of the non-furlough payment until that revenue starts to come in, which may put employees in a difficult financial position.

The only alternative may be for redundancies to take place notwithstanding the extension of the scheme, especially in those sectors that have been hit hardest by the pandemic, including leisure, tourism and hospitality.

Also, will employers abide by the rule that whilst the employee is on furlough leave, they must not do work for that employer? If an employee works, say, Monday and Tuesday, then is on furlough leave Wednesday, Thursday and Friday, is the employer going to expect those who perhaps can do some work from home to do work during those non-working days?

Additionally, I suspect that, on returning to work, many people will be asked immediately to take a pay cut, so that the employer will be paying 100% of hours worked, but not at 100% of the employee’s pre-furlough pay.

Inevitably there will be some people who are not ready to return to work even on a part-time basis due to them being afraid for their safety, or vulnerable, or caring for someone who is shielding. Employers and employees should have grown up discussions to identify a solution – whether allowing the employee to stay on full furlough, or making arrangements where possible for them to work from home, or take paid leave, or possibly even being signed off sick. Employers should consider the sector-specific guidance or take advice.

From 1 August 2020, the Government will continue to pay 80% of an employee’s furlough pay up to £2,500 but the employer will now have to pay national insurance and employer pension contributions on those sums.

From 1 September 2020, the Government will repay 70% of an employee’s furlough pay up to £2,190 per month, with the employer paying the other 10% and all of the NI/pension contributions.

From 1 October 2020, the Government’s contribution will reduce to paying 60% of furlough pay up to £1,875 per month, and the employer will pay the other 20% and all of the NI/pension contributions.

I have read a suggestion that some employers may seek to agree with the employee that the employee will waive the extra 10% or 20% that the employer is required to pay - I suspect that this will be expressly forbidden when the full rules are published.

Will the scheme be extended beyond 31 October 2020?

Watch this space – but on the basis that it has already been eye-wateringly expensive for the Treasury, the general consensus is almost certainly not.

Surely there is no way of avoiding mass redundancies?

No, I think they are inevitable. However, the Financial Times has reported that the Chancellor is looking to implement a £100 billion job creation scheme focussed on infrastructure and green energy sectors to offset some of those almost inevitable redundancies.

What about the self-employed?

The Self-Employment Income Support Scheme is also being extended for a further three months (so is not quite as generous as the employee furlough arrangements under the CJRS).

If a business is eligible and wants to claim a grant, they must make a claim on or before 13 July 2020.

A second and final grant can be claimed in August 2020.

The first grant is worth 80% of average monthly trading profits, paid out in a single instalment covering three months’ worth of profits, and capped at £7,500 in total. The second and final grant will be a taxable grant worth 70% of average monthly trading profits, paid out in a single instalment covering a further three months’ worth of profits, and capped at £6,570 in total.

These measures are really quite extraordinary. Further guidance as to their precise extent will be provided when the formal details are published in the next few weeks.