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Updates to the Furlough Scheme – How Will It Work in Practice?

Rishi Sunak made a much anticipated announcement on the Coronavirus Job Retention Scheme (CJRS) on Friday (29th May), providing more information on how the newly extended scheme will operate and further guidance on 'flexible furloughing'.

He announced that the CJRS scheme will close on 30th June 2020 to new claimants, with the final eligible furlough period beginning on 10th June 2020 (this is the last date employees can be furloughed from to meet the minimum 3 week requirement to make a claim). Existing claimants will be able to continue to submit claims with adjustments to the relief available from 1st July 20.

Below we provide an overview of the scheme and the various changes ahead.

June 2020

The government will continue to cover 80% of an employees wage costs up to £2,500 and employees who are furloughed should follow the current guidelines which prohibit any work being undertaken for employers (whilst on furlough).

July 2020

Employers will have the flexibility to bring back furloughed staff on a part time basis as of 1st July 20. This means that employers can ask furloughed staff to come into work for any amount of time and any shift pattern without running the risk of contravening current guidelines (which prohibit staff undertaking any work for employers whilst they are furloughed). Employers must agree in writing with employees, any new flexible working arrangements.

Where an employer asks employees to return to work, they will be required to pay 100% of the employees wages including Employers National Insurance Contributions (ER NICs) and Employers Statutory Pension Contributions, which will not be reclaimable from the government.

For the days the employee does not work (and they are furloughed), 80% of their pay can be claimed under normal furlough rules (including ERs NIC and pension contributions). For staff who remain furloughed throughout and do not return to work at all, the government grant can continue to be claimed in full.

Example:

Employee's normal wages per week - £403.25.

They are on a Nest statutory pension scheme and their National Insurance Category is A.

They agree a flexible working arrangement, returning for 3 days a week earning £241.95; (£80.65 a day).

They are furloughed for the remaining 2 days at a cost of £161.30. The employee will receive 80% of their normal pay whilst furloughed and the employer will claim the full CJRS grant available.

Working Time Calculation

£241.95 plus:

  • ERs NIC calculated on £72.95 (241.95-169 primary threshold) @ 13.8% = £10.07
  • ERs Statutory Pension on £49.95 (241.95-120 lower qualifying earnings level) @ 3% = £3.66

Total cost of payroll for normal working time = £255.68

Furlough Calculation

£161.30 x 80/100 = £129.04

  • ERs NIC calculated on £0 (129.04-169 primary threshold) @ 13.8% = £0
  • ERs Statutory Pension on £9.04 (129.04-120 lower qualifying earnings level) @ 3% = £0.27

Total cost of payroll for furlough time claimable from HMRC per week = £129.31

Total Payroll Outlay for Employer = £255.68

August 2020

Employers will continue to be asked to cover 100% of pay for any working time employees complete.

They will in addition, be asked to pay the Employers National Insurance (ER NICs) and Employers Statutory Pension Contributions of all furloughed workers, both for the days they work and the days they do not.

Example:

Employee's normal wages per week - £403.25.

They are on a Nest statutory pension scheme and their National Insurance Category is A.

They agree a flexible working arrangement, returning for 3 days a week earning £241.95; (£80.65 a day).

They are furloughed for the remaining 2 days at a cost of £161.30. The employee will receive 80% of their normal pay whilst furloughed and the employer will claim the full CJRS grant available.

Working Time Calculation

£241.95 plus:

  • ERs NIC calculated on £72.95 (241.95-169 primary threshold) @ 13.8% = £10.07
  • ERs Statutory Pension on £49.95 (241.95-120 lower qualifying earnings level) @ 3% = £3.66

Total cost of payroll for normal working time = £255.68

Furlough Calculation

£161.30 x 80/100 = £129.04

  • ERs NIC calculated on £0 (129.04-169 primary threshold) @ 13.8% = £0
  • ERs Statutory Pension on £9.04 (129.04-120 lower qualifying earnings level) @ 3% = £0.27

Total cost of payroll for furlough time claimable from HMRC per week = £129.04

Total Payroll Outlay for Employer = £255.95

September 2020

Employers will continue to meet 100% of employees wages where they return to work, and the Employers National Insurance (ER NICs) and Pension Contributions for those who do not.

