The Coronavirus Job Retention Scheme (CJRS) is changing from 1 July. You can find a detailed note on the changes on our Coronavirus Hub, but before getting on to the changes, as we approach the end of the first scheme, it’s worth taking stock to ensure that you have all of the documentation in place for compliance under the scheme.

In this blog i'll cover:

• Preparing for the end of phase 1
• The key changes coming into force 1 July
• Example calculations
• Action to take now

Preparing for the end of phase 1

We would suggest you review and prepare the following:

• Do you have a board/management minute to document the impact that COVID-19 has had on the business and why it is necessary to access support via the CJRS? In many cases the impact will be obvious but we would still recommend documenting this as an HMRC review could be several years in the future
• Do you have all of the furlough agreements with your employees in writing and do the dates accord with your claims?
• Do your furlough agreements remain valid for the new scheme as some will have stipulated an end date of the 30 June which was when the scheme was initially intended to end. We would suggest you have these reviewed by your HR and Employment law advisers to ensure they remain valid based on the latest guidance

Having these areas prepared will help to ensure you’re fully compliant with the obligations under the scheme.

Coronavirus Job Retention Scheme – changes from 1 July

A summary of the key changes are as follows:

• Claims for the period to 30 June must be submitted by 31 July
• The new scheme will run from 1 July to 31 October subject to any further extension
• Employers can only include employees who completed a three week full-time furlough period prior to 30 June 2020, unless they are returning from statutory parental leave
• From 1 July, the scheme will allow eligible employees to work part-time and be furloughed for the remainder of their usual hours. As a result, the minimum three week period for full-time furlough will end, although please note that if an employee started a full-time furlough before 1 July, that furlough period must last for at least 3 weeks even if it runs beyond 1 July
• Employees can continue to be furloughed full-time as before
• Employers will need to agree and document new ‘flexible furlough agreements’ with employees if the employer wants them to return to work part-time
• The grant amount will remain unchanged for July (subject to any part-time working)
• In August the NI and Pension grants will disappear and then in September the grant will cover 70% of the 80% furlough pay with the employer paying 10% (employees must be paid a minimum of 80% as before). In October the grant will cover 60% with the employer paying 20%
• As a consequence of these changes, claim periods cannot straddle a month end, meaning that more claims will need to be prepared for employers who pay employees on a non-calendar month basis

HMRC has published guidance on the changes, however the Treasury Direction is yet to be updated the guidance remains subject to this. The format of flexible furlough agreements will not be clear until the Direction is passed.

How will the changes affect the calculations?

HMRC has issued guidance on the calculations. There is a small change to the NI calculation basis for July to align it with the approach taken for pensions. The main changes are however in connection with part-time work/furlough and this guidance is complex and impractical in some areas.

The calculation approach is broadly:

• Eligible earnings are calculated as before and the grant will cover the lower of 80% of earnings and the applicable cap
• Eligible earnings for a pay period are apportioned into a claim period (for non-calendar month pay periods) and the furlough period (if furlough started after the start of the claim period)
• The proportion applicable to the furlough period is then compared to actual pay in the period that is apportioned to the furlough period
• The lowest amount at step three is then apportioned between working hours and furloughed hours with the grant being the amount attributable to the furloughed hours

This is best illustrated by examples of the wage grant calculations (NI and pension contributions would be calculated separately for pre-31 July claim periods):

Example 1

An employee was paid £3,000 per month in their last pay period ending on or before 19 March 2020. Their contracted hours are 40 hours per week and they have been part-time furloughed from 1st July where they are working Monday to Wednesday 8 hours per day and furloughed Thursday/Friday. Their employer has agreed to pay them £2,760 per month based on 100% of earnings for the working period and 80% for the non-working period. The claim period is 1 July to 31 July:

1. Eligible earnings are £3,000 per month and 80% thereof is £2,400 which is less than the cap of £2,500;
2. The pay period, claim period and furlough period are the same so all eligible earnings of £2,400 are applicable to the furlough period;
3. Actual pay in the period is £2,760 and this is all applicable to the furlough period. The lower amount between this and eligible earnings is £2,400;
4. The £2,400 is apportioned between working hours and furloughed hours. Total hours for the claim period are 40 hours per week / 7 days x 31 days = 177.14. This is rounded up to 178. The employee worked for 13 days in July which gives a total of 104 (13 days x 8 hours per day) working hours. Furloughed hours are therefore 74 hours being the difference between the two (178 total hours – 104 hours worked). The grant is £2,400 x 74/178 = £997.75.

