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COVID-19: Chancellor announces new "Job Support Scheme" to follow furlough scheme

  • Market Insight 25 September 2020 25 September 2020
  • UK & Europe

  • Coronavirus

The Chancellor Rishi Sunak has announced a new Job Support Scheme that will replace the furlough scheme when it ends on 31 October. The Job Support Scheme is designed to help protect "viable" jobs in businesses that are facing lower demand over the winter months due to COVID-19. The Scheme will enable employers to retain employees in employment but on reduced hours and pay, with the help of a government wage subsidy.

COVID-19: Chancellor announces new "Job Support Scheme" to follow furlough scheme

Under the scheme, employees will be required to work for at least a third of their normal hours, whether that be full time or part time hours. The employer will continue to pay the employee for the time worked, but the cost of hours not worked will be split between the employer, the Government (through wage support) and the employee (through a wage reduction); and the employee will keep their job.

The Government will pay a third of the hours not worked up to a cap of £697.92 a month, with the employer also contributing a third. The employer's contribution does not appear to be capped when the Government contribution is capped. This will mean employees earn a minimum of 77% of their normal pay, where the Government contribution has not been capped. If the Government contribution has been subject to the cap, this would, it appears, result in the employee receiving a lower percentage of their normal pay.

The Government has published a Factsheet about the Scheme. Here are the key details of what we know about the scheme so far:

What is the new Scheme?

The new Job Support Scheme is a type of wage subsidy scheme that aims to support employers affected by COVID-19 to bring people in viable jobs back to work following furlough or retain people in work who have not been furloughed, by agreeing with those employees that they will work fewer hours and accept a pay reduction.

This enables the employer to reduce its employment costs, both through the employee agreeing to accept reduced hours and pay temporarily, and the employer receiving a grant from the Government. The hope is that this means that employers will be able to keep more employees in employment whilst the COVID-19 pandemic is ongoing through the winter months. The Scheme offers employers an alternative to other measures that may be under consideration, such as redundancies.

When does it start?

The Scheme starts on 1 November 2020 - straight after the furlough scheme ends on 31 October - and will run for six months.

Which employers can benefit?

The new grant is open to all employers with a UK bank account and UK PAYE scheme. Neither the employer nor the employee needs to have previously used the furlough scheme to use the new Job Support Scheme.

All "small and medium-sized" employers can benefit from the Scheme.

Large employers can only use the scheme if they meet a financial assessment test. This will require that their turnover has fallen as a result of the COVID-19 pandemic. The Government's expectation is that large employers using the Job Support Scheme will not be making capital distributions (e.g. paying dividends or share buybacks) whilst using the Scheme. We await further details of precisely how the financial assessment test will work.

We anticipate that more detailed guidance on when employers qualify as small, medium or large will follow shortly. We anticipate that large employers may be defined as those that have 250 or more employees – in recent years this has been the benchmark applied in other new legislation - potentially coupled with exceeding a turnover / balance sheet threshold, but we await further guidance on this.

Which workers does it apply to?

Employees must be on the employer’s PAYE payroll on or before 23 September 2020 in order to qualify for the Scheme. This means a Real Time Information (RTI) submission notifying payment to that employee to HMRC must have been made on or before 23 September 2020.

Employees must also work a minimum of 33% of their normal hours for the first three months of the Scheme. After three months, the Government will consider whether to increase this minimum hours threshold.

The new Scheme is open to all employees that meet these criteria, even if they were not previously furloughed.

The intention is that employees will be able to move on and off the scheme and do not have to be working the same pattern each month, but each short-time working arrangement must cover a minimum period of seven days.

How does the Scheme work and how much is the grant?

As mentioned above, to be eligible for the grant employees must work a minimum of 33% of their normal hours. For the remaining hours not worked, the government and the employer pay a third of the employee's usual wages each. So employees working 33% of their hours will receive at least 77% of their pay, with 22% being funded by a Government grant and 55% being paid by the employer (where the Government contribution has not been capped). The Government contribution is capped at £697.92 a month.

Employers will be reimbursed in arrears for the Government’s contribution. The grant will not cover Class 1 employer NICs or pension contributions, although these contributions will remain payable by the employer.

Calculation of “usual wages” will follow a similar methodology as for the furlough scheme. More details will be set out in guidance expected to be published shortly. Usual pay for employees who have previously been furloughed will be based on their underlying usual pay and/or hours, not the amount they were paid whilst on furlough.

