Following the announcement by the Chancellor, Rishi Sunak, this afternoon employers now know the latest twist in the Coronavirus Job Retention Scheme story. After a period of relative calm with employees on furlough leave and grants of 80% of salary being processed on the HMRC portal, the goalposts have now been moved as part of a clear strategy to move out of lockdown and edge slowly back to normal, whatever that term now refers to. With claims by employers to date already exceeding £15 billion, there is also a serious economic need for the country in reducing the cost of the scheme lying behind this latest change.
In a widely anticipated move, the Chancellor announced that the scheme will continue as normal until 31 July 2020 but that from 1 August 2020 onwards, the Government contribution will start to diminish as employers start to share the burden of paying the 80% of salaries of those on furlough leave.
From 1 August, employers will still be able to claim 80% of salary but will have to start paying National Insurance and employer pension contributions for staff on furlough leave.
In a further change, from 1 September employers will have to plan ahead as they are required to pay 10% of salaries with the recoverable state contribution dropping from 80% down to 70%.
From 1 October, employers will have to increase their contribution to 20% of salaries with the recoverable state contribution dropping from 70% down to 60%.
Putting down a very clear marker about the long term position, it was made clear by the Chancellor that the scheme will end on 31 October 2020.
While the headline announcement is the lower share being paid for by the Government, the Chancellor also announced that sooner than expected and from 1 July 2020, employees will now be able to remain on furlough leave while also working for their employer on a part time basis. Employers will need to pay the salary cost of the part of the week when their employees are working with the scheme covering the cost of the remainder of the week at the reduced scheme rate. A gradual return to work for employees makes a huge amount of sense for employers and their employees and it will be interesting to see the detail of how this part of the change will work in practice once full details are published.
Looking at the overall situation, it seems likely that this change will lead to many businesses making the hard decision to go ahead with redundancies if their own prospects of being able to trade through the troubles are not positive enough. While some employers may try to juggle budgets using the lower state contribution, many will see this latest development as the trigger for reducing headcount in what continue to be unprecedented times.
On a related note, this week also saw changes to the way SSP operates. From Tuesday, the coronavirus SSP rebate scheme, announced by the Chancellor Rishi Sunak in his Budget, officially opened for applications. The scheme allows small and medium sized employers, with fewer than 250 employees, to apply to recover the costs of paying coronavirus-related SSP.
In addition, the Government has extended entitlement to SSP so that can now be claimed by employees who are absent from work and self-isolating for 14 days after receiving formal notification in terms of the various Test and Trace schemes running across the UK. Claims are limited to SSP for a 2 week period so the sums involved are not massive but it is the latest example of attempts being made to try help businesses survive the challenges they face.
If you have any questions on any of the issues mentioned in the above article, please contact Russell Eadie.