Businesses now have just a few days to decide who is going to retain their jobs and who is not following the Chancellors’ changes to the furlough scheme, said leading tax and advisory firm Blick Rothenberg.
Andrew Sanford, a business advisory partner at the firm said: ‘There are some tough businesses decisions to make and only a few days in which to make them. Regrettably, with the additional costs of furloughing staff, and the inevitable restrictions likely to be in place post lockdown, businesses will have to consider whether it is economically viable to continue furloughing all of their staff and many may be made redundant.
‘Businesses have until next Wednesday, 10th June to inform their employees who are going to be furloughed, if they have previously not been furloughed. That is the cut-off point for businesses to take advantage of the Chancellor’s new furlough scheme which allows employees to work part time. It is important to remember than only people who have been furloughed for three weeks before 30th June are eligible to take part.’
He added that: ‘Further guidance will be published by the government on 12th June. However, in practice, the employee will be paid their full-time rate for the hours worked and the furlough rate of pay for the hours they are not working.
‘For example, for an employee earning £24,000 per annum, or £2,000 per month, who works two days per week from 1st July, the employer will pay £800 per month (40% x £2,000) and the grant which can be claimed will be £960 (60% x £2,000 x 80%). In September, the employer will contribute 1/8 of the £960 furlough grant, plus pay all of the relevant NIC and pension costs.
‘The redundancy consultation process can take up to 45 days, and there is a requirement to pay at full rate during any statutory notice pay periods. If employers are considering redundancies, they should take legal advice, as the costs of redundancy are also dependent on specific contractual terms.
‘The announcement on Friday, 29th May by the Chancellor of the Exchequer, Rishi Sunak, on the extension of the CJRS offered far more support for businesses than was originally envisaged. Rates of contributions from businesses were lower than expected, and there was a commitment to having part-time furlough arrangements with effect from 1st July 2020.’
Sanford added: ‘It is important for businesses to understand how the new scheme will work, what the costs there are to a business, the scheme remains unchanged in July and is fully funded by HMRC. In August, businesses have to cover the employers National Insurance and pension costs of the claim. This typically amounts to 5% of the claim but can vary as for low paid employees there may be no National Insurance or pension contributions to make.
‘In September, the employer will be additionally responsible for 1/8 of the furlough pay, increasing to 1/4 of the furlough pay in October. For an employee who is receiving £2,500 of furlough pay currently, if they were still on furlough in September, the employer would pay £312.50 plus the associated employer’s National Insurance and pension contribution and the government would pay £2,187.50.’
Sanford noted that: ‘However, there are some additional costs that may be incurred, existing benefits such as health insurance, death in service benefit and company car if applicable, any employer pensions payments over the basic 3% rate, any salary top-up payments, over and above the furlough entitlement, including the resultant NIC and pension payments, holiday pay and accrued holiday leave.
‘Where an employee takes holiday during a furlough period, they will be entitled to their full salary for any days taken. This means that employers will need to top-up the furlough amount for holidays and bank holidays.
‘Employers may prefer to ask employees to take time off in lieu when the employee returns to work, but this should be discussed and agreed with the employee. Holiday entitlement will continue to accrue while an employee is on furlough. many furloughed employees may not take a holiday. This therefore represents an ever-increasing cost to the employer.
‘There are three tests that must be fulfilled when considering Part time furlough. For an employee to be on furlough in July, they must have been previously furloughed. Given the minimum period for furlough is three weeks the latest an employee can be furloughed is from the 10th June. There is also a condition that from 1st July, you cannot have more employees on furlough than you had in previous claim periods.’
Sanford concluded that: ‘Employers considering furloughing additional staff must start the consultation immediately in order to meet the 10th June deadline, and to give the furloughed staff adequate notice. For those businesses who have not yet made any claims, all claims for periods up to 30th June must be submitted by 31st July 2020.’
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