Changes to the furlough scheme offer some respite for employers
At the end of last month, nearly 10 million people from over 1 million employers were on the Government’s job retention, or furlough scheme.
It has provided a vital lifeline for employees who might otherwise have been made redundant from companies during the recent lockdown period.
However, much is changing. A new job retention bonus will be paid to employers who retain staff under certain conditions and the furlough scheme is being gradually tapered off and made flexible until it finishes at the end of October.
Job Retention Bonus
One of the big fears for the Government is that the furlough scheme is just delaying an inevitable mass of redundancies from firms that cannot afford to keep staff on.
The travel and hospitality industry has been one of the hardest hit sectors and has been lobbying the Government to consider selective extension of the furlough scheme to help prevent unemployment.
For many companies, pre-Covid trading levels are a long way off and redundancies are inevitable without further financial help.
Chancellor Rishi Sunak is adamant the scheme has to finish at the end of October as the Government does not have a bottomless pit of money, but he has offered some help with a new job retention bonus.
Employers will receive a £1,000 bonus for every employee they bring back from furlough, provided they retain them in employment until the end of January 2021 and employees earn an average of £520 per month or more over that period. The bonus will be paid from February 2021.
The bonus applies to everyone but is targeted at low-paid staff, as £1,000 could pay a substantial chunk of their earnings during that time.
Whether it will be enough to deter companies from making redundancies remains to be seen, and we also need to see more detail.
Employers can use this bonus to help prevent redundancies, but we do not yet know whether the bonus can be used in combination with reduced hours or temporary pay, or whether it applies to furloughed workers who are already back at work.
There will also be discussions about whether companies that have not had their trading conditions affected should accept the new bonus.
New Furlough Scheme Rules
Employees can stay on furlough until the scheme finishes at the end of October, but the liabilities of employers are changing. It is also now too late to put employees on furlough for the first time.
Tapering
For this month, the Government will continue to pay 80% of employee wages up to a maximum of £2,500 per month, as well as National Insurance and pension contributions.
From August 1st, employers have to pay employer National Insurance and pension contributions. The contributions are mandatory if employees are receiving the grant, so any companies that cannot make the contributions, need to remove employees from the scheme and consider other options.
From September 1st, employers contribute 10% of wages and the Government 70% and from October 1st, employers pay 20% and the Government 60%.
Flexible Furloughing
Another big change is that from now employees are on a flexible furloughing arrangement, meaning they can return to work on a part-time basis. In this scenario, employees receive their normal wage when working and the furlough grant for the remainder of their usual working hours.
Employees can be brought back progressively between now and the end of the scheme, and can be rotated between full-time work and furlough conditions.
The flexibility also allows companies to re-furlough staff back at work, provided they were previously furloughed for a consecutive 3-week period at any time between March 1st and June 30th.
However, companies will not be able to claim for more employees than the maximum number they have claimed for under any previous claim and the claim periods must start and end within the same calendar month.
If an employer has previously topped up employee salaries to ensure they received 100% of their wages, they do not need to continue doing this until the end of October.
Companies will need a new, written flexible furloughing arrangement with employees to take into account these changes.
Falling Sick
If an employee working under a flexible furlough or rotating furlough arrangement falls sick or is told to self-isolate in periods when they are due to be working, employers should pay the Statutory Sick Pay (SSP) or company sick pay due.
For employees whose absence from work is related to Covid-19, new regulations have removed the 3-day waiting period for payment of SSP.
An employee cannot be on sick leave and furlough simultaneously.
Holiday Pay
Employees will continue to accrue holiday allowance during a period of flexible furlough and should be paid their usual holiday pay, not reduced furlough pay.
Any holiday taken during a flexible furlough period is to be treated as furlough, even if it is on days the employee was otherwise due to work.
The employer will be able to claim the furlough grant for the whole of the holiday period, although it will still have to top-up to full holiday pay.
The guidance also says that employees should not be placed on furlough for a period simply because they are on holiday for that period.
Pay Cuts
Companies that have introduced pay cuts for employees who were not furloughed can do the same for furloughed employees who are brought back to work.
By Nikki Spoor, Travel, Audit and Tax Director at White Hart Associates
White Hart Associates are specialist accountants for the travel industry. Visit whitehartassociates.com or contact 0208 878 8383 for more information.
