Last reviewed 30 September 2020

The Coronavirus Job Retention Scheme (furlough scheme) was put in place to support employers who were not able to operate as normal due to the pandemic.

By designating employees as “furloughed”, meaning they were offered reduced work and pay, employers have been able to recover a portion of employee wage costs from the Government for the time in which they did not work. The cost of the scheme has been substantial and government funding for it has been decreasing over the last few months. On 12 May 2020, an extension to the Scheme was announced, meaning it will end on 31 October. That said, employers need to first be aware of further changes to its structure from 1 October; as well as other furlough related legal developments. Opeyemi Ogundeji, researcher and employment law writer at Croner-I, explores this in more detail below.

Changes prior to October

Up until the end of June, all furloughed staff were not permitted to conduct any work for their employer or an associated organisation. If they met this eligibility, employers could claim 80% of their wage costs to a cap of £2500 per month, alongside their National Insurance and employer pension contributions. This changed on 1 July, with furloughed staff now able to return to work part time if requested by their employer.

From 1 August, funding for the scheme started to change. While the Government still funded 80% of employee wages for the time they did not work, employers were required to pay the employer’s National Insurance (NI) and pension contributions of furloughed workers’ wage costs in relation to the hours that the worker did not work.

Further contributions from employers were required from 1 September. From this point, , the Government’s grant decreased to cover 70% of furloughed employee wages at a decreased cap of £2187.50 per month. In addition, employers continued to pay employer National Insurance contributions and pension contributions for not only August but September as well. Once government contributions began to decrease, employers were asked to top this up to ensure that furloughed employees still received 80% of their wages up to £2500. For example, a 70% grant up to £2187.50 attracted a 10% top up from employers to a maximum of £312.50.

Changes since 1 October

Since 1 October, government grant contributions have further decreased to cover 60% of furloughed employee wage costs at a cap of £1875 only. This means that employers have had to add a 20% top up to grant payments to a maximum of £625, so that, like in September, furloughed employees still receive 80% of their monthly wages to a maximum of £2500.

Employers also need to continue paying employee National Insurance contributions and employer pension contributions through to 31 October, when the Scheme will end.

In this time, employers should ensure that they are making accurate claims from the scheme in order to avoid furlough fraud. Furlough fraud is a term used when employers overclaim grant payments under the scheme by either receiving money they are not entitled to from the start or after a change has occurred (eg an employee who is being claimed for is no longer part of the business).

To avoid penalties after having overclaimed under the scheme, employers should correct this error in their next claim, or make a payment directly to HMRC if the employer will not be making any future claims.

Employers who have miscalculated the amount they needed to claim under the scheme, and are due to benefit more from it, can, again, contact HMRC to amend their claim. This is known as having underclaimed. Employers should note that HMRC have powers to perform additional checks if amendments on underclaimed grant payments are requested.

Furlough and redundancy pay

Before the end of October, furloughed employees who are then made redundant should receive redundancy pay based on their normal wage rather than a reduced furlough rate, according to a new law which came into force on 31 July 2020.

The new legislation does not affect any enhanced redundancy pay that may be stipulated in the employees’ employment contract, however, it does apply to basic statutory redundancy pay entitlements and statutory notice pay. Employees must be given a notice period before their employment ends, varying from at least one week’s notice up to 12 weeks’ notice, depending on how long they have worked for their employer, and should be paid accordingly for this time. While employers can ask staff to receive this payment in lieu, meaning they do not work the time, they should still be paid as though they have worked the notice period in full.

Additionally, this new law applies whether the employee has worked “short time” for the purposes of calculating redundancy pay, unfair dismissal compensation calculation and compensation for failure to provide a written statement of terms and conditions. Pay given for time off to seek alternative work should also be calculated using normal wage rates. As a reminder, those being made redundant who are served their notice are entitled to a reasonable period of time off work to seek alternative employment and should be paid at 2/5ths of their normal salary.

The Job Support Scheme

Chancellor Rishi Sunak announced on 24 September that a brand new “Job Support Scheme” will be implemented to replace the Job Retention Scheme after it ends, which will start on 1 November 2020. The Government aims to continue to provide financial assistance, through the new scheme, to those who are retained in work. The scheme will allow employers to keep staff in “viable jobs” at shorter hours rather than making them redundant. Employers should note that this scheme is not an extension of the furlough scheme but rather a replacement of it. The scheme is set to commence on 1 November and will run for six months from that point. To find out more about the Job Support Scheme, please refer to our guidance.

Job Retention Bonus

Employers are reminded that they can benefit from the Job Retention Scheme (JRB).

Rishi Sunak released his “Plan for Jobs” initiative on 8 July 2020 to set out how the Government will support economic recovery in the UK. One of the elements included was a new Job Retention Bonus (JRB). It is being implemented to provide additional support to employers who retain their furloughed employees into meaningful employment after the furlough scheme ends.

It is a one-off, taxable, payment of £1000 for every furloughed employee retained and can be claimed from February 2021.

In order to benefit, employers should ensure that they have:

  • complied with their obligations to pay and file PAYE accurately and on time under the Real Time Information (RTI) reporting system for all employees

  • maintained enrolment for PAYE online

  • a UK bank account.

There does not seem to be a limit on the size of employer which can claim the bonus at this stage which means that as far as the current guidance goes, big or small organisations can apply for the bonus.

There also does not seem to be a limit on the number of employees that can be claimed for, however, employees must be eligible for the Job Retention Scheme and a grant must have been taken out for them from the scheme. They must meet all the relevant eligibility criteria for the scheme

In addition, the JRB can be claimed for employees who:

  • have been continuously employed from the time of the employer’s most recent claim for that employee until at least 31 January 2021

  • have been paid an average of at least £520 a month between 1 November 2020 and 31 January 2021 (a total of at least £1560 across the three months)

  • have up-to-date RTI records for the period to the end of January 2021

  • are not serving a contractual or statutory notice period, that started before 1 February 2021, for the employer making a claim.

The Government has also confirmed that employers who make use of the Job Support Scheme will still be able to claim for the Job Retention Bonus, provided they are eligible to do so.

Takeaway

Although there have been calls for the Government to extend the furlough scheme, the Prime Minister as well as the Chancellor have remained resolute in their plans not to extend it, with the Job Support Scheme now announced as taking its place.

Between now and 31 October, employers who continue to the use the Job Retention Scheme must make sure they are aware of these new rules and implement them accordingly. They should also keep in mind that the JRB will be payable to eligible employers from February 2021 if they retain their furloughed staff.