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30th May 2020

Furlough Scheme – Changes to contribution and ‘flexible furloughing’

30th May 2020

Furlough Scheme – Changes to contribution and ‘flexible furloughing’

Claire Merritt

Posted: 30th May 2020

T: 023 8048 2112

E: Email Me

On Friday 29 May 2020, the Chancellor, Rishi Sunak announced further changes to the furlough scheme. These changes are slowly being phased in to reduce the impact on business and get employees slowly back to work. The government’s aim is to ‘kick start’ the economy (read Chancellor Sunak’s announcement on the scheme)

What are the changes to the furlough scheme?

The changes to the furlough scheme announced yesterday relate to the closure of the scheme to new entrants; changes in contributions and flexible furloughing. We outline each change below.

Closure of the scheme to new entrants

The closure of the scheme to new applicants has been anticipated for a while but is coming in sooner than expected. Although the government has announced that the scheme will close to new entrants from 30 June. This is actually slightly misleading as the scheme is going to require all new entrants to be in the scheme for a minimum of 3 weeks before 30 June 2020. Employers will only be able to furlough employees that they have furloughed for a full 3 week period prior to 30 June. The further guidance we have indicates that an employee will still be eligible if they have had a three week period of furlough over the last three months. Therefore your employee doesn’t necessarily have to be on furlough from 10 June, if they have already had a completed furlough period. This indicates that there can be breaks in the furlough period over the last few months, and the employee will still be eligible for the new furlough scheme after 1 July. It would help if this was fully clarified in detailed guidance.

Please note eligibility to be furloughed remains the same. The employee still needs to be on payroll by 19 March 2020 to qualify for furlough in the first place. The other criteria is explained in our previous blogs relating to the Coronavirus Job Retention Scheme (all of which can be found in the Employment Section of our dedicated Coronavirus – Legal advice and guidance page. However, new entrants (that have not been furloughed previously) must be on furlough by 10 June 2020, which is a handful of working days away. We suggest that employers very quickly review staffing levels and make decisions to furlough as soon as possible.

Changes in contributions

From 1 August 2020, the government will start paying less towards those employees on furlough. They will reduce contributions from 80% up to a cap of £2500 to lower percentages. However importantly employees throughout this time must still receive 80% of their wages up to £2500, for furlough to be valid. In summary:

  • From 1 August 2020: The government will pay 80% of wages up to a cap of £2,500 (i.e. there is no change to the scheme in that sense), but will require employers to pay employer’s national insurance contributions and pension contributions. The Chancellor explained that this was likely to represent around 5% of the gross employment costs of the furloughed employee.
  • From 1 September 2020: The government will pay 70% of wages up to a cap of £2,187.50. The employer will continue to pay employer’s national insurance contributions and pension contributions. However the employer will also have to pay 10% of wages to make up the 80% total up to a cap of £2,500.
  • From 1 October 2020: The pattern continues and the government will pay 60% of wages up to a cap of £1,875. The employer will continue to pay employer’s national insurance contributions and pension contributions. However the employer will also have to pay an additional 20% to top up the 80% total up to a cap of £2,500.

The scheme will close on 31 October 2020 and employers will need to bear all employee costs again. Employers will therefore need to reconcile these extra amounts into the budget for their business and also evaluate the likely need for these employees after 31 October 2020.

‘Flexible furloughing’ – New furloughing scheme

From 1 July 2020, the government have announced that employers will have greater flexibility about their furloughed staff. This is being called ‘flexible furloughing’ scheme. The government indicates that this means the staff can start working part time and have their additional salary topped up by the scheme. We had previously been told that this would be from 1 August, but this has been brought forward and the Chancellor indicated that this would be to kick start businesses and the economy.

It seems that employers will be given discretion about how this part time working will operate. The employer will decide hours and shift patterns, but when the employee is working then the employer must pay the employee’s normal wages. The government will not make any contribution on the pay for the hours worked. The employer must also ‘agree’ this work pattern with the employee. We would suggest this needs to be evidenced in writing. The government have promised further guidance on 12 June 2020, which we imagine is to avoid abuse of the system, as all employees will need to be on furlough/or have been on furlough by that point to benefit from flexible furloughing.

We anticipate that employers will be keen to know the detail and we will provide an update as soon as possible after 12 June.

If you have any queries, please contact a member of the employment team.

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Claire Merritt

Posted: 30th May 2020

T: 023 8048 2112

E: Email Me