As the furlough scheme winds down, what support can an employer claim towards their employment costs? Millie Dawson explains below.
Back to Basics: What is “Furlough”?
The term ‘Furlough’ is a concept introduced to UK employment law in April 2020 and refers to a type of leave where the employee receives 80% of their salary but is not required to attend work. The Coronavirus Job Retention Scheme (known as “the furlough scheme”) was introduced by the Chancellor, Rishi Sunak, in response to the lockdown as a result of the global pandemic (COVID-19) and the effects of its economic strain on organisations and their workers across the country.
An employer can claim under the furlough scheme for any employee that is paid through PAYE. This can include full and part-time employees, agency workers and zero hours employees.
The purpose of the furlough scheme was to ensure that people were kept in jobs for as long as possible and so that employers were not forced to make people redundant in uncertain times. The way in which this was achieved was through the government subsiding part of the employee’s wages. To begin with, they subsidised 80% of wages and there was a cap of £2500 per month. Employers had a discretion to top this up to 100%.
One of the weaknesses of the scheme initially was that it didn’t allow furloughed employees to do any work for their employers during furlough leave. The government listened to employers and flexible furlough was introduced from 1st July 2020.
What is Flexible Furlough?
Provided that they were eligible (and the employee had been furloughed for 3 weeks prior to 30th June), employers had the ability to put employees on “flexible furlough”. This meant that they had some flexibility in that they were able to work part-time as required by the business and be furloughed for the remaining time. Employees would still receive 80% of their wages as a minimum but the amount that the government subsidised would reduce on a sliding scale, until the end of the scheme in October.
Between 1st July and 30th October, employers are required to increase their contributions to employee costs in order for the employee to receive 80% of their wages. Employers are able to top up their employees pay so that they receive 100%.
Flexible Furlough Timeline of changes to employer contributions
- The government paid 80% of employees’ wages (up to a maximum of £2500 per month)
- They also paid the employer’s national insurance contributions and pension contributions for the hours the employee was furloughed
- Employers had to pay employees for the hours that they worked
- The government paid 80% of employee’s wages (up to a maximum cap of £2500) and employer’s pension and NIC contributions for the hours the employee is furloughed
- The government will pay 70% of employee’s salary (up to a maximum cap of £2,187.50) for any hours the employee is furloughed;
- The employer will have to pay NIC and pension contributions
- Employers have to top up the remaining 10% (so that the employee receives 80% of their pay to a cap of £2500), or more if this has been agreed
- The government will pay 60% of employee’s salary (this is a maximum of £1,875) for the hours the employee is furloughed
- Employers have to top up the remaining 20% of employee wages to make up 80% of their pay or to a cap of £2500 or more if this has been agreed
- Employers will have to pay NIC and pension contributions
- The scheme will close on 31st October
The Job Retention Bonus Scheme
To encourage employers to reduce the amount of redundancies or layoffs required and instead increase employment rates the Chancellor announced a new ‘Plans for Jobs 2020’ scheme.
This scheme will allow any employer that successfully returns employee(s) to work from furlough and keeps them in employment up to the end of January 2021 to claim a £1000 one-off payment for every returned employee.
It is hoped that this will incentivise employers to retain staff in order to reduce unemployment and bring in more money to a business.
In order to qualify for this scheme, an employer must satisfy the following criteria:
- The employee has been continuously employed from the most recent furlough claim until at least 31st January 2021;
- Employers can claim the grant if the said employee earns more than £520 per month between November and January.
- The employee must not be on contractual or statutory notice on a period that started before February 2021.
- All earnings were accurately recorded through HMRC
If you need support with working through your options as an employer, please get in touch to arrange a meeting with one of our HR and legal specialists.