Chancellor Rishi Sunak has just announced in the House of Commons, a successor to The Coronavirus Job Retention Scheme, (the “furlough scheme”) which, it has been confirmed, will end on 31 October 2020 as planned.
In confirming the decision to end the furlough scheme, the Chancellor has made clear that the Government needs to now make permanent adjustments to the economy to continue to enable it to operate alongside the virus, and cannot continue to artificially “prop up” businesses and jobs that are no longer viable.
The government's contribution to workers' pay will fall sharply compared with the furlough scheme. Under furlough, the government initially paid 80% of a monthly wage up to £2,500 - under the new scheme this will drop to 22%. The grant is capped at £697.92 per month.
The new Job Support Scheme will come into force on 1 November 2020 and it is planned that it will remain operative for 6 months ending in 2021. The aim is for the Government to:
- Support viable jobs and businesses;
- Continue to support the wages of people actually IN WORK (as opposed to being away from work like on the Furlough Scheme); and
- Enable employers to keep people in work, even on reduced hours, rather than making redundancies.
In order to benefit from the Job Support Scheme, employees will have to work at least a third of their normal hours, which will be paid for by their employer.
The maths in the new Job Support Scheme are not especially easy to grasp. A helpful way to think about it is the overall percentage of a person’s salary that the government can end up paying for.
For someone who works a third of their standard hours, the government’s contribution would be two-ninths - or approximately 22% (compared with 80% at the beginning of the furlough). The employer would pay the first third, like normal, and another two-ninths on top. The employee would get nearly 78% of their salary. The 22% government contribution is a maximum. For someone working 50% of hours, the government contribution is 17%. It’s a sliding scale. The scheme for self-employed people will also be less generous than previously. It will now be worth 20% of earnings (compared to 80% at the beginning) So in terms of what the government contributes the two schemes are roughly level.
So for someone on £2,000 a month working 50% of their hours, they would get £1,000 normal pay plus £333 extra from their employer and £333 extra from the Government. The employer will be reimbursed in arrears for the government contribution.
Within the guidance you could be forgiven for missing the sentence: "The employee must not be on a redundancy notice", which suggests that the government will not contribute anything under the Job Support Scheme if an employee is working under notice of redundancy. That is in stark contrast to the position under the Coronavirus Job Retention Scheme, where the scheme did pay out for employees working their redundancy notice.
All Small and Medium-Sized Enterprises (SMEs) will be eligible; large businesses will be required to demonstrate that their business has been adversely affected by COVID-19, and the government expects that large employers will not be making capital distributions (such as dividends), while using the scheme.
Business can benefit from Job Support Scheme even if they have not previously utilised the Furlough Scheme. Some other key points from the Job Support Scheme Factsheet include:
- To be eligible, employees must have been on the employer's Real Time Information submission on or before 23 September 2020;
- The minimum 33% threshold hours for which an employee must work may be increased in months 4-6 of the scheme;
- Working patterns can vary, but each short-time working arrangement must cover a minimum period of seven days;
- The government's grant will not cover Class 1 employer NIC or pension contributions, although they remain payable by the employer; and
- 'Usual wages' will follow a "similar" methodology to the CJRS
The self-employed measures are to be extended on similar terms to the new Job Support Scheme.
The Chancellor is currently working with Trade Unions to iron out the finer details and it is expected that a written document will be released over the next few days expanding on the verbal announcement today.
Finally, measures are also to be put in place in relation to the loans offered to business to assist with the pandemic:
- Bounce Back Loans will be adjusted via a new “Pay as You Grow Scheme” will allow repayments over the next 6 – 10 years;
- Business Interruption Loans will also be guaranteed by the Government for the next 10 years allowing repayments to be staged across longer periods; and
- VAT payments will be deferred and can be paid over 11 months. In the hospitality and tourism sector, the planned VAT increase from 5% to 20% on 13 January 2021 will be scrapped.
Of course the devil is in the detail. Once further updates and/or draft legislation is provided we will of course update you.