Furlough scheme update
June 16, 2020

Furlough scheme updateImportant changes to the Government’s Job Retention Scheme

Michael Chadwick, founding Director at Chadwick & Company, gives further details about the Job Retention Scheme. 

The Chancellor of the Exchequer has announced plans to make the furlough scheme less costly to the taxpayer and to put some of the enormous burden on to employers.

New rules

The new rules are as follows:

Until the end of July 2020 the Government will continue with the present arrangements. The only cost to employers will be if they take the decision to top up wages to nearer the normal level. This assumes of course that the employees are not caught by the £2,500 monthly cap which remains in place.

From 1 July there will be some, much called for, flexibility added with firms allowed to take people back on a part time basis. The special rules here are (unsurprisingly) a little complicated and some pointers are given below.

An important change from 1 August is that whilst HM Government will continue to pay 80% of wages (up to the same £2,500 limit as before), they will force employers to pay the National Insurance (NI) and Auto Enrolment (AE) pension contributions for furloughed staff.

The Treasury says that this will cost an average of 5%, but this is unlikely to be completely true when NI is almost 14% and AE pension contributions are 3%. Thus during August, the costs could be around 17%. Where employers top up wages and salaries and we allow for NI + AE we could be reaching 35% of the total payroll costs.

The situation becomes progressively worse in September and October with the Government’s contribution falling to 70% and 60% respectively, for example a maximum of £2,187 or £1,875, where the employee does not work at all during the month.

Part-time working

The rules relating to part-time working / furlough are:

  1. The changes take effect from 1 July and the individuals in question have to be furloughed on each occasion for a minimum of a week. Further, the employee must have been furloughed for at least three weeks prior to 30 June.
  1. A claim for furlough can only be for the maximum number of employees furloughed previously.

For example, if workers perform half their normal hours in July they would be paid £1,250 (half of £2,500) plus half of their normal wages, paid by their employers.

From 1 September (after the initial reduction is implemented), using the same factors above, staff would receive a half of £2,187, plus half their normal wages from the business.

For October the figures would be 50% of £1,875. £937.50 plus 50% of normal pay funded by the employer.

The rules concerning NI / AE remain in place come what may for all periods beyond 1 August.

In general at any point, there will be a significant contribution to payroll costs by leaving workers on furlough, but this becomes less and less helpful as we move through the lockdown.

Calculating your claim

We are happy to assist in calculating the amount of your claim, but HMRC will retain the right to retrospectively audit all aspects of your submission.

Read more about the Government’s Job Retention Scheme here. You can also email or call us on 0161 370 9600. 

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