The Chancellor has announced how the JRS will change from 1 July 2020. This is what you need to know. 

The JRS will operate on its current basis until the end of June. It will close to new entrants from 1 July 2020, meaning that any employer wanting employees to take advantage of the new scheme must have furloughed them by 10 June at the latest. From 1 July furloughed workers can return to work part time. Employers must pay the full employment costs in respect of any part time hours worked by furloughed workers. From 1 August 2020 employers must meet 100 percent of the employer’s NIC and minimum pension contributions due on payments to furloughed workers, regardless of whether they relate to working or non-working hours. Furloughed employees will remain entitled to receive at least 80 percent of their reference pay for non-working time (subject to a cap) but the portion of reference pay covered by the JRS grant will reduce to 70 percent from 1 September 2020, and to 60 percent from 1 October 2020. The employer must fund the difference between the reducing grant and the minimum payments to furloughed workers in respect of their non-working hours. Before these changes come into effect, employers should model the impact for their businesses of increased flexibility on working and reduced financial support, and what this means in terms of new or continuing participation in the JRS.

The JRS will continue in its current form until 30 June 2020. In summary, up to and including that date:

• Employers can agree with employees that they are to be ‘furloughed’ under the scheme;
• Furloughed workers cannot, subject to some limited exceptions, undertake any work for their employer (or a connected company);
• HMRC will pay the employer a grant equal to:
  • 80 percent of the furloughed worker’s reference pay (these payments are capped at £2,500 per month), which represents the furloughed worker’s minimum entitlement to pay under the scheme; and
  • The associated employer’s NIC and minimum automatic employer pension contributions; 
• The employer bears the full cost of any ‘top up’ payments made to furloughed workers over and above their minimum entitlements under the scheme.

Following his earlier announcement that the JRS would be extended until 31 October 2020, but be made more flexible with employers bearing some of the costs, the Chancellor confirmed on 29 May how the scheme will start to change from 1 July – rather than from 1 August as had been expected.

The prospective changes are summarised below. Detailed HMRC guidance on how the new scheme will work is expected on 12 June.

From 1 July, furloughed workers can return to work on a flexible part-time basis.

Until the JRS closes on 31 October (unless it is further extended), these employees will be entitled to receive:

• Their full contractual pay in relation to any part-time hours worked; and
• 80 percent of their reference salary (capped at £2,500 per month pro rata) in respect of their non-working time.

However, an employee can only be furloughed on or after 1 July if they have been furloughed for at least three consecutive weeks at some point in time prior to that date.

The employer must bear the contractual salary costs of any part time hours worked by a furloughed employee, together with the associated employer’s NIC and minimum pension contributions.

Additionally, from 1 August 2020 employers will no longer be able to claim the JRS grant in respect of any employer’s NIC and pension contributions.

Further, whilst employers must still pay employees at least 80 percent of their reference pay subject to a cap of £2,500 per month pro rata in respect of non-working hours:

• From 1 September the JRS grant will fall to 70 percent of reference salary (subject to a monthly cap of £2,187.50, which will reduce in proportion to any part-time hours worked); and
• From 1 October the JRS grant will further reduce to 60 percent of reference salary (subject to a monthly cap of £1,875, which will again reduce in proportion to any part-time hours worked).

Employers will therefore bear an increasing portion of pay for their furloughed workers’ non-working hours.

Where the employer agreed to make any discretionary ‘top up’ payments to furloughed workers, the cost of these payments – and the associated employer’s NIC and pension contributions – will be borne by the employer as at present.

The flexibility in the new JRS, whilst welcome, inevitably creates further complexity.

Because employees must have been furloughed for at least three weeks prior to 1 July in order to participate in the new scheme, if an employer intends a worker who has not previously been on furlough to be eligible for the JRS after 30 June, that employee must be furloughed for the first time by 10 June at the latest. This could require careful planning and quick adjustments to previously scheduled shifts patterns, and will mean that important decisions which affect individuals’ ongoing eligibility for the scheme must be made before HMRC’s guidance is published on 12 June.

Employers must also enter into new written furlough agreements with employees who are to work on a part time basis whilst furloughed. This must be done in accordance with existing employment law. In developing flexible furlough plans, employers should ensure their criteria for selecting which furloughed workers will return to work part time – and what hours they work – are fair, reasonable and objective and neither directly, nor indirectly, discriminatory.

Additionally, returning to work part time might potentially leave some employees at a financial disadvantage. This could be the case where, for example, historical overtime forms a significant part of the reference pay on which furlough payments are based, but similar levels of overtime are not currently available. Cases like this will require careful handling and sensitive employee communications.

Claims under the new JRS can be submitted from 1 July, and the last claims under the existing scheme must be submitted by 31 July.

When submitting claims in respect of an employee on flexible furlough, the employer will be required to include information on actual hours worked, as well as the usual hours that the employee would have been expected to work under their contract in the relevant claim period. This information will feed into the calculation of the maximum JRS grant. We expect that the 12 June guidance will deal with the calculation of those hours which, for those with irregular hours, may be quite complex.

A minimum claim period of one week will apply under the new JRS, though claims can still be submitted in respect of longer periods. However, claim periods will no longer be able to overlap calendar months.

Importantly, from 1 July the number of employees included in a claim cannot exceed the highest number of employees included in a claim submitted under the current scheme.

As noted above, HMRC is expected to publish further guidance on 12 June which addresses flexible furloughing and how to calculate claims under the new scheme.

A further Treasury Direction will also be needed to set out the legal basis of the new scheme. The timing of this is unclear, but once available employers should review its specific requirements – as well as those of HMRC’s guidance – to confirm the precise requirements of the new scheme.

Employers should urgently consider how these changes to the JRS will affect their businesses, and the practical implications for return to work planning.

Specifically, employers should start to think about:

• Their workforce requirements over the next five months, in particular taking account of:
  • Which of their currently furloughed workers could be able to return to work part time, and which could not (e.g. those who are shielding); and
  • Which employees might need to be furloughed by 10 June in order to be eligible for the new JRS; 
• What support the JRS can offer during that period; and
• In light of that assessment, which employees should be furloughed – and when this should be done.

Given the tapered reduction in financial support offered by the JRS, employers who currently make discretionary ‘top up’ payments to furloughed workers should also consider whether those agreements remain sustainable, or might need to be renegotiated.

Employers can also consider other approaches to managing people costs, such as lay-offs, short-time working, or other flexible working arrangements.