Furlough: The New Changes to the Coronavirus Job Retention Scheme from August 2020
Updated: Aug 25, 2020
In March 2020 the UK government made unprecedented pledges to financially support employers and the labour market by introducing the Furlough or ‘Coronavirus Job Retention Scheme’. The government pledged to pay 80% of eligible employees wages up to a max of £2,500 per month, which employees could reclaim from the HMRC along with ER national insurance, ER pensions contributions and COVID related sick pay.
According to the Independent (May 2020), Furlough has cost the UK government £14billion per month. And so this, coupled with the uncertainly around how long the coronavirus pandemic will last, has been rumored to be why the government have announced that the Coronavirus Job Retention Scheme will stop on 31st October 2020, as well as more new changes.
The New Changes
The new changes will come into effect on 1st August and follow these milestones:
1. 1st August 2020
An employer can still claim reclaimable pay for furloughed employees (up to £2,500 per employee) from the HMRC. However, employers will no longer be able to reclaim ER NIC & ER Pension. These elements will be once again be an employer cost.
2. 1st September 2020
The Coronavirus Job Retention Scheme will continue to ensure that furloughed employees receive 80% of base pay, however the government have made it mandatory that employers will pay 10% of this, and will only be able to reclaim 70% (up to £2187.50) from the HMRC.
3. 1st October 2020
The Coronavirus Job Retention Scheme will again continue to ensure that furloughed employees will receive 80% of base pay, however now employers will be obligated to pay 20% of this as mandatory, with only 60% (up to £1875.00) being reclaimable from the HMRC.
4. 31st October 2020
This date will mark the end of the government Coronavirus Job Retention Scheme.
Impact to Employees
As you may have noticed from the above, the new changes should have no financial impact on the employees; as the government are mandating that the 80% up to £2,500 must remain payable to the employee. However, from the 31st October and thereafter, there may be a financial impact on the employee, due to business decisions to possibly engage the employee on a phased return to work, return to standard contract, or consider redundancy.
Impact to employers
The impact of the new changes on the employer are most obviously cost. In that, the government are prescribing that the ‘top up’ amount at each stage is mandatory to 80% and payable by the employer. As well as the removal of reclaimable ER National Insurance & pension contributions, with employers being responsible for paying these elements.
As above, employers also will have to make a choice about whether to return furloughed staff to work, engage phased returns, consider redundancies or take some other appropriate action if the business faces some risk for the future.
Moving forward, the government have announced that after the Coronavirus Job Retention Scheme comes to an end on 31st October 2020, they will be introducing the Coronavirus Job Retention ‘Bonus’ Scheme. This will issue a £1,000 bonus to employers, for each employee who was put on Furlough and continues to remain on the payroll until January 2021 (one of the eligibility criteria will be that the employee must earn at least £520 per month on average between the 1st November 2020 to 31st January 2021). This is in an attempt to encourage employers to retain employees and mitigate the potential impact on the labour market. The bonuses will be payable from February 2021 and further conditions are expected to be announced over the coming months.
Where online can employers reclaim Furlough?
Can you request employees on Furlough to take annual leave?
Legislatively, the answer is yes, you can as an employer request those on Furlough to take holiday. However, you must pay those holiday days at full pay.
What is Flexible Furlough?
This was introduced to the Coronavirus Job Retention Scheme effective 1st July 2020. Flexible Furlough allows employers to return employees to work on a part time, and continue to claim the non-working hours from the HMRC for Furlough.
Note that PSYCHR also offer onsite or virtual training on the Redundancy process.