What the furlough?!
November 9, 2020
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Following the announcement of a second national lockdown, Chancellor, Rishi Sunak, paused the launch of the Job Support Scheme (“JSS”) which was due to commence on 1 November and has instead extended the existing Coronavirus Job Retention Scheme (“CJRS”). Whilst this has come as welcome news to many, this seemingly simplistic extension of the CJRS has in fact led to widespread confusion given its last-minute announcement.
The ‘original furlough’ Scheme
The original CJRS was unveiled by the Chancellor on 20 March in a bid to prevent mass redundancies as a result of the impact of Covid-19. It enabled employers to claim 80% of their employee’s wage costs (up to £2,500 per month) and, in its original format, had a cut-off date of 31 May. The CJRS was subsequently extended to the end of October as a result of the continuing Covid-19 crisis.
In July, an updated, more flexible version of the CJRS was launched outlining the gradual scaling back of government support in response to decreasing infection and mortality rates. From 1 August employers were required to make National Insurance and pension contributions towards the wages of furloughed employees, as a condition of their continued participation in the CJRS. Similarly, from 1 September further amendments were implemented which resulted in employers only being able to claim for 70% of wages (up to £2,187.50) in respect of their furloughed employees.
The Job Support Scheme
In anticipation of the conclusion of the CJRS, the Chancellor announced the introduction of a new scheme in late September. The JSS was set to come into effect on 1 November and focused on the protection of viable jobs, albeit on reduced hours. Under the JSS, the government was to top up the wages of employees who had experienced reduced hours due to the economic impact of Covid-19 and the new tiered lockdown system.
For businesses that were able to remain open, subject to meeting certain eligibility criteria, employers would have been able to reduce their employees’ usual hours to a minimum of 20% (reduced from 33%), for which they were to be paid as normal. Employees were to receive 66.67% of their usual pay (up to £1666.75) for the hours they had lost; 5% being paid by their employer and 61.67% by the government. As such, employees would have received at least 73% of their usual wage.
Alternatively, for businesses that had been legally required to close due to government restrictions, those employees would have been entitled to receive two-thirds of their usual pay from the government, up to a maximum of £2,083.33 per month.
The ‘extended furlough’ Scheme
At the eleventh hour, the JSS was postponed in response to the new blanket Covid-19 restrictions announced by the government. With all non-essential businesses set to close, the Chancellor announced an extension of the original CJRS until 2 December, which, as per last Thursday’s announcement, has now been extended until the end of March 2021. This extended version of the CJRS offers the same level of support that was available in August. Accordingly, the government will provide 80% of furloughed employees’ wages, up to £2,500 per month, with employers required to make National Insurance and pension contributions. In addition, the extended CJRS will retain its flexible element meaning that employers will be allowed to claim furlough grants just for the time that their employees are not working.
To be eligible for the extended CJRS, employees must have been on their employers PAYE payroll by 30 October. As with the original CJRS, employers can apply for furlough grants ahead of time and be paid up-front in time for payroll. Employees can be employed on any type of contract and any changes to working arrangements will need to be agreed between the employer and employees. Additionally, employers will be able to top up the wages of their employees above the CJRS grant, should they wish to do so.
The extended CJRS is to be reviewed by the Chancellor in January to determine whether the country’s economic position has improved enough to be able to ask employers to contribute, as was the case in August and September this year. Furthermore, the Job Retention Bonus that was due to be paid to employers in February will now be scrapped, paving the way for a new retention incentive.
How should employers plan for the end of the ‘extended furlough’ Scheme?
Although on the surface the extension of the CJRS seems simple, its last-minute nature has created a confusing situation for both employees and employers alike. Many employees across the country will have been gearing themselves up to return to work and could now face another five months of furlough, demoralising the workforce. Employers on the other hand now face several issues including dealing with employees who had previously been made redundant and those who are clinically vulnerable. In preparation for the commencement of the JSS, many employers will have already put in place agreements with their employees, which they will now be required to revisit to ensure they are compliant with the extended CJRS rules.
Looking to the future, employers should now be thinking about the following:
- Communicating with employees who face another five months of furlough. Employers should ensure that employees who were psyching themselves up for their return to work are not demoralised, which in the current circumstances, could easily lead to deterioration in the mental wellbeing of their workforce.
- Furloughing employees that had not previously been furloughed. Under the extended CJRS, employees can now be furloughed without having been furloughed previously, meaning that new starters will also be able to benefit from the extended CJRS.
- The possibility of re-employing employees that had recently been made redundant. As with the original CJRS, employees that have been made redundant could potentially now be re-employed and furloughed, in an attempt to avoid mass redundancies.
- Their clinically vulnerable employees. The Prime Minister has advised that vulnerable people should not go to work even if they cannot work from home. As such, employers with clinically vulnerable employees should now be looking at the possibility of furloughing those employees.
- Existing employment rights. As with the original CJRS, the extended CJRS does not take precedence over existing employment rights. As such, employers will need to ensure that any changes to contractual obligations are agreed in writing with employees.