Q&A: Flexible Furlough starting in July
The government guidance on changes to the Coronavirus Job Retention Scheme from July, has now been released. The scheme, also known as the furlough scheme, will allow for more flexibility for directors, employers and workers to allow for a slow return back to work whilst maintaining a level of income. However, as there will be an increasing onus on employers to fund the grant funding from August to October inclusive, when the furlough scheme will be terminated, it is no surprise to see concerns from all sides on mass redundancies.
Here we look at the main changes to the guidance and answer your burning questions.
Q. What are the main changes to the furlough scheme from July?
The two main changes you need to be aware of as a director of a limited company or as an employer are:
For claim periods starting from 1 July, you can come back to work for any amount of time or any shift pattern, whilst also still claiming furlough for days you are not working.
If you do not submit at least one 21 day grant claim up to claim period of 30 June, you will not be eligible to furlough from July. There are four exceptions to this rule:
Those returning from maternity or paternity leave
Those who have moved employer, and have made a previous furlough claim with their previous employer
Those who have moved PAYE Schemes
Those in the reserves, coming back from service and paid by the MoD
Q. Do i have to go on flexible furlough and back to work immediately or can I remain furloughed in July?
If you do not envisage any change to your working circumstances in July, you can remain on full furlough, and will continue to receive 80% of your average wage with a cap of £2,500.
You can also decide to keep some staff on full furlough if you do not envisage working at full capacity initially.
We would strongly advise you to seek HR expert advice when considering changes to furlough payments in July and looking at staff rotations and potential redundancies.
Any changes to furlough for a member of staff and for a director need to be formalised in writing, and is considered a change to an employees contract. For directors of limited companies, you should be keeping a written record of any changes formally too, so there is a declaration on file that you understand the terms of receiving furlough payments. This exercise was completed when you first went on furlough, and this exercise will need to be done again due to the change in the scheme.
Furthermore, as there will be changes to the scheme each month from July to October inclusive, written evidence needs to be put in place each month to confirm all those involved understand, agree and will comply with the change in terms of their contract.
Q. What is flexible furlough?
As noted above, from 1 July the scheme is only available to those who have furloughed previously up to 30 June 2020.
Employees can be ‘flexibly furloughed’ to allow for part-time working and there is no minimum furlough period as there was up to 30 June when one could only be furloughed for 21 day periods. Hence the term ‘flexible furlough’ has been adopted by government, and has been introduced in line with loosening of lockdown measures and the move back to work for all.
When are you working, you will be paid your normal wage, and when you are not working, you will continue to receive furlough payments. This is true from July to October inclusive, and furlough payments will continue to be set at 80% of your average wage up to a cap of £2,500.
However, from August, employers are expected to help the government contribute to furlough payments for their staff.
Q. What happens in August with furlough payments, how do I have to contribute as an employer?
From August onwards, if you have staff on payroll, furloughed or not, they will now be costs to contribute towards to each member of staff to retain them on the payroll. Up to this point, thanks to the furlough scheme, full staff costs and associated tax liabilities were paid by the government.
From August onwards, you cannot claim any grant at all for employers’ National Insurance Contributions (NICs) nor for the employers’ compulsory pension contribution. This means that whatever your usual employers’ NIC and employers’ pension contributions are payable on the salary you pay your staff will now be down to you to pay. Again, this will the be case for all staff, no matter if they are furloughed, flexible furloughed or working full time.
There will also be staff wages to consider when you bring them back to work, full time or part time.
For flexibly furloughed staff or staff who work part time, furlough payments will continue to cover the relevant proportion of salary when not working or when in a furlough period.
Employers will therefore be liable for any staff costs when staff are working, and the government will continue to pay the same level of furlough payments of 80% of average salary up to a cap of £2,500, when staff are not working.
Q. How do I calculate my take home pay when I am flexibly furloughed?
The calculation methodology provided by HMRC for worked hours and furloughed hours pay is complex.
It requires initially a review of ‘usual hours’ calculation to be completed per employee, which is not based on the claim period i.e. 1st to 31 July, but is based on an employees contract.
Clearly, if an employee is on a fixed salary contract with fixed hours, such as a 35 hour or 40 hour week, the calculation is more simple.
The complexity starts to arise when employees work variable hours, get paid overtime and/or commission, or do not have a contract at all or a zero hours contract.
This usual hours calculation is mandatory and is required if a furlough claim is to be submitted.
Once the usual hours number is calculated, employers will review the number of hours actually worked by an employee in the claim period (usually monthly in line with monthly payroll and payslips), and subtract the usual hours from the worked hours, to arrive at the number of furlough hours to claim.
This calculation methodology will sometimes arrive at furloughed hours less than anticipated as it is based on usual contracted hours versus the hours actually worked.
Q. When can I make a claim for flexible furlough in July?
When claiming flexible furlough, you should only make a claim when you have certainty about the number of hours your employees are working during the claim period.
This means that if you are required to provide time sheets for hours worked in July before the end of July working month, you should try and keep to the hours worked noted on your time sheet as any over payment in furlough payments will need to be claimed back.
For example, at Mirandus, we will be requesting time sheets by 17th July for 1st to 31 July claim period, in line with our monthly payroll, to allow for time to calculate the hours worked and furloughed hours, and put through the furlough claims by 22-24th July.
We will be releasing more information over the coming months as changes are established.
