Phase 2 of the scheme: update
Another new word for the employment lawyer and HR dictionary – ‘flexible furlough’!
On Friday 29th May 2020, the Chancellor gave details of how the furlough or job retention scheme will look as it continues through until the end of October 2020. Having reviewed the details, I view it as two phases of the scheme:
phase 1 which ends on the 30th June 2020 and
phase 2 ‘the tapering or re-opening phase’ which runs from the 1st July to 31st October 2020.
‘Phase 2’ will take the scheme to a total of 8 months with the government subsidising wages for employers.
So, what are the key details you need to know:
10th June 2020 – Cut off for furloughing an employee
After the 30th June 2020 employers will not be able to furlough an employee who has not already been furloughed.
This means that an employee must have been furloughed for a minimum of 3 weeks at some point before the 30th June 2020
Therefore, counting back from the 30th June 2020, the latest date, an employer can furlough someone for the first time is the 10th June 2020. Important to note if an employer is ‘rotating’ employees on furlough and/or are considering whether to furlough staff for the first time now.
I have certainly seen a number of businesses furloughing staff for the first time within those first 10 days of June, thereby giving maximum flexibility amongst the workforce.
Employers have until 31 July 2020 to make a claim in respect of the period up to 30 June 2020.
June 2020 – Job retention scheme continues – ‘phase 1’
The scheme remains as it currently is, so employers can continue to furlough staff and receive 80% of their pay for the time they are furloughed. The same rules about working apply and employees are not allowed to undertake any work for their employer.
1st July 2020 – ‘Flexible Furloughing’ begins – ‘phase 2’
Employers can continue to recover 80% of wages from the government under the scheme, in the same way as they have been doing under phase 1.
The crucial change to the scheme is that employees are permitted to return to work part-time.
Employers will have to pay for any of the hours that the employee works, and the working time cannot be recovered under the furlough claim.
If the employee does undertake any work, then the arrangements must be confirmed to the employee in writing and the employee’s agreement obtained.
The minimum period of any claim that you make must be 7 days. This means that when you make your claim you will need to report and claim for a minimum period of a week.
When you make your claim under the job retention scheme you will also need to provide details of the employee’s usual hours they would have been expected to work in a claim period and then the actual hours they have worked.
Deciding on and agreeing working arrangements
The number of hours and when an employee returns to work is up to the Employer to decide, there are no maximum or minimum times.
The most difficult issue for employers is going to be seeking agreement from the employee to any change in working patterns, as normal contract rules apply. This means that if an employer wants to change the hours worked, even temporarily they will need to either
1) have a clause in the contract allowing for this or
2) get agreement from the employee to change.
Example: if an employee normally works Monday to Friday 9am – 5pm but the employer wants them to work 9am – 12 Noon this is clearly within the normal working hours so should not be an issue.
If, however the employer decides because of the business requirements or in order to ensure socially distancing, they need different patterns, i.e. 7am – 10am or 4pm to 7pm or even weekend working then they would likely need to obtain agreement from the employee to the change.
August 2020 – Employers pay National Insurance Contributions and Pension Contributions
Employers can continue to claim 80% of wages (with the cap of £2,500) for the hours that are not worked by the employee.
Hours worked by the employee will have to be paid by the employer.
Employers will now have to pay the NI and pension contributions.
September 2020 – Employers must pay 10% of wages for furloughed employees
The amount that the government will pay under the scheme will reduce to 70% of wages (with a cap of £2,187.50).
Again, this contribution is for hours which the employee does not actually undertake any work for the employer.
Employers will be required to pay NI and pension contributions and 10% of wages so as to make up the amount received by the employee to 80% (capped at £2,500).
October 2020 – Employers must pay 20% of wages or furloughed employees
The amount that the government will pay under the scheme will reduce to 60% of wages (with a cap of £1,875).
Again, this contribution is for hours which the employee does not actually undertake any work for the employer.
Employers will be required to pay NI and pension contributions and 20% of wages so as to make up the amount received by the employee to 80% (capped at £2,500).
31st October 2020 – Job retention scheme ends
Currently the scheme is set to end on the 31st October 2020 which means that from the 1st November 2020 employers will be responsible for paying employee wages in full in accordance with their contract terms, unless contracts are changed and/or changes are agreed with the employee.
What continues with the furlough scheme?
- The decision whether to furlough an employee is at the discretion of the employer.
- Employees can ask to be furloughed (by the 10th June 2020) but the decision is for the employer who can refuse.
- Employees who are shielding or have difficulties because of childcare can continue to be furloughed.
- There is no qualifying criteria for a business to access the furlough scheme and it is open to all businesses.
