This note is current as at Friday 25 September 2020.
Yesterday, the Chancellor Rishi Sunak announced a new package of measures designed to support businesses over the winter months. A new short time working scheme - the Job Support Scheme - will come into effect from 1 November and will run for six months. The aim of this scheme is to protect “viable” jobs, as businesses have to deal with the ongoing uncertainty of the COVID-19 crisis and reduced demand.
The Chancellor said that the Job Support Scheme is built on three principles:
- To support “viable” jobs, which means that employees must work and be paid by their employer for at least 1/3 of their normal hours to be covered by the Scheme. The Government and the employer will share 2/3rds of the difference.
- To target the businesses that need it the most. All SME’s will be able to access the Scheme, but larger organisations will have to demonstrate that their turnover has fallen “through the Coronavirus crisis.”
- It will be open to employers throughout the UK, even if they had not previously utilised the Coronavirus Job Retention Scheme. Eligible employers will also be able to claim for the Coronavirus Job Retention Bonus.
The Government also published a Job Support Scheme factsheet with further details of how the Scheme will operate.
Supporting Jobs: six months on – six months to go
Who would have imagined that when the Chancellor introduced the Coronavirus Job Retention Scheme (“Furlough Scheme”) on 20 March 2020, six months later businesses would require Government support for at least another six months to keep their staff employed and their businesses afloat?
Although the UK economy experienced three consecutive months of growth over the summer, the Chancellor acknowledged yesterday that the recent resurgence of the virus and the measures the Government has taken in response pose a real threat to the UK’s fragile economic recovery, with the need to protect jobs through the winter months.
The Job Support Scheme
Replacing the Furlough Scheme, which comes to an end on 31 October, the Job Support Scheme (“Scheme”) will come into effect on 1 November and will continue for at least the next six months - but as the Chancellor explained, it is “different to what went before”.
The Government has now published a factsheet setting out further details of how the new Scheme will operate (“Factsheet”). Further formal guidance is promised, but the following is a summary of what we know so far.
The fundamental basis of the Scheme is to support “viable” jobs, and not those that continue to exist only because of the availability of the Furlough Scheme. The expectation is therefore that employees will remain in employment, and the Factsheet makes clear that this precludes the employer from making an employee redundant whilst claiming for them under the Scheme.
In order to qualify as a viable job, the employee must be provided with work by their employer for at least 1/3rd of their normal hours. The employer must pay the employee their normal pay for that work, and the Government and the employer will share equally 2/3rds of the lost pay.
However, the sting in the tail is that the Government’s contribution is subject to a cap, as set out below.
The Scheme is designed to target those businesses most in need. That said, all SME’s will be eligible for it, without having to demonstrate any adverse impact caused by the Covid-19 crisis. What is not completely clear is what the threshold will be to qualify as an SME for this purpose. Will it be determined by reference to the Companies Act definition of an SME (i.e. by two of three criteria being met, namely turnover of less than £25m; less than 250 employees; and gross assets worth less than £12.5m)? Or will it be determined by similar turnover thresholds to those that apply in the case of (for example) the Coronavirus Business Interruption Loan (annual turnover of up to £45m)?
Larger organisations will have to demonstrate that their “turnover now is lower than before experiencing difficulties from Covid-19”. How that will be measured and evidenced remains to be seen. The Factsheet states the Government’s expectation is that large employers using the Scheme will not be making capital distributions, such as dividend payments or share buybacks, whilst accessing the grant.
Open to all eligible employers
Eligibility to claim under the Scheme is not dependent on the employer having already claimed under the Furlough Scheme, although we expect that a large proportion of those businesses claiming are likely to have utilised the Furlough Scheme already.
The Scheme does potentially offer a lifeline to those businesses that are now struggling in the face of the new restrictions, having managed to keep their doors open over the last six or fewer months, or that missed the opportunity to claim under the Furlough Scheme. However, for many employers, the fact that they will have to bear the largest proportion of their employees’ wage costs under the Scheme over the next six months may mean it is not enough to save jobs, or indeed the business itself. And of course, for those businesses that have been the subject of setbacks due to recent restrictions or have never been able to reopen their doors since March (such as bars/restaurants, nightclubs and theatres) this may offer no comfort at all.
A claim under the Scheme will not impact on an employer’s eligibility to benefit from the £1,000 Coronavirus Job Retention Bonus.
Who is covered?
The Factsheet states that to be covered by the Scheme:
- the employee must have been on the employer’s PAYE payroll on or before 23 September 2020 (i.e. a Real Time Information (RTI) submission notifying payment to that employee to HMRC must have been made on or before that date);
- and the employee must work at least 33% of their usual hours. As a slight twist on the Chancellor’s announcement earlier, this applies for the first three months of the Scheme, with a possibility that the Government may increase this minimum hours’ threshold for the remainder of the six month period.
