*UPDATED* The evolution of the furlough scheme: Employers’ next steps

Posted: May 29, 2020
Expert:
Simon Brownbill

In an announcement on 29 May the Chancellor provided more details of the extension of the CJRS to the end of October. After some apparently managed leaking to the media, the tightening of the rules was not as harsh as expected. The key points are:

Furlough changes

Closure dates

Payments to employees under the CJRS will continue until the end of 31 October 2020 at the 80% earnings level, subject to a £2,500 a month maximum. However, the scheme will close to new entrants from 30 June. From then on, employers will only be able to furlough employees that they have already furloughed for a full three-week period before 30 June.

A consequence of this end of June deadline is 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.

Employers will have until 31 July to make any claims in respect of the period to 30 June. From a practical point of view, employers will need to consider quickly whether any existing employees who have not been furloughed, possibly currently working part time, should now be furloughed ahead of the new flexible furlough rules (see below) starting on 1 July.

Flexible furlough

Currently a furloughed employee cannot do any work for their employer or associated organisation. From 1 July, a month earlier than previously announced, this absolute requirement will be relaxed to allow employers to bring back furloughed employees on a part time basis. The furlough scheme will then cover only the hours for which the employee is not working, with the employer meeting full payment for the hours worked.

Further guidance on the operation of the flexible option, and how employer claims should be calculated, will be published on 12 June. In the interim a factsheet with basic information has been issued. 

Employer costs

The government involvement in meeting furlough costs is to be phased down on the following timeline:

  • For June and July the government will continue to meet the full cost of 80% earnings (maximum £2,500) plus associated employer National Insurance (NI) and employer automatic enrolment pension contributions.
  • In August the government will meet the cost of 80% earnings (maximum £2,500), but the employer will be responsible for NI and pension contributions. Based on the current average monthly equivalent CJRS wage claim of £1,368, the government calculates the switch will cost employers £69 per month per employee.
  • In September the government will meet the cost of 70% earnings (maximum £2,187.50), with the employer responsible for covering the other 10% of earnings (maximum £312.50) as well as NI and pension contributions. Based on the same average monthly equivalent CJRS wage, the government calculates this will cost employers £207 per month, per employee.
  • In October the government will meet the cost of 60% earnings (maximum £1,875), with the employer responsible for covering the other 20% of earnings (maximum £625) as well as NI and pension contributions. Based on the same average monthly equivalent CJRS wage, the government calculates this will cost employers £345 per month, per employee.
  • In November, the scheme ends.

Consideration will need to be given now on whether to begin the 45-day redundancy consultation process ahead of the CJRS starting to move onto employers from 1 August.

Summary timeline of CJRS changes

 

July

August

September

October

Government wage contribution

80% up to £2,500

80% up to £2,500

70% up to £2,187.50

60% up to £1,875

Employer wage contribution

-

-

10% up to £312.50

20% up to £625

Employer’s NI and pension contributions

Government pays

Employer pays

Employer pays

Employer pays

 The latest figures (to 24 May) show why the government is seeking to wind down the CJRS and has emphasised 31 October is the end date:

  • 1 million employers have made claims;
  • 8.4 million employees have been furloughed; and
  • Total claims made so far amount to £15 billion.

The Office for Budget Responsibility’s latest projections put the current gross cost of the scheme at £14 billion a month, although once income tax and NICs are considered, the net cost is £10 -£11 billion. The Institute for Fiscal Studies thinks the CJRS and its self-employed counterpart could end up costing £100 billion in total.