- Employers remain bound to pay employees what they have contractually agreed, unless agreed otherwise between employee and employer. This means that employers need to seek agreement from employees to pay anything less than 100%.
Employers required to top up to 80% after 1st September
Employers are going to be required to top up to 80% after the 1st September 2020 when the government contribution reduces. Currently there is no requirement for employers to top up to 100% however it will be a mandatory requirement of accessing the scheme to top up to 80%, so as to avoid employees being paid less than 80%.
The factsheet from HMRC (HERE) states that ‘The employer cost per month on the average grant will rise to £207 in September and to £345 in October representing 14% and 23% of gross employment cost, respectively.’
Only employees previously furloughed can be claimed for
This means that you cannot furlough an employee for the first time after the 10th June 2020.
They must have been furloughed for at least 3 weeks between 01 March – 30 June 2020.
Employees who are furloughed for a period before the 1st July 2020 must still complete a minimum of three weeks before they can be flexibly furloughed. The example given in the HMRC guidance states:
‘For example, a previously furloughed employee can start a new furlough period on 22 June which would have to continue for at least 3 consecutive weeks ending on or after 12 July. After this the employee can they can then be flexibly furloughed for any period. However, after 1 July, employers cannot make claims that cross calendar months, so the employer will need to make a separate claim for the period up to 30 June.’
Employees returning from ‘family leave’ are exempt
Those employees who are returning from a period of Statutory Maternity, Paternity, Adoption, Shared Parental or Parental Bereavement Leave after 10th June 2020 can still be furloughed for the first time.
This removes the potential disadvantage caused by the original announcement about the cut-off date.
Flexible Furlough: Returning to work during furlough
Any shift pattern and hours may be worked. There are no restrictions on the portion of furlough and work.
You need to agree to the ‘flexible furlough’ with the employees and keep a new written agreement confirming the new terms of furlough.
The agreement must be kept in writing for 5 years.
The employee cannot undertake any work in the time that you record them as being furloughed and are claiming for.
You must keep records of how many hours your employees work and the number of hours they are furloughed (i.e. not working).
If you make a substantive change to the hours agreed then it is advisable to send a new letter and reach a new agreement to record the terms.
If an employee moves from ‘flexible furlough’ back to ‘full time furlough’ it is advisable to provide them with another letter which records the change and with their agreement.
Calculate an employees ‘usual hours’
When making your claim for ‘flexible furlough’ the critical records you need are the employee’s ‘usual hours’. This is what you will use to calculate your claim for the job retention/furlough grant.
In short you need to declare the employees ‘usual hours’ and what of those ‘usual hours’ you are claiming for, i.e. the hours that the employee did not work.
Calculating ‘usual hours’ is simple and straightforward for employees who have a fixed hours contract or who are salaried. If the contract says they are employed to work 40 hours per week then this will be the usual hours.
The problem comes when you have an employee who has no fixed permanent or guaranteed hours.
If you have been complying with the legal changes that came into effect in April 2019 then the calculations should not take too long, as the law requires you to show the number of hours worked on the payslip for employees whose pay varies by the amount of time worked.
As set out on the HMRC guidance the ‘usual hours’ in the case of an employee whose hours vary will be calculated based on the higher of either:
- the average number of hours worked in the tax year 2019 to 2020
- the corresponding calendar period in the tax year 2019 to 2020
You need to calculate the usual hours for each pay period, or part of a pay period, that falls within the claim period.
The guidance then goes on to state that ‘when you calculate the usual hours, you should include:
- any hours of leave for which the employee was paid their full contracted rate (such as annual leave)
- any hours worked as ‘overtime’, but only if the pay for those hours was not discretionary
To work out the usual hours for each pay period (or partial pay period) based on the average number of hours worked in the tax year 2019 to 2020:
- Start with the number of hours worked (including paid leave) in the tax year 2019 to 2020 before the employee was furloughed, or the end of the tax year if earlier.
- Divide by the number of calendar days the employee was employed by you in the tax year 2019 to 2020, up until the day before they were furloughed, or the end of the tax year if earlier.
- Multiply by the number of calendar days in the pay period (or partial pay period) you are claiming for.
- Round up to the next whole number if the outcome isn’t a whole number.’
You can find examples of how to work out the average number of hours worked in the tax year 2019 to 2020 for an employee who works variable hours: Here
Employers must pay employees at least the minimum of 80% of their wages (up to £2,500 ) for the time they are furloughed.
Employers are required to top up to a minimum of 80% even after the contribution from the government reduces.
Employers can continue to top up over the 80% minimum if they wish.
Taken from .gov.uk
The table shows Government contribution, required employer contribution and amount employee receives where the employee is furloughed 100% of the time.
