On 29 May, the government cast light on the extension of the Coronavirus Job Retention Scheme (JRS), and in particular flexible furloughing, with the promise that further details would follow. New technical guidance has now been published, and yes, it was released at 9pm on a Friday. No change there, but what has been updated potentially represents some quite significant changes for employers.
The principle of what the government is trying to achieve is relatively simple – from July, employees will be allowed to work part-time while being furloughed for hours they don’t work and employers will have to pay normal pay for the hours they “use”; from August, employers will need to start contributing to wage costs (to a maximum of 20 per cent by October), whether or not the employees are working. However, the calculations required to make a claim under the new arrangements are potentially complex. The majority of the government’s guidance on the JRS (and there is a lot) has also been updated and several new guidance documents published, meaning there is a lot for employers to take on board.
Here we answer the main questions about flexible furlough and the extended furlough scheme to help employers navigate what is involved:
- No new employees can now be furloughed, unless they are returning from statutory parental leave.
- From 1 July, there is no minimum furlough period and employees can be brought back part-time for any hours or shift patterns agreed between employers and employees. Full furlough will still be possible.
- Employers will bear the cost in full for any hours worked by furloughed employees and can claim a furlough grant to cover the balance between hours worked and employee’s “usual hours”.
- The minimum HMRC claim period is seven calendar days. Employers will not be able to make claims that cross calendar months.
- The new rules on claim periods and the calculations for flexible furlough are potentially complicated, so it is worth employers spending time now planning staff working arrangements for July onwards and getting their heads around how to claim.
- From August onwards, employers will need to start contributing to the cost of furlough payments. The JRS will end on 31 October 2020.
Details of the changes
1. What is “flexible furlough”?
- From 1 July, employers can bring furloughed employees back to work for any amount of time and any work pattern, while still being able to claim the JRS grant for any hours not worked.
- It will continue to be possible to fully furlough employees or to rotate employees on and off furlough.
- When fully furloughed, employees will not be able to do any work for an employer (in the same way as currently).
2. What guidance is there?
- There are no less than thirteen government webpages on the JRS (and that’s just the ones we’ve managed to find!). Thankfully, the government has published a summary page, setting out all the guidance under relevant headings, which roughly mirror the steps which employers should take to make a claim.
- A new guidance document: “Steps to take before calculating your claim” is likely to be particularly useful for employers in understanding what is needed to implement and claim for flexible furloughing. We mention some others below.
- For background information and our commentary on the furlough scheme, see here.
3. Who is eligible to be furloughed under the extended furlough scheme?
- Only employees who have been furloughed previously (and for whom employers have successfully claimed a grant) will be eligible to be furloughed after 1 July. This will cover anyone who has been on furlough for at least three consecutive weeks between 1 March and 30 June 2020. There is no requirement for the employee to be on furlough on 30 June itself to be eligible (ie they could have been furloughed previously but subsequently brought back to work).
- All other eligibility criteria remain unchanged.
- It is no longer possible to furlough new employees who have not previously been furloughed – the last date for that was 10 June.
- The exception to this are any employees returning from statutory parental leave after 10 June. This includes maternity, paternity, shared parental, adoption or parental bereavement leave. These employees will be eligible to be furloughed after 10 June, even if they are being furloughed for the first time, provided that their employer has submitted a furlough claim for any other employee for at least 3 consecutive weeks between 1 March and 30 June. The employee must also meet the normal eligibility criteria for furlough.
- The government’s “Check which employees you can furlough” guidance also contains information about employees who have transferred under TUPE or where an employer has consolidated its payroll.
4. What deadlines are there for making a claim?
- The deadline for submitting claims for the period ending on or before 30 June, is 31 July.
- Claims for July can only be made from 1 July onwards.
- If a period of furlough crosses from June into July, separate claims will need to be submitted to cover the days in June and the days in July.
5. What changes are being made to the minimum length of furlough and to claim periods?
- Changes to the minimum length of furlough and the way claim periods are calculated are some of the most significant changes introduced by the amended guidance. A claim period is the number of days for which an employer is claiming a grant under the JRS; it is not necessarily the same as a furlough period, which is the length of time for which an employee is furloughed.
- Until 1 July, the minimum length of time for which an employee can be furloughed is 3 consecutive weeks. This will be the case for all furlough periods which started in June, even if they end after 1 July.
- From 1 July, furlough periods can last any amount of time; there is no minimum period.
- Although there is no minimum furlough period after 1 July, the minimum HMRC claim period that employers can claim for is seven calendar days. The only exception to this is when the period claimed for includes either the first or last day of the calendar month, and an employer is claiming for the period ending immediately before it. In these cases, the claim can be for fewer than seven days.
- After 1 July, employers cannot make claims that cross calendar months. So, although periods of furlough can span more than one month, any claim period must start and end within the same calendar month. Where periods of furlough span two months, the days in different months must be claimed for separately, as part of a claim for the month in which they fall. This is to reflect the fact that the JRS rules on employer contributions are changing each month. It is understandable why the government is making this change, but it has the potential to make calculations complicated for employers, especially those with large numbers of staff.
- Employers can only make one claim for any period, so must include all furloughed or flexibly furloughed employees in one claim, even if they are paid at different times. Overlapping claims are not permitted. The government has produced several flow diagrams to illustrate this.
- Where possible, claim periods should be matched to the dates which employers process payroll. When claiming for flexible furlough periods, it is advisable to wait until there is certainty over the actual hours which employees work during a claim period before submitting a claim.
