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      COVID-19 Information Hub

      Flexible Furloughing – Changes To The Job Retention Scheme from 1 July 2020

      The Coronavirus Job Retention Scheme (JRS) was introduced on 20 March 2020, and many businesses have been utilising the scheme to support their employees. The scheme has undergone many incarnations with flexible furlough introduced from 1 July 2020 along with reductions in the amount of government support over the summer. The scheme was due to end on 31 October but an extension announced on 5 November allows businesses to claim support at a similar level to that which was available in August. The Job Retention Bonus and Job Support Scheme have been abolished, although something similar may be introduced at a later date. Updated 16/11/2020

      This article, originally published in Summer 2020, focusses on the significant changes to the scheme from 1 July and should be read in conjunction with our Coronavirus Job Retention Scheme – The basics from 1 March 2020 article.  The information in these 2 articles remains relevant for the present time, as claims for periods up to 31st October can continue to be made retrospectively, with a deadline of 30 November.

      Please see our most recent article Extended Coronavirus Job Retention Scheme – Changes from 1 November 2020 for details of the scheme applicable from that date.

      This already complex area of regulation is now even more involved and it is imperative that any employer wishing to use the JRS seek professional advice, or read the GOV.UK issued guidance for the full details.

      30 June

      The scheme will be closed to new entrants. From this point onwards, employers will only be able to furlough employees that they have furloughed for a full three week period before 30 June. This means that the final date by which an employer can furlough an employee for the first time will be 10 June, in order for the current three week furlough period to be completed by 30 June.

      1 July

      Flexible furloughing begins and employers can bring back previously furloughed workers on a part-time basis, with the employer paying an employees wages when they are working and the government paying 80% when they are not. This is subject to a £2,500 cap, and while the government has not specifically said that this cap will be pro-rated based on number of furloughed days, we expect the scheme to operate in this way.

      1 August

      • Employers will no longer be able to make a JRS claim for ER NICS and ER Pension
      • The level of government support for furlough pay will remain at 80%

      1 September

      • The level of government support for furlough pay will reduce to 70% of wages up to a cap of £2,187.50
      • The employer will be required to make up 10% of wages to a cap of £2,500

      1 October

      •  The level of government support for furlough pay falls by a further 10%
      • The government will pay 60% of wages up to a cap of £1,875
      • The employer will be required to make up 20% of wages to a cap of £2,500
      • The scheme is still currently expected to cease in entirety at the end of October.

      Please note, this information is based on our understanding and interpretation of the latest government announcement.  Full details of flexible furloughing and guidance have not yet been issued and are expected from 12 June.  But for now, please read on for a summary of the current scheme and our supplementary commentary, analysis and guidance.

      Government Guidance

      Since 20 March, GOV.UK has regularly updated its guidance on the JRS.  We recommend any employer considering furloughing staff to read this latest guidance.

      This has now been supplemented with detailed guidance from GOV.UK on how to calculate your claim and importantly a step by step guide for employers.

      Kirk Rice commentary:

      Although lengthy, our commentary will only focus on the significant areas of the current scheme applicable to the majority of employers.  We, therefore, recommend that any employer read the GOV.UK issued guidance for the full advice.


      We will address:

      • Scheme basics
      • Period of the scheme
      • Different types of employment contracts including directors
      • Employee rights during furlough
      • Tax and pension position
      • Furlough pay – calculating the amount to claim
      • Employer National Insurance – calculating the amount to claim
      • Employer pension contributions – calculating the amount to claim
      • How to use the portal
      • What happens when the scheme is withdrawn
      • Obtaining employee agreement to furlough

      Scheme basics

      • You can make a claim if you cannot maintain your workforce because of a downturn in work due to COVID-19
      • Employers can claim for 80% of an employee’s usual monthly wage up to a cap of £2,500 PLUS the associated Employer National Insurance contributions AND mandatory level employer pension contributions
      • An employer can choose to top up an employees’ wages, but they do not have to
      • Where an employer provides benefits to furloughed employees, including through a salary sacrifice scheme, these benefits should be in addition to the wages that must be paid under the JRS
      • An employer must have a PAYE payroll scheme already in existence on 28 February AND have a UK bank account
      • A worker cannot perform any work for you (or associated or linked organisations) while on “furlough leave”. If an employee is working reduced hours for reduced pay, you cannot make a claim

      Period of the scheme

      • The scheme started from 1 March and has now been extended in its current form through to the end of June
      • Employers can furlough staff at any point from 1 March to 30 June, but employees must be furloughed for a minimum of 3 consecutive weeks. The final date by which an employer can furlough an employee for the first time will be 10 June.
      • You can rotate employees on and off furlough so long as any period of furlough is for a minimum of 3 weeks
      • From July, the scheme will change, and employers will have more flexibility to bring furloughed workers back to work part-time while still receiving support from the scheme
      • Employers will be asked to pay a percentage towards the salaries of their furloughed staff (more detail to follow)
      • An employer can claim for furloughed staff that were on a PAYE payroll on or before 19 March AND were notified to HMRC on an RTI submission on or before 19 March. You cannot claim for employees hired after 28 February
      • The scheme also covers employees who were made redundant or stopped working for an employer since 28 February, if their employer rehires them and puts them on furlough. An employer can claim for their wages from the date on which they were furloughed through the scheme.  For example, if you made an employee redundant on 21 March, you can rehire them and claim for furloughed wages from the date you furlough them
      • Claims can be backdated to 1 March where employees have already been furloughed from that date. A claim cannot start any earlier than the date the employee was furloughed