The Scheme will operate on a flexible basis, meaning that employees can flex on and off the Scheme with varying work patterns. However, each short time working arrangement must cover a minimum period of seven days.
Agreement with the employee
The Factsheet makes clear (as expected) that employers will have to agree the new working arrangements with their employees and any associated changes to their contracts of employment. Such changes must be notified to the employee in writing, although it appears that there is no obligation for the agreement to be signified in writing.
What does the Government’s grant cover?
Under the Scheme, for every hour the employee doesn’t work, the employer and the Government will each pay 1/3rd of the “usual hourly wage” of the employee. We await further details of how that will be calculated, but the Factsheet states the methodology will be similar to that used under the Furlough Scheme. What is however clear is that:
- the Government’s contribution will be capped at £697.92 per month; and
- the Government will not be contributing towards employer NICs or pension contributions.
Employers will be required to pay their employees their contractual wage for the hours they work, and both the employer and Government contribution for the hours not worked (then reclaim the latter under the Scheme in arrears). This means that where the employee’s earnings are such that the cap on the Government contribution is not exceeded, they will receive at least 77% of their normal pay.
Interestingly the Factsheet states that the Government’s expectation is that the employer “cannot” top up the wages above this level. This seems to suggest, despite the fact that there is no financial assessment test for SMEs, that the Scheme really is only intended for those businesses which are otherwise unable to pay their staff. It is not clear, but it would be surprising if the employer was unable to claim under the Scheme if it did choose to top up the employee’s wages to full pay – that is not the case under the Furlough Scheme.
In contrast with the Furlough Scheme, and emphasising that a key principle of the Scheme is to protect (only) viable jobs, an employer cannot make an employee redundant, or give notice of redundancy, during a period within which a claim under the Scheme has been made in respect of that employee.
When will the grant be available?
Grants will be available to be claimed online from December 2020 and will be payable in arrears. This means that a claim can only be submitted in respect of a given pay period after payment to the employee has been made and has been reported to HMRC via an RTI return.
Not surprisingly, HMRC will clawback any fraudulent or erroneous claims and will conduct appropriate checks.
Perhaps as a means of giving employees the opportunity to report any fraudulent claims, HMRC intends to notify employees directly of the details of any claim made in respect of them.
Immediate unanswered questions and issues
Although the publication of the Factsheet so soon after the Chancellor’s announcement has been very welcome, there are a number of immediate unanswered questions and issues (which will hopefully be addressed in the further guidance to follow – as well as presumably a new Treasury Direction to underpin the Scheme), including the following:
Will both employees and workers qualify under the Scheme? How will it work for those on zero hours or casual contracts?
Justifying short time work
Will employers have to provide any evidence to demonstrate that they can only provide short time work for an employee in order to access the Scheme? Given the experience of the Furlough Scheme, we expect not.
Calculating “usual hours”
How will an employee’s “usual hours” be determined? Presumably this will also be using the same methodology as the Furlough Scheme, but the Factsheet does not expressly state that. If so, the same difficulties with this calculation that arise under the Furlough Scheme will apply.
Holiday and other benefits
Again, given the experience of the Furlough Scheme, we expect that at least statutory holiday will continue to accrue on the basis of full-time hours whilst an employee is short time working under the Scheme.
What about other benefits? For any contractual benefits, we expect that this will need to be the subject of consultation and negotiation between the employer and employee.
As with the Furlough Scheme, will employees be able to take secondary employment to bridge the gap between their normal and part-time working hours, if their employer agrees?
How will the Scheme work in the context of those who are self-isolating, shielding, or on other leaves of absence (such as family leave or sickness absence with enhanced pay)?
Employees already at risk of redundancy
Presumably any employees who were still on their employer’s payroll on 23 September will be covered by the Scheme if their employer can give them short time work, even if they have already been put at risk of redundancy, or indeed made redundant after 23 September if their employer agrees to reinstate them.
Fixed term contracts
Will employers be able to extend fixed term contracts during the period of the Scheme as they have been able to do under the Furlough Scheme?
Companies in Administration
Covid-19 has caused many companies to go into Administration already. Administrators were not completely precluded from claiming under the Furlough Scheme. Will Administrators be able to access JSS support for the companies under their control? Will they be able to meet the “viable” jobs test?
The Self Employed
Whilst not going into any detail, the Chancellor also announced that he would be extending the existing Self-Employed Income Support Scheme “on similar terms” to the Job Support Scheme. We will report further on this when the details are available.