Here’s what we know about the new Covid Job Support Scheme:
Scheme runs 1 November 2020 to 30 April 2021.
Although it has been dubbed the Furlough (Job Retention Scheme) replacement, it is open to employees not previously furloughed and employers that have not used the scheme.
Any Covid affected employer can access the scheme although ‘large’ (awaiting definition) businesses will need to pass a test proving turnover has been affected and will not be allowed to pay dividends whilst accessing the scheme.
Employees on the payroll on or before 23 September 2020 will qualify provided they are not under redundancy notice (this was a criticism of the furlough scheme).
Employee must be working a minimum of 33% of their normal contracted hours (this may be increased from 1 February 2021).
Employer pays for hours worked as normal.
For hours NOT worked:
Employer pays 1/3
Government pays 1/3 (capped at £697.92 per month so there will be additional costs for employers if employee earns over £37,500 per annum)
Employee pays 1/3 (in terms of a gross pay cut – this cannot be topped up by employer)
Employers’ NI and employers’ pensions will not be covered by the grant – this will be payable in full by the employer.
Grants are paid monthly in arrears (similar to JRS) through gov.uk
Both employees and employers can join / leave the scheme at any time but each employee must be on short time working for at least 7 days to qualify.
The table below gives examples of % costs to employers depending on % of hours worked:
Hours Employee Worked 33% 40% 50% 60% 70%
Hours Employee Not Working 67% 60% 50% 40% 30%
Employee Earnings (% of normal) 78% 80% 83% 87% 90%
Gov’t Grant (% of normal wages) 22% 20% 17% 13% 10%
Employer Cost (% normal wages) 55% 60% 67% 73% 80%
Many commentators are arguing that an employer would need more than a 45% drop in gross wage costs to compensate for a 67% drop in hours worked / productivity and it’s difficult not to agree. For example, if an employee is paid £10 per hour for a 40 hour week and there is only 2 days a week work:
Normal weekly wage £10 x 40 hours = £400
2 days x 8 hours x £10 = £160 payable by employer
Non working hours
3 days x 8 hours x £10 x 1/3 = £80 payable by employer
Total payable by employer £240 / 16 hours = £15 per hour – an increase of 50%!
Employers’ NI and employers’ pension will also be payable on the part of the salary paid by the government so ‘on costs’ will be higher than normal too.
Whilst this scheme will undoubtedly benefit employees (it has to be better than benefits) it’s difficult to see it being hugely popular with employers other than those that a) can see light at the end of the tunnel and are keen to keep employees on their payroll and under their control until ready for a return to normal working hours or b) haven’t done the calculations!
360, Chartered Accountants