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The Flexible Furlough Scheme – The Key Points Every Employer Needs to Know

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 main aim with the changes is to ‘kick start’ the economy as they start to ease the lockdown measures in the weeks ahead.

Furlough has impacted close to nine million people across the whole of the UK. The scheme has now been cut off to new entrants in line with the changes the Chancellor announced. Whilst the continued support of the scheme by the Government is welcomed employers have also warned that the changes to the scheme could result in thousands of redundancies.

Since the Chancellors announcement at the end of May HM Revenue & Customs has published detailed guidance on the operation of the Coronavirus Job Retention Scheme (CJRS) from 1 July 2020 onwards, including examples of how to calculate claims for the new flexible furlough option.

  • To date the CJRS currently provides grants to employers covering 80 per cent of the usual wages of furloughed employees – who remain on the payroll but must not carry out any work – up to a cap of £2,500 a month as well as employer National Insurance Contributions (NICS) and pension contributions.
  • However, from 1 July employers will be able to make new flexible furlough agreements with employees that enable them to return to work on a part-time basis, while the employer will still be able to claim a CJRS grant for the hours not worked. Only employees who have been furloughed for a full three-week period up to this point will still be eligible to be furloughed.
  • From 1 August, CJRS grants will cease to cover the costs of employer NICs and pension contributions in respect of furlough pay.
  • At the beginning of September, the value of CJRS grants will reduce to 70 per cent of furloughed employees’ usual wages up to £2,187.50 a month, with employers required to top-up the remaining 10 per cent so that furloughed employees still receive 80 per cent of their usual wages.
  • Finally, October will see the value of CJRS grants fall to 60 per cent of furloughed employees’ usual wages up to £1,875 per month, with employers having to contribute the remaining 20 per cent, so that furloughed employees receive 80% of their usual wages.

Employers are responsible for calculating the correct amounts to claim from the scheme, with HMRC expected to take a hard line on errors that are not corrected quickly.

The new guidance walks employers through the various calculations needed to work out the amounts they need to claim in respect of furloughed employees in different circumstances over the remaining months of the scheme.

This includes information about:

  • Calculating flexible furlough claims;
  • Calculating employer NICs and pension contributions on hours worked and furlough hours;
  • Dealing with considerations around the National Living Wage (NLW) and National Minimum Wage (NMW);
  • Employees returning from parental leave;
  • Employees returning from Statutory Sick Pay (SSP) and the reduction in the value of the main grant in September and October.

To help employers deal with the potentially wide range of permutations, HMRC has published example calculations looking at different situations; https://www.gov.uk/government/publications/find-examples-to-help-you-work-out-80-of-your-employees-wages/example-of-a-full-calculation-for-an-employee-who-is-flexibly-furloughed

If employers find that they have overclaimed, they can report this as part of their next claim, which will be adjusted down to take the previous overpayment into account.

HMRC has now confirmed arrangements for employers that are no longer claiming grants from the scheme but which need to repay an overpayment. In these circumstances, an employer needs to call HMRC to obtain a payment reference number. The money owed can be paid by Faster Payments, CHAPS or Bacs to HMRC’s accounts.

In the event of underclaims, employers should contact HMRC directly to discuss the underclaim.

As part of the changes to the scheme, HMRC has also confirmed that claims for periods ending up to 30 June must be made by 31 July, while claims periods from 1 July onwards must begin and end in the same calendar month and last at least seven days. If an employee is furloughed in June and continues to be furloughed for their full hours in July, separate claims will need to be submitted, even if this differs from an employer’s own pay periods.

How should a Business Plan for Flexible Furloughing of Employees?

  • If you plan to use the opportunity to part time furlough your employees you need to plan how you will measure and keep a record of the time they are working whilst flexibly furloughed to ensure you can demonstrate this
  • Any claims that you submit should be exact with regards to the hours a flexibly furloughed employee has worked within any claim period. As an employer if you claim too much you will have to pay it back
  • Ensure the part time hours you agree with employees are clearly communicated to them (employees must not work any additional hours than the agreed amount). Think about how your business will manage this and agree it with employees
  • As an employer check you have made the correct flexible furlough calculations

The furlough scheme will close on 31 October 2020.

How can we help?

If you need help with the furlough scheme payments and the new flexible furlough elements that have been announced our experienced payroll team can help. We have been working with our clients throughout the Coronavirus pandemic in this area and can provide assistance and support with the calculations your business needs to make. Contact us today  01494 552100

This blog is for guidance only, professional advice should be obtained before acting on any information contained herein. The information was correct at time of publishing (29 June 2020).