      Different types of employment contract including directors

      • You can claim for employees on any kind of contract including full-time, part-time, employees on agency contracts AND employees on flexible or zero-hour contracts
      • Employees on fixed-term contracts can be furloughed, and contracts can be renewed or extended during the furlough period
      • Company directors can be furloughed, and the company can also make a claim, but where a director merely takes dividends and does not pay themselves a salary, they would be unable to benefit from this scheme
      • A company director can only complete their statutory duties (no other work), and the decision to furlough a director must be properly adopted as a decision of the company

      The tax and pension position

      • The wages of furloughed employees will be subject to Income Tax and National Insurance as usual. Employees will also pay pension contributions into their workplace pension unless they have opted out
      • Employers will be liable to pay Employer National Insurance contributions on furlough wages paid, as well as employer pension contributions, unless an employee has opted out, or has ceased saving into a workplace pension scheme
      • An employer can claim for Employer National Insurance contributions and mandatory pension contributions paid during a period of furlough
      • You cannot claim for additional NI or pension contributions you make because you choose to top up your employee’s salary
      • You cannot claim for any pension contributions you make that are above the mandatory employer contribution

      Employee rights during furlough

      • Holiday accrues for employees throughout the furlough period
      • Employees can take holiday while on furlough, and Working Time Regulations require holiday pay to be paid at the employee’s normal rate of pay. An employer is therefore required to top up furloughed pay for any period of holiday taken
      • The same applies to the four UK bank holidays, which occur during the temporary furlough period (1 March – 31 July) These should be paid at the employee’s normal rate of pay. An employer is therefore required to top up furloughed pay for any bank holidays.
      • Employees that have been furloughed have the same rights as they did previously. That includes Statutory Sick Pay entitlement, maternity rights, other parental rights, rights against unfair dismissal and to redundancy payments
      • Employees can take part in training or volunteer for another employer or organisation
      • An employee can also take other paid work with a different employer during a period of “furlough leave” from your employment so long as it does not affect their ability to undertake any training the employer requires them to do or their ability to return to work for the employer at the end of a furlough period. A furloughed employee working for another employer does not affect the employer’s ability to make a claim

      Furlough pay – calculating the amount to claim

      • An employer can claim for 80% of the employees’ wages (up to a cap of £2,500), from their last pay period before 19 March. For monthly paid employees, the reference period is therefore February
      • You can include ‘regular’ payments you are ‘obliged’ to make, including contractual overtime, contractual fees/commission payments but not discretionary bonuses or discretionary commission
      • An employer cannot include non-monetary benefits in kind and salary sacrifice schemes that reduce an employees’ taxable pay. A grant cannot be used to pay for the provision of benefits or salary sacrifice schemes
      • A calculator is available on the portal to assist employers in calculating how much to claim; however, there are several exceptions where the calculator will not deal with calculating the claim and an employer will need to make the calculations manually

      For full-time and part-time salaried employees, you should use the current annual salary divided by twelve and base your 80% calculation on that.

      For employees whose pay varies, the calculation is more complicated:

      • If the employee has been employed for a full 12 months before the claim, an employer can base the claim on the higher of the same month’s earnings from the previous year or the average monthly earnings from the 19/20 tax year
      • If the employee has been employed for less than 12 months, the claim is based on an average of their monthly earnings since they started work

      Grants will be pro-rated if your employee is only furloughed for part of a pay period.  In this instance, an employer will need to use the daily maximum wage and use this to claim for the number of days an employee is furloughed.

      The daily wage should be calculated based on a monthly salary divided by the total number of days in the month (and not working days in a month)

      For example, a salaried employee is furloughed on 6 April, and they were paid £2,400 in February

      • Divide £2,400 by the total days in April (30) = £80
      • Multiply by 25 (the number of furlough days in April) = £2,000
      • Multiply by 80% = £1,600 = furloughed pay

      Again, where an employees’ pay varies, or where an employee did not work for the employer for a full year, the calculations for part of a pay period are more complex.

      Employer National Insurance – calculating the amount to claim

      • An employer can claim for the Employer National Insurance paid on furloughed pay
      • An employer cannot claim for Employer National Insurance in respect of topped up pay, or in relation to non-furloughed pay where an employee was furloughed part way through a furlough period. In this situation, the employer will need to calculate the amount to claim, and these calculations can be complex.