Example 2

Facts are as per example 1 but this time the flexible furlough commenced on 13th July. The employee worked full-time up to Friday 10th. Pay in the period is £3,000.

1. Eligible earnings are £2,400 as per above;
2. The furlough period is from the 13th so the number of furlough days is 19 (31-12). Earnings are apportioned £2,400 / 31 x 19 = £1,470.97;
3. Actual pay is £3,000 and of this amount, £1,161.29 is applicable to the pre-furlough period (£3,000 / 31 x 12). This leaves £1,838.71 applicable to the furlough period so the lower amount is £1,470.97;
4. Total hours for the furlough period only is 178 hours / 31 days x 19 days = 109.1 which is rounded up to 110. The employee worked for 9 days between 13 – 31 July so working hours are 72 (9 days x 8 hours per day), giving furloughed hours of 38 (110 total hours – 72 hours worked). The grant is £1,470.97 x 38/110 = £508.15.

Example 3

An employee is paid every 4 weeks. Their pay in the last pay period before 19th March 2020 was £2,769.23. Their contracted hours are 40 hours per week and they have been part-time furloughed from 1st July where they are working Monday to Wednesday 8 hours per day and furloughed Thursday/Friday. Contractual hours for a 4 week pay period is 160. Their employer has agreed to pay them £2,400 per 4 week pay period. The pay period is 18 June to 15 July. The claim period is 1 July to 15 July:

• Eligible earnings are 80% of £2,769.23 = £2,215.38;
• The claim period is 1 – 15 July and earnings are apportioned £2,215.38 / 28 days x 15 days = £1,186.81
• Actual pay is £2,400. To arrive at pay for the furlough period we need to deduct what the employee would be entitled to be paid for the pre-furlough period of 13 days (28 days in 4 week period – 15 days furloughed). The calculation is £2,400 – (£2,769.23 x 13/28) = £1,114.29. This is lower than the permissible maximum based on eligible earnings calculated at step 2 so £1,114.29 is used for the final step;
• Total hours for the furlough period is 160 hours / 28 days x 15 days = 85.71 which is rounded up to 86. There are 7 working days between 1 – 15 July so working hours are 56, giving furloughed hours of 30. The grant is £1,114.29 x 30/86 = £388.70.

You will get a sense from the above of the complexity involved. The above examples are however the most straightforward situations and the more complex circumstances will be in connection with employees who work variable hours. The guidance says that for variable hours employees, the usual hours on which furloughed hours will be calculated for part-time furlough will be based on the higher of:

• The average hours worked per pay period in 2019/20;
• The hours worked in the calendar period that corresponds with the pay period this year (which will require prior year pay periods to be apportioned to give an exact match with the same calendar period this year).

It is widely acknowledged that this will be problematic for a lot of employers as hours worked may not be readily available. The second step requiring apportionment between prior year pay periods is especially impractical. We will need to wait and see whether HMRC will simplify the guidance on this point.

What actions should I take now?

As at the start of the existing scheme, workforce planning will be essential so that you can best match capacity and skills with the demand you anticipate as the lockdown is relaxed. The scheme is flexible so that you can increase working hours as required and there are multiple approaches you could take. For example:

• Continue with full-time furlough for all employees which will be the case for businesses that cannot yet operate due to the current restrictions
• Furlough some staff full-time and have other staff working full-time
• Rotate staff on/off full-time furlough and from 1 July there will be no minimum 3-week period, although part-time furlough will cover anyone who is not furloughed for an entire pay period. For example, monthly paid employees could be rotated monthly and weekly paid employees could be rotated weekly and this would still be full-time furlough
• Utilise true part-time furlough by having employees work reduced hours and furloughed for the remainder

You will again need to agree any furlough extension or flexible furlough with employees and take advice from your HR team and legal advisers.

Get in touch

The second phase of the Job Retention Scheme is incredibly complex, we recommend you get in touch with your usual Johnston Carmichael adviser if you have any questions or require any assistance. We’ll publish any updated guidance, as soon as the Treasury Directive has been released.