The coronavirus job retention scheme (CJRS) was established in March 2020 to help cover the wages of furloughed employees as a result of the COVID-19 pandemic.
Scheme extension and increased flexibility
The Chancellor has since announced an extension of the scheme to the end of October 2020 with new flexibility also being introduced from 1 July 2020 (one month earlier than originally announced) to help workers return part-time.
Employees will be able to work for any given period, with employers continuing to be able to access the furlough scheme for the normal hours they have not worked. This is to be known as ‘flexible furloughing’. There will no longer be a minimum furlough period, but a claim must be made for a minimum period of one week.
Closure of scheme to new entrants
The scheme will close to new entrants from 30 June 2020, meaning that an employee must have been furloughed for a period of at least three weeks prior to this date to be eligible for furlough from 1 July. Therefore, the last date an employee can be furloughed for the first time under the scheme is 10 June.
The only exception to this is an employee who has returned from parental leave. They will not be required to have been furloughed prior to the cut-off date but, the employer must have previously made a claim for other employees within the business to be eligible.
Government/employer contributions
Government contributions will be tapered for the latter months of the scheme with employers also being asked to pay a percentage towards their employee’s wages. The changes will be introduced as follows:
- July – no change, the Government will continue to pay 80% of wages capped at £2,500 plus employer national insurance contributions and minimum pension contributions.
- August - employers will no longer be able to claim employer NICs and pension contributions under the scheme, but the Government will continue to pay 80% of wages up to £2,500.
- September - the Government will pay up to 70% of wages capped at £2,187.50. Employers will be required to pay 10% of wages to bring employees up to 80% capped at £2,500 plus employers NICs and pension contributions.
- October - the Government will pay up to 60% of wages capped at £1,875. Employers will be required to pay 20% of wages to bring employees up to 80% capped at £2,500 plus employers NICs and pension contributions.
The calculation
In case things weren’t complicated enough previously, the calculation from July onwards will add further complexity. In order to calculate the claim under the new scheme it will now also be necessary to have records of the 'usual hours' worked by the employee versus actual hours worked during the relevant claim period that month.
This will be used to determine the furlough pay and, for July, to work out the relevant threshold deductions for the NIC and pensions claims.
Example
SJRC Limited employs Mr Smith. His annual salary as at 19 March 2020 was £24,000, so £2,000 monthly. His normal working hours are 37.5 hours per week from Monday to Friday. He has been fully furloughed up until 30 June 2020 but, from 1 July, SJRC Limited would like to bring him back to work for three days per week (Monday to Wednesday) until the end of July.
Step 1 – work out Mr Smith’s usual working hours
To work out ‘usual hours’ you need to:
- Start with the hours the employee was contracted for at the end of the last pay period ending on or before 19 March 2020 which for Mr Smith was 37.5 hours per week.
- Divide this by the number of calendar days in the repeating working pattern, including any non-working days such as weekends, so in this case 7 days. 37.5 hours divide by 7 = 5.36 hours
- Multiply this by the number of the calendar days in the pay period you are claiming for and round this up to the next whole number, so 5.36 x 31 = 167 hours.
Usual hours for the month of July would therefore be 167 (rounded to the nearest whole number).
Step 2 – calculate the number of furloughed hours
To calculate the number of furloughed hours you would deduct the number of hours actually worked in the period from the usual hours calculated above. In this period, Mr Smith worked for 13 days at 7.5 hours per day so 98 hours (rounded to the nearest whole number).
Mr Smith’s furloughed hours for July would therefore be 167 – 98 = 69 hours.
Step 3 – calculate the minimum furlough pay
Mr Smith has been flexibly furloughed for the entire period of July. 80% of his usual wages of £2,000 per month would be £1,600 (which is below the maximum cap of £2,500 per month). This then needs to be adjusted by the furlough hours proportion e.g. £1,600 divided by the usual hours of 167 and multiplied by the furloughed hours of 69.
This would give Mr Smith furlough pay of £661.08 for July. As with the previous scheme, the employer can choose to top this up if they wish and in July can also claim for the associated employer’s national insurance and minimum auto enrolment pension contributions. The calculations for this will pro-rate the relevant thresholds by the number of furlough days in the claim and again by the furlough hours over usual hours in the claim period.
From September, as the government contribution reduces a further step would need to be taken to calculate the furlough claim.
For example, assume that in September Mr Smith’s minimum furlough pay was calculated as £650 under step 3 above. The amount which could be claimed would be £650 multiplied by 70/80 i.e. £568.75. The employer must top up Mr Smith to the minimum furlough pay amount of £650 and so would need to contribute £81.25. SJRC Limited would also need to cover the employer’s NIC and pension contribution amounts for this month.
In October this would increase to an employer contribution of £162.50 as the Government contribution falls to 60% in addition to the employer’s NIC and pension contributions.
Variable pay
For an employee on variable pay, the ‘usual hours’ should be calculated as the higher of:
- the average number of hours worked in the 2019/20 tax year; or
- the hours worked in the corresponding calendar period in the 2019/20 tax year.
Further guidance and examples on how to carry out the calculations under the new scheme can be found here.
Other points to note
- To be eligible for the grant, employers must agree and confirm in writing any new flexible furloughing arrangements.
- Where employees return to work on a part-time basis, the employer will be required to pay a normal wage for the hours actually worked.
- For periods starting on or after 1 July 2020, there is a maximum number of employees that you can claim for. The maximum is the highest number of employees you have claimed for in a previous claim under the current CJRS scheme. For example, where you made a furlough claim for 13 employees in May and then furloughed a different 10 employees in June, the maximum number of employees you could claim for in July would be 13. It would not be possible to flexibly furlough all 23 employees from 1 July.
- From 1 July, it is expected that it will not be possible to have claim periods that overlap a calendar month.
- If an employee who had been previously furloughed has started a new furlough period after 10 June, they will need to complete three consecutive weeks before they can be flexibly furloughed.
- Submission deadlines for filing a claim from 1 July onwards have not yet been confirmed but it is expected that this may be the end of the following calendar month. The deadline for filing a claim up to 30 June has already been confirmed as 31 July 2020.
- Records should be kept for five years of the confirmation to employees that they have been furloughed, along with their hours worked and hours furloughed.