Flexible furlough – HMRC confirms how the new scheme will work
Flexible furlough – HMRC confirms how the new scheme
HMRC have issued detailed guidance on how the Job Retention Scheme will operate from 1 July 2020. It’s complicated.
From 1 July 2020, furloughed workers can return to work on a flexible, part time basis. Employees will still be entitled to receive at least 80 percent of their reference pay (subject to a cap of £2,500 per month) for non-working time (pro-rated against any working hours). However the financial support from the Treasury will be phased down from 1 August, with employers meeting the shortfall. Employers will also have to pay employees in full for any hours they work from 1 July. HMRC have now released detailed guidance on how claims can be made for periods from 1 July. The calculation methodology is complex and will require employers to obtain data on working hours for those employees returning to work part time. Some employers may not have this data available for all employees. This, coupled with increased media and stakeholder scrutiny over whether it is appropriate to use the Job Retention Scheme (JRS), in particular where an employer subsequently makes redundancies, pays dividends or maintains senior executive pay levels, may leave employers concerned to ensure that any claims they do make are robust.
What are the key features of the new scheme?
As of 12 June 2020, the JRS guidance is far more complex, totaling nine pieces of employer guidance, six which have been substantially amended and two which are new. Only one is unchanged from the first version of the scheme.
However, the main features of the new scheme remain as outlined by the Chancellor on 29 May.
HMRC’s new guidance sets out how claims should be calculated for furloughed workers from 1 July 2020, including those who return to work part time. These calculations are based on the hours the worker would ‘usually’ work in the claim period. There are different rules for employees who normally work fixed hours, and those who work variable hours.
Eligible employees and flexible furlough
Employees can be furloughed on or after 1 July and return to work on a flexible part time basis if they:
- Had already been furloughed for a period of at least three consecutive weeks in the period from 1 March – 30 June 2020; or
- Returned from statutory parental leave after 10 June (this has been added since the announcement on 29 May).
There will be no minimum furlough period after 1 July, and whilst this flexibility is welcome, in practice it could complicate the relevant calculations and claims.
Phased reductions in financial support
Currently, employers can claim grants under the JRS equal to 80 percent of a furloughed worker’s reference pay (capped at £2,500 per month) plus the associated employer’s NIC and minimum pension contributions.
As previously announced:
- From 1 July 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;
- From 1 August employers cannot claim a JRS grant in respect of any employer’s NIC or pension contributions;
- From 1 September the grant will fall to 70 percent of reference salary, subject to a monthly cap of £2,187.50; and
- From 1 October the grant will fall to 60 percent of reference salary, subject to a monthly cap of £1,875.
The employer must fund the difference between the reducing JRS grant and the minimum payments it is required to make to furloughed employees in respect of non-working hours. Employers must also pay employees for all the hours that they work.
What are the practical points?
Claims for periods ending on or before 30 June must be submitted by 31 July. This is important because there have been no claim deadlines imposed before now.
Claims can be made under the new scheme from 1 July.
Employers should note:
- Although furlough can be any length of time, a new minimum claim period of one week will apply;
- Special rules allow claims to be made for periods of less than a week at the start and end of the month if these would otherwise be outside a claim;
- Claim periods must begin and end in the same month (e.g. a single claim cannot be made for August and September);
- Employers will therefore need to pro rate claims to take account of pay periods which do not exactly correspond to the end of a calendar month;
- The final claim submitted for the period to 30 June could impact the size of future claims that can be made. The number of employees that can be included in a single claim from 1 July cannot exceed the highest number of employees included in any one claim submitted under the scheme for periods up to 30 June; and
- This limit, however, does not include any employees who have returned from statutory parental leave and been furloughed for the first time in that claim period.
Reporting hours worked and ‘usual’ working hours in a claim period
Claims for employees returning to work on a part-time basis can only cover ‘usual’ working hours in the claim period that are not in fact worked.
Employers will need to record:
- The ‘usual hours’ the employee would otherwise have worked in that claim period;
- Part time hours worked; and
- Furloughed hours.
What should employers do now?
Review use of furlough arrangements after 1 July
Employers will need to identify employees who will be furloughed on or after 1 July, revisit employee communications, and renegotiate furlough agreements with employees who will return to work part time. New agreements will have to deal with the new working arrangements and will be recorded in writing. This may be a far more difficult task than under the first version of the scheme.
Employers making discretionary ‘top up’ payments to furloughed employees should consider whether those agreements remain sustainable in light of the reducing JRS grant and the complexities of the new rules.
Understand the methodology for calculating a claim and collate the relevant data
The calculation of the grant payable is now more complex. The new guidance prescribes the detailed methodology and contains over 30 different example calculations which, while helpful, inevitably cannot cover all circumstances. Sourcing relevant data on hours worked will be key. Employers should ensure they understand the detailed requirements, and that their processes and systems are ready to calculate the new claims.
Review historical claims
Claims for overpayments can now be made through adjustments to future claims (see our accompanying article). The new guidance also confirms that HMRC will carry out additional checks where underpayments are claimed. Employers should therefore review historical claims to confirm whether they are correct.
Given the initial uncertainty over the basis for grant calculations, some employers will have made historic claims on a ‘best estimate’ basis. The additional complexity introduced by the new calculation methodology means some employers may be tempted to continue this approach. In our experience, even seemingly reasonable shortcuts can lead to claims which diverge significantly from the correct methodology and which would be open to HMRC challenge (as well as the risk of challenge from any employees who may feel they have been underpaid). It is conceivable that enforcement powers may be handed to HMRC along the same lines of National Minimum Wage enforcement and so employers will want to ensure their calculation methodology is robust.
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