The government's support for furloughed workers will reduce from 80% to 70%, equivalent to a maximum of £2,187.50 per month.

Employees will still be entitled to receive 80% of their normal pay, however employers will be asked to 'top up' the government's 70% contribution by paying the additional 10% of furlough pay.

Example:

Employee's normal wages per week - £403.25.

They are on a Nest statutory pension scheme and their National Insurance Category is A.

They agree a flexible working arrangement, returning for 3 days a week earning £241.95; (£80.65 a day).

They are furloughed for the remaining 2 days at a cost of £161.30. The employee will receive 80% of their normal pay whilst furloughed and the employer will claim the full CJRS grant available.

Working Time Calculation

£241.95 plus:

  • ERs NIC calculated on £72.95 (241.95-169 primary threshold) @ 13.8% = £10.07
  • ERs Statutory Pension on £49.95 (241.95-120 lower qualifying earnings level) @ 3% = £3.66

Total cost of payroll for normal working time = £255.68

Furlough Calculation

£161.30 x 80/100 = £129.04

  • ERs NIC calculated on £0 (129.04-169 primary threshold) @ 13.8% = £0
  • ERs Statutory Pension on £9.04 (129.04-120 lower qualifying earnings level) @ 3% = £0.27

Total cost of payroll for furlough time claimable from HMRC per week = £129.04 x 70/100 = £90.33

Total cost of 10% payroll 'top-up' = £129.04 - £90.33 = £38.71

Total Payroll Outlay for Employer = £294.66

October 2020

The government (optimistically) anticipates by October 20 the vast majority of businesses will be back up and running and their employees will be back at work, albeit on a flexible working arrangement.

As the scheme draws to a close, the government will reduce their furlough grant (for non working time), to 60%, equivalent to a maximum of £1875.00.

They will also ask employers to 'top up' all staff wages by 20% (in addition to meeting Employers National Insurance Contributions (NICs) and Pension Contributions.)

Example:

Employee's normal wages per week - £403.25.

They are on a Nest statutory pension scheme and their National Insurance Category is A.

They agree a flexible working arrangement, returning for 3 days a week earning £241.95; (£80.65 a day).

They are furloughed for the remaining 2 days at a cost of £161.30. The employee will receive 80% of their normal pay whilst furloughed and the employer will claim the full CJRS grant available.

Working Time Calculation

£241.95 plus:

  • ERs NIC calculated on £72.95 (241.95-169 primary threshold) @ 13.8% = £10.07
  • ERs Statutory Pension on £49.95 (241.95-120 lower qualifying earnings level) @ 3% = £3.66

Total cost of payroll for normal working time = £255.68

Furlough Calculation

£161.30 x 80/100 = £129.04

  • ERs NIC calculated on £0 (129.04-169 primary threshold) @ 13.8% = £0
  • ERs Statutory Pension on £9.04 (129.04-120 lower qualifying earnings level) @ 3% = £0.27

Total cost of payroll for furlough time claimable from HMRC = £129.04 x 60/100 = £77.42

Total cost of 10% payroll 'top-up' = £129.04 - 77.42 = £51.62

Total Payroll Outlay to Employer = £307.60

Additional Points to Note

  • From 1st July - claim periods will no longer be able to overlap calendar months.
  • The number of employees an employer can claim for in any claim period cannot exceed the maximum number they have claimed for in any previous claim.
  • Many employers are eligible for the governments Employment Allowance (EA) which provides relief for the first £4,000 of Employers NICS (subject to restrictions), and should check that where eligible, this has been claimed via their payroll software/provider.
  • Further information on flexible furloughing and calculation of claims is expected on 12th June. The payroll examples provided above are our opinion of how the new method for furlough and non furlough pay may be calculated. Professional advice and guidance should always be sought in conjunction with checking the latest government advice.

Source: Gov.UK/SEISS and CJRS Factsheet

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