Employers must pay employees their contracted wages for hours worked, and the Government and employer contributions for hours not worked. The Factsheet says that the expectation is that employers cannot top up their employees’ wages above the two-thirds contribution to hours not worked at their own expense – which is very different from the furlough scheme.

It is not clear from the information currently available how the Scheme interacts with holiday or sickness absence. This may be clarified when further details about the Scheme are published.

What do employers have to do to claim under the scheme?

Employers wishing to claim the grant must agree new short-time working arrangements with their staff, make any changes to the employment contract by agreement, and notify the employee in writing. This agreement must be made available to HMRC on request. The intention is that employees will be informed by HMRC directly of the full details of the claim.

Employers will be able to make a claim online through Gov.uk from December 2020. The grant will be paid on a monthly basis. As grants under the Scheme will be paid in arrears, a claim can only be submitted for a given pay period after payment has been made to the employee and that payment has been reported to HMRC via an RTI return. Grants can only be used as reimbursement for wage costs actually incurred.

The Factsheet says that HMRC will check claims and that payments may be withheld or need to be paid back if a claim is found to be fraudulent or based on incorrect information.

Can an employee be given notice of redundancy or made redundant while they are being claimed for?

No. Employees cannot be made redundant or put on notice of redundancy during the period for which their employer is claiming a grant for them under the Scheme.

It is not clear what happens if the employee resigns or is dismissed for other reasons e.g. misconduct while on the Scheme. This may become clear when further details about the Scheme are published.

When does the scheme end?

The Scheme is set to end on 31 April 2021.

What does this mean for employers?

Whilst the new Scheme is less generous than the furlough scheme which comes to an end on 31 October, it does provide welcome further support for employers who are facing ongoing difficulties as a result of the COVID-19 pandemic. The Chancellor's hope is that the Scheme will enable employers to retain more jobs through the current crisis.

There are some limitations to the Scheme though. For example, it may not help save jobs in industries that are currently closed and have no work for employees to do. Clinically extremely vulnerable people who are not able to do their jobs from home but are also unable to go into the workplace to work may also not benefit under the Scheme. It is not clear what happens in the event of a local lockdown that prevents an employee who would otherwise qualify for this Scheme from working. It is also not clear whether the Scheme will incentivise training in any way, such as during the hours when the employee is not working but for which they are still being paid. We do not know as yet whether there are restrictions on what employees can do during their unworked hours.

A further point that employers will need to consider is that it may be more expensive for the employer to use this Scheme than other alternatives. For example, it may be more expensive for the employer to have two employees working under this arrangement, rather than making one employee redundant and retaining the other (particularly if the employee does not qualify for a statutory redundancy payment or is only entitled to a small one) or making one employee redundant and refilling their position when demand picks up. Some employers may also be able to negotiate reduced working hours with their employees which do not involve the employer contributing additional financial support for the unworked hours.

Employers can still claim the Job Retention Bonus for employees they bring back from furlough who are then put on the new Scheme if they meet the eligibility criteria. The Job Retention Bonus pays £1,000 per furloughed employee that is brought back to work and kept on until at least the end of January 2021.

What should employers be doing now?

More details on the Scheme are expected to be published shortly. In the meantime, employers considering using the Scheme should start assessing which workers they may want to claim for under the Scheme and how they may want to make use of the Scheme – for example how many hours employees will be asked to work. Employers will also need to consider what collective and individual consultation needs to take place before the scheme is introduced and put agreements in place with employees who are to go onto the Scheme. We can assist with this process by providing template documents and guidance around this. Jobs that are not "viable" going forwards are not intended to be covered by the Scheme and employers will need to consider other options that are available to them where roles are no longer viable.

An example

This example is taken from the Government's Factsheet:

Beth normally works 5 days a week and earns £350 a week. Her company is suffering reduced sales due to coronavirus. Rather than making Beth redundant, the company puts Beth on the Job Support Scheme, working 2 days a week (40% of her usual hours).

  • Her employer pays Beth £140 for the days she works.
  • And for the time she is not working (3 days or 60%, worth £210), she will also earn 2/3, or £140, bringing her total earnings to £280, 80% of her normal wage.
  • The Government will give a grant worth £70 (1/3 of hours not worked, equivalent to 20% of her normal wages) to Beth’s employer to support them in keeping Beth’s job.

Hours Employee Worked

33%

40%

50%

60%

70%

Hours Employee Not Working

67%

60%

50%

40%

30%

Employee Earnings (% of normal)

78%

80%

83%

87%

90%

Gov’t Grant (% of normal wages)

22%

20%

17%

13%

10%

Employer Cost (% normal wages)

55%

60%

67%

73%

80%

 

End

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