      In our example above, if our furloughed employee received topped up pay for the period of furlough, the claim for employers national insurance would be:

      • Usual pay prior to furlough = (2,400/30 x 5) = £400
      • Topped up furlough pay = £2,000
      • Total pay = £2,400.
      • £2,400 less £732 (nil rate threshold) = £1,668
      • Multiply by 13.8% = £230.18 Employer National Insurance
      • Divide by 30 (the number of days in the pay period) = £7.67
      • Multiply by 25 (the number of furlough days in the pay period) = £191.82
      • Multiply by £1,600/£2,000 (furlough pay/total pay for period on furlough) = £153.46

      There is an additional complication to be aware of in respect of the Employment Allowance.  In 19/20 the allowance was £3,000 and available to all employers.  For 20/21 the allowance is £4,000 but only available to smaller employers.  Where the allowance has been claimed in either year, additional care must be taken to ensure this is reflected in the calculations.

      Employer pension contributions – calculating the amount to claim

      • An employer must still pay employer pension contributions as usual on behalf of furloughed employees
      • An employer can claim for these up to the level of mandatory employer contribution
      • This will be different to the amount paid where an employer pays more than the mandatory contribution, where an employee was furloughed part way through a pay period or where an employer tops up furloughed pay
      • These calculations are again complex, and an adjustment must be made for the Lower Level of Qualifying Earnings (£520 for 20/21). Where an employee is furloughed part way through a pay period, the adjustment for the Lower Level of Qualifying Earnings must be adjusted to reflect this.

      In our example, furloughed pay for April is £1,600, and the employee was furloughed for 25 out of 30 days.

      • Furloughed pay = £1,600
      • Calculate the Lower Level of Qualifying Earnings relevant to the furlough period = £520/30 x 25 = £433.33
      • Deduct this from furloughed pay = £1,600 – £433.33 = £1,166.67
      • Multiply by mandatory 3% = £35.00
      • The mandatory employer contribution on pay of £1,600 is £35.00, and the employer can claim this

      How to use the portal

      • The online service is available from 20 April
      • An employer should make one claim for the claim period, shortly before or during running payroll. You cannot make more than one claim during a claim period, and claim periods cannot overlap.
      • Changes cannot be made to a claim; it is therefore extremely important that all employees are claimed in each period at one time
      • You can save and return at any point while submitting your claim
      • HMRC will check your claim and if eligible, pay it to you six working days after making the claim by BACS to a UK bank account
      • Payments may be withheld or need to be repaid in full to HMRC if the claim is based on dishonest or inaccurate information or found to be fraudulent
      • HMRC will retain the right to audit all aspects of a claim retrospectively, and an employer should, therefore, retain all records, communications and calculations for a minimum of 5 years
      • HMRC have commented that there will be limited telephone support and are directing employers to contact accountants for advice and support
      • Accountants who are authorised to act on behalf of clients for PAYE matters will be able to file the claims on the employer’s behalf
      • Accountants who are file only agents will not be able to access the service due to data protection reasons
      • The Coronavirus Job Retention Scheme Portal is now open, you can claim here

      What happens when the scheme is withdrawn?

      • Once the government has closed the scheme, HMRC will continue to process remaining claims before terminating the scheme
      • There is no requirement to retain an employee in your employment for a period after the furlough ends. If they can’t return to their normal duties, it may be necessary to consider termination of their employment (redundancy) at that point
      • Notice can be given to an employee during the furlough period. However, care should be taken as we approach the end of the JRS scheme. If the notice to be given extends beyond the period of the JRS scheme then notice will be paid by the employer but will not be eligible for a claim under the JRS

      Attaining employees agreement to furlough

      If employers are considering to furlough some or all of their employees, we suggest that employers are talking to their employees now to advise of your position; and to inform them that you may wish to utilise the scheme to furlough them. Please find a template letter to enable you to do this, here.

      If, however, on reflection, you wish to push ahead and furlough employees without delay, then you can use this letter to do so.

      Both letters seek to obtain the agreement of your employees to being furloughed, which you will need if your contracts do not contain a clause permitting you to place employees on “lay-off” or “short-time working” in the event of a temporary downturn in work. This point, however, should not present too much of an issue if you explain that regrettably, the alternative may be a period of lay-off (without pay) or compulsory redundancies.

      Please be aware that if you are choosing to furlough some employees but not others, this is allowed under the scheme. But, you will need to ensure you use a fair selection process such as simplified selection matrix or criteria similar to a redundancy selection criteria.


      Finally, be careful to consider what is best for your business and your employees. You may have thought that a reduction in hours or pay for everyone works best and is fairer; however, this would preclude you from currently using the scheme and making a claim. If you agree such reductions with an employee, you cannot furlough them as well as they would be continuing to do work for you. We understand that the requirement for employees to do no work whatsoever will be implemented strictly by HMRC. As detailed above, the scheme will change from July.

      We’ll be updating this page for additional information as, and when it becomes available, so please do check back regularly for further information.

      Kirk Rice LLP can support you to manage and pay your team effectively at this time. For more information, please get in touch with your client manager.

      Coronavirus Job Retention Scheme – The Basics

      Kirk Rice LLP can support you to manage and pay your team effectively with flexible furloughing. For more information, please email info@kirkrice.co.uk.

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