Wage caps are proportional to the house not worked.
|Government contribution: employer NICs and pension contributions||Yes||No||No||No|
|Government contribution: wages||80% up to £2,500||80% up to £2,500||70% up to £2,187.50||60% up to £1,875|
|Employer contribution: employer NICs and pension contributions||No||Yes||Yes||Yes|
|Employer contribution: wages||–||–||10% up to £312.50||20% up to £625|
|Employee receives||80% up to £2,500 per month||80% up to £2,500 per month||80% up to £2,500 per month||80% up to £2,500 per month|
Making a claim under the Job Retention Scheme
- You cannot claim for any days in July until the 1st July 2020.
- The number of employees you can claim for in any single claim after 1st July must not exceed the maximum claimed for before 30th June 2020.
- After 1st July 2020 claim periods cannot be made over multiple months and must start and end within the same calendar month.
- Claims must be for a minimum of 7 days unless the claim relates to the first or last few days of the month.
- You can only make one claim for any period.
- Additional information you will need to make a claim under the ‘flexible furlough’ scheme includes:
- the number of usual hours your employee would work in the claim period
- the number of hours your employee has or will work in the claim period
- you will also need to keep a record of the number of furloughed hours your employee has been furloughed in the claim period
Overpayments / underpayments of furlough grant
If you make an error in your claim you can now inform HMRC of the overpayment as part of your next claim and adjust the next claim to take into consideration the overpayment.
If you work out that you have underclaimed on what you were entitled to then you can contact HMRC to amend your claim, and it would seem to claim this in a future claim.
Action to take
- The number one thing that you need to consider is the future of your business. If you have not already done so it is crucial to think – what is my business going to look like in the next 2, 3, 4 – 6 months?
- Do you need to start making cutbacks of staff now or planning for the near future? If so, will you need to start a collective redundancy consultation?
- Communication with employees. If you are going to be bringing employees back, making changes. redundancies or utilising the flexible furlough scheme it is important to start talking to staff. Begin to prepare them for return and explain what will be required of them, where possible try to get agreement and buy-in to your plans. See my article ‘The Reluctant Returner’ about how to handle this communication.
- Check to see if there is flexibility in your employment contracts? Consider, are your workforce flexible and willing to change?
- Ensure that any calculations and cash projections you have made now include the requirement to pay NI and pension contributions from the 1st August 2020, and then factor in the employer contribution to wages for September and October.
- Get your ‘house in order’ and prepare your claims and timing as soon as possible. From 1 July, claim periods will no longer be able to overlap months. There is effectively a ‘reset’ of the scheme from the 1st July 2020 as it moves into what I would call phase two of the job retention scheme.
- You will have until 31st July 2020 to make any claims in respect of the period up to 30 June 2020 thereafter you will be unable to claim for the period of ‘phase one’ of the scheme.
- Calculate the ‘usual hours’ for employees who you are going to flexibly furlough.
- Check to see if your payroll is set up to manage the calculations and record keeping required. If you run payroll internally, are the staff aware of the new processes required?
- Put any changes to the furlough arrangements in writing. If you would like a free template covering flexible furlough then email: [email protected]ice.co.uk
If you would like to bring an employee back from furlough on a part-time/reduced hours basis we have produced a template letter with agreement, for you to use and you can request a free copy by sending an email to: [email protected] please put in the subject line ‘flexible furlough return letter’.
We also have a general return from furlough letter which includes a variety of options for you and this is also available for free by sending an email to [email protected] please put in the subject ‘return from furlough letter’ and we will email you a copy.
Details of the scheme which is currently available can be read here: https://www.gov.uk/guidance/check-which-employees-you-can-put-on-furlough-to-use-the-coronavirus-job-retention-scheme
Please leave a question or comments below.
This article was written by Alison Colley, Solicitor and Founder of Real Employment Law Advice.
If you have any other questions please let me know: [email protected] or for a free initial telephone call contact the office on 01983 897003, 023 8098 2006, 01722 653001 or 020 3470 0007.
Other Relevant Articles for Employers
- Redundancy plan – step by step guide
- Timetable to use – collective consultation and non-collective consultation versions
- Letter warning employees of redundancy situation
- First letter to employee representatives re proposed redundancies
- Letter to employees requesting volunteers for redundancy
- Letter to employee representatives with details of collective consultation process
- Ballot paper for election of employee representatives
- Nomination form for employee representatives
- Notice to employees with outcome of the elections
- Notice to employees re Employee representative elections
- Letter follow up on individual meeting
- Letter offer of alternative employment
- Letter to individual employees – provisional selection for redundancy
- Letter to individual employees confirming dismissal for redundancy
- Example Redundancy selection criteria
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