- Government guidance on deciding the length of your claim period can be found here.
6. What furlough grant can employers claim for flexible furlough and how should it be calculated?
- The rules for calculating the JRS grant for employees on flexible furlough are not altogether easy, particularly when combined with the new rules about claim periods (see above) and changing employer contributions (see below). Details of how to calculate the amount to pay furloughed employees, including when they are flexibly furloughed, can be found in the guidance document: “Calculate how much you can claim”.
- Under the flexible furlough scheme, employees will be able to work as many hours as is agreed with their employer. Employers will need to pay employees their normal pay in full (ie their pre-furlough rate of pay) for any hours they work when flexibly furloughed.
- Employers will then be able to claim a pro-rated furlough grant for any hours which flexibly furloughed employees do not work. This is calculated based on an employee’s “usual hours” when not on furlough, minus the hours they actually work.
- If an employer wishes to flexibly furlough employees, for every claim period they will need to work out and submit for each employee:
- the employee’s usual working hours;
- the actual hours they work; and
- their furloughed hours.
- Wage will be proportional to the hours not worked.
- The government’s JRS calculator has been updated to include flexible furlough calculations.
7. How should employers calculate employees’ “usual hours”?
- The guidance on “Steps to take before calculating your claim” includes details on how to work out employees’ usual hours and furloughed hours, needed to calculate the amount of grant to claim. This varies depending on whether employees work fixed or variable hours (rules on piece workers are also available):
- For employees on fixed hours, their usual hours will be calculated based on the hours they were contracted to work at the end of the last pay period ending on or before 19 March 2020.
- For employees on variable hours, usual hours will be based on the higher of the average number of hours worked in the tax year 2019 to 2020, or the corresponding calendar period in the tax year 2019 to 2020 (including periods of paid annual leave or non-discretionary overtime).
- There is a new document which sets out an example of how to calculate the amount to claim for a flexibly furloughed employee, and the previous worked examples have been updated to include a calculation on working our usual and furloughed hours.
8. How many employees can be furloughed at any one time?
- The amended guidance has introduced a new maximum number of employees for which employers can claim: after 1 July the number of employees an employer can claim for in any claim period cannot exceed the maximum number of employees on furlough at the same time in any period prior to 30 June. The exception to this cap is in relation to employees returning from statutory parental leave (see above).
- This could potentially create issues for employers who previously rotated employees on and off furlough, but who might now wish to have everyone working part-time. Employers are advised to check the maximum number of employees for which they have previously claimed to ensure they do not exceed this limit.
9. What type of agreement is needed to furlough employees?
- You may remember there was some confusion about whether employees need to sign to confirm their agreement to be furloughed. The guidance is now clear that, although employees must agree to be furloughed, that agreement only needs to be confirmed in writing and employees do not need to provide a written response.
- In relation to agreeing to flexible furloughing, the guidance states that a “written agreement” confirming the new furlough arrangement is needed. It is not clear whether this requires something more from employees, or whether the difference in wording is in fact unintentional. Nevertheless, where possible, it is likely to be sensible for employers to ask employees to sign to confirm what hours and shifts they will be working when flexibly furloughed, to avoid the risk of confusion or potential disputes in the future.
10. Are there any alternatives to flexibly furloughing employees?
- There is no denying that the calculations for flexible furlough are likely to be complex and administratively burdensome, and that may put off some employers.
- One possible alternative, now that there is no longer a minimum furlough period (see above), is for employers to put in place a more frequent rotation of staff, for example, one week on furlough and one week off, which means employees are on “standard” furlough arrangements. This would mean the employees remain on the “standard" furlough arrangements while giving some flexibility and the employer would not need to use the official flexible furlough scheme and the calculations that go with it.
11. When are employer contributions increasing and by what amount?
- From August 2020, the level of the furlough grant being paid by the government will be tapered, as we get nearer to the end of the scheme. In brief, from August, employers will need to start paying employer pension contributions and National Insurance Contributions again; in September and October, employers will also need to start contributing to employees’ wage costs.
- For more information, see our previous blog. The government has also produced a summary document of the changes being introduced. For ease, we have reproduced a copy of the government’s table summarising the changes in employer contributions:
- Information on how this will affect calculations can be found here.
12. What happens if you make a mistake?
- The government has recognised that mistakes do happen; no bad thing given the complexity of the flexible furlough calculations. The government’s guidance on claiming for wages now includes a section on what employers should do if they make an error when claiming, which includes notifying HMRC if there has been an overpayment so that a reduction can be made in a subsequent claim amount.
The furlough scheme will finish on 31 October 2020 and this latest suite of guidance documents sees us through to the end. It is strange to think this might our last substantive post on the JRS – although since the last lot of guidance went through at least five different iterations (we lost count in the end), and a Treasury Direction is still due extending the scheme from the end of June, you may not want to hold your breath on this.
Although the latest changes to the guidance may feel a lot, in the main they focus on changes to the claim period and the introduction of flexible furlough. The bigger issue for employers, however, may be the considerations that fall outside the guidance – what staffing requirement will they have after 1 July; do they want to use the flexible furlough scheme; is their payroll set up to manage the calculations; are the increases to employer contributions affordable? For some, it is possible that the increased cost of furlough, combined with the increasing complexity of the calculations involved, may force them to start considering alternative options sooner than they might have hoped. Our blog on contractual variation is a good starting point for employers considering reducing staffing levels or adopting other cost cutting measures.
This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
© Farrer & Co LLP, June 2020