CJRS & furlough in 2021 – where next?

Wed 27 Jan 2021

CJRS was introduced from 1 March 2020 and was initially supposed to come to an end on 31 May 2020. However, with numerous extensions, it will have been in existence for 13 months and rumours are spreading of it being given further extensions until 31 July or 31 October. We still have a Budget to get through too and no doubt CJRS will an area of discussion and update. Who would have ever predicted this last January?

This article looks at the compliance aspects employers need to be aware of as well as what employers can start to plan and bring into their reward and organisational structures to manage costs, retain employees and ensure their business remains resilient.

Compliance

The new Government naming approach

CJRS has no doubt been (and continues to be) a vital lifeline for many employers and employees in protecting jobs but it has created additional complexity and compliance for employers that HMRC is now investigating. This has been further demonstrated by the publication of all employers who used CJRS in December 2020. The list has over 740,000 employers from across the UK who has submitted a claim for December. This highlights how popular CJRS has been given it has provided a timely support to keep paying employees and avoid costly and disruptive redundancy exercises.

It should be noted that not all employers may appear on this list given that employers could apply to have their details excluded for specific security purposes.

It is important to read the naming of employers as not a finger pointing exercise, saying that employers have done something wrong (like when NMW underpayment lists are published) but by its presence, it is likely to lead to some scrutiny and media attention.

This scrutiny will need to be managed from a reputational and risk perspective, given that the Government is hoping that the further scrutiny will enable better transparency on this vital support to UK employers.

Additionally, and importantly, HMRC has confirmed that employees will also be able to identify whether a CJRS claim has been made by their employer by checking their Personal Tax Account. Therefore, the Government has taken steps to ensure CJRS is more transparent and potential incorrect claims (i.e. employee not actually on furlough) can be more swiftly identified. This demonstrates how important it will be for employers to be clear on what employees have been furloughed and can be claimed for.

Key risk areas

The majority of employers have really tried to remain compliant and make genuine claims. However, given there has been over 130 changes to the guidance since April, it is likely many employers will have made some errors and could have overclaimed. We are helping many review historic claims and make disclosures to help mitigate future penalties and risk.

Key areas we have identified when helping employers review claims and enhance governance include

1. NIC calculation differences, particularly the Employment Allowance interaction and following the complicated calculation methodology in place before 1 July;
2. Including employees in the pension CJRS claim when they were not pension scheme members;
3. Including non-qualifying pay items in variable pay assessments;
4. Not using the right amount of days / pay periods when establishing average pay for variable pay workers;
5. Not having furlough agreements in place;
6. Basing the qualifying pay on pay before salary sacrifice and not paying employees an amount equal to the CJRS claim made; ands
7. Not calculating hours correctly for flexible furlough.

Furthermore, an essential aspect in compliant CJRS claims has been ensuring employees do no work and being able to demonstrate this – in some sectors this has been easy but in others where mobile phones and laptops are used it has been much more difficult especially within the context of flexible furlough.

How Covid-19 and CJRS changes the reward landscape

With school closures and heightened Covid-19 risks, many employers have again used furlough on a short term basis to help protect jobs, protect lives and protect their business, particularly in sectors that have been forced to close.

However, others have looked at alternative arrangements given a hesitancy to utilise furlough again after it was supposed to come to an end on 31 October. This has been due to the complexities of calculating claims, the uncertainty it has created with employees and also a desire to not seek Government support, as well as try and get businesses back to work, albeit in new and alternate ways.

To help employers manage costs and protect their workers both in the now and the longer term, we have helped in ways that include the following: 

1. Designing enhanced annual leave salary sacrifice, whereby an employee buys an extra say 10-20 days and spreads the cost over 1-2 years to help maintain pay at or near to its normal levels – an example can be found here.  
2. Introducing other salary sacrifices to reduce costs and increase net pay (pension, green car, home energy)
3. Implementing new training and progression strategies to make use of apprenticeships and the financial support / NIC savings that go with it;
4. Seeking other grant support available
5. Establish R&D claims
6. Consider equity reward models including EMI
7. Reviewing recruitment and workforce dynamics to help manage costs and make the business as effective as possible.
8. Undertaking assessment of current reward structures to establish costs, popularity and whether the strategy is still relevant in 2021

Clearly, many difficult decisions have been made and it has not been easy to plan ahead due to the pandemic.

Employers have had to balance health, economy and various different needs during the last 12 months and it will continue to be the case as 2021 progresses. It has not just been about cost though, with reputation, values and culture cutting across the decision making process.

Clearly this is going to both a conscious and evolving process for businesses, with clear strategy important to help with future growth and prospects. We hope the above gives a flavour of some of the steps businesses can potentially take in a confident manner.

Please get in touch

We can help you make your decisions to keep your business going and make sure you are well placed to succeed in the future.

For more information, please contact Employment Tax Partner Ian Goodwin at Ian.goodwin@mazars.co.uk