Alex Evans talks through the Chancellor's announcement of the new Job Support Scheme. All that is currently known about its operation is explained below. Which businesses are entitled, which employees are entitled and what they are entitled to.
The Coronavirus Job Retention Scheme (“Furlough Scheme”) is coming to an end, to be replaced with the Job Support Scheme. While the new Job Support Scheme (JSS) retains some existing elements of the Furlough Scheme, there are important differences. This new scheme will run from the end of the current Furlough Scheme (date?) until April 2021. It is intended that qualifying employees can receive a minimum of 77% of their usual wages.
This week I will be running you through the ins and outs of the furlough scheme, as well as giving some general advice. Please bear in mind that while all information is accurate at the time of publication, the guidance can change very quickly. Keep an eye on the news and Gov.uk website for the most up-to-date guidance.
In summary, there are three stages to analyse.
Which businesses qualify for the scheme?
Which employees qualify for the scheme?
What is the entitlement?
A qualifying business is one in the UK; that is with a UK bank account and UK PAYE system. All Small and Medium businesses are eligible. In the UK, a small business is defined as one with less than 50 employees; a turnover up to £6.5 million, and a balance sheet total up to £3.26 million. A medium business has up to 250 employees; a turnover of up to £25.9 million; a balance sheet total of up to £12.9 million.
Large businesses are not automatically entitled. They will first have to pass a financial assessment test. The current guidance only gives two factors as to what this assessment will involve. Firstly, a business must have “turnover lower now than before experiencing difficulties from COVID-19”. In other words, businesses will have to demonstrate COVID-19 caused the downturn in revenue rather than being one that was dying beforehand. Secondly, it is “expected” that Large Employers will “not be making capital distributions, such as dividend payments or share buybacks.” So the economic situation must be a relatively serious one. The government does not want Large businesses doing as Tesco did in April, accepting a £585 million tax bailout and then paying shareholders £635 million.
The government will be issuing “further guidance” which will be more prescriptive. My best guess is that large businesses will have to show slower than expected recovery after lockdown. Losses will probably have to be something more than an ‘expected’ shortfall in revenue due to COVID-19. It would be pointless to have a different test for large businesses otherwise. However, we will not know for certain until the guidance is published.
It is important to note that JSS is separate from the Furlough Scheme. Any claims, or lack of claims, on the Furlough Scheme does not affect your entitlement to JSS.
First, it appears that, like the Furlough Scheme, both “employees” and “workers” are entitled. Second, an employee must have been paid through PAYE by the employer on or before 23 September 2020.
Third, an employee must be working a minimum of 33% of their usual hours. This could be subject to increase at a later date. The hours do not have to be the same every week or every month. Short-term workers must have worked for at least 7 days in order to qualify. So casual one-night catering shifts for weddings will not qualify.
The government will pay for one-third of the unworked period. This is calculated on the “Usual Wages” of the unworked period. However, the employer must bear the cost of the other third. The government contribution is capped at £697.92 a month. Like the Furlough Scheme, the employer will be reimbursed by the government after paying his Employees.
Pay will be calculated along the same lines as the Furlough Scheme. Therefore, all mandatory payments are included. This will include basic wage, overtime, non-discretionary commission or bonuses. This is assessed as if the Employee is working for the contracted payment rate, not on the Furlough Payments. In other words, it is based on 100% of wages, not the 80% Employees received while on the Furlough Scheme. All discretionary payments, such as tips or options for bonuses, cannot be claimed.
What does this mean in practice? Suppose A is contracted to work 30 hours a week for Company X earning £600. A qualifies if she works 33% of that (10 hours). A’s £200 salary will be paid by Company X as hours worked.
£400 is unpaid as A did not work 20 of the 30 hours she normally would have. The government will cover one-third of this. So they will pay A £133.33, representing 6.3 unworked hours (1/3rd). They will only do so if Company X pays A £133.33 for the second 6.3 unworked hours (2/3rd). The remaining £133.33 is lost to the employee (3/3rds) unless the employer wants to contribute more but this is “unexpected”. The diagram below may help explain further.
Do use the JSS. The saving of the employer could be up to 45% of staffing costs on the maximum use of the scheme. If you are planning to make employees redundant, established businesses must do everything possible to avoid or minimise redundancy. Failure to do so may deem the redundancy procedurally unfair and may lead to Tribunal claims. Of course. there are some situations where this might not be the case. It might be necessary to make cuts. Using JSS might still not be affordable for some employers. However, a wise employer would seriously consider using JSS before making redundancy decisions.
Don’t open yourself to a discrimination claim. Bear in mind that putting people on JSS will constitute a “provision, criterion or practice” that causes “detriment”, because of the lost income, for discrimination law. Ensure the process is not muddied by conscious or unconscious bias. Do all, or a lot of, employees on or proposed to be on JSS, share a protected characteristic under the Equality Act? For example, a decision to put all part-time workers on JSS might disproportionately impact women or younger workers. Ensure there are good reasons for all steps taken.
Do involve the Employee. The current guidance states you must notify your employee and talk through the implications of being put on the scheme. You must obtain their agreement before putting them on JSS. Most employees will probably be accepting of this as in the current climate it is better to be on reduced hours than none at all. Even still, it will promote a much healthier workplace if you do consult the employee.
Don’t try and defraud HMRC. A fairly obvious point, but it has to be said. I expect the repercussions of incorrectly paid Furlough Scheme money to be felt for years to come. Short-term gains will not be worth the longer-term pain from HMRC.
The contents of this article do not constitute legal advice and are provided for general information purposes only.
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Expertise: Intern
Alex graduated with a BA Laws from Homerton College, Cambridge. He is currently studying for his LLM in Public Law at UCL whilst also interning at The Legal Stop; during his internship Alex will be writing blog posts explaining topical areas of the law, as well as more opinionated pieces on the state of the law. Outside of working hours you can often find Alex in the gym, in the kitchen or reading up on history.