The Chancellor’s Announcement: From Job Retention to Job Support…

Tue 13 Oct 2020

The last six months has been totally unprecedented and a challenging time for individuals, families, friends, businesses and communities throughout the UK (and the world).  

The UK put measures in place to help protect public health but also to protect the economy from ruin by providing business loan arrangements, grants, tax deferrals, and most importantly to many, the Coronavirus Job Retention Scheme (CJRS).

CJRS has been a £39bn+ lifeline to over 9m employees and their 1m+ employers, helping protect jobs and keep businesses afloat. Following a summer where shoots of recovery appeared and we all “Ate Out to Help Out”, the Government started curtailing the CJRS financial support from 1 July.  The scheme is expected to come to an end by 31 October, in line with encouragement to go back to offices and workplaces. HMRC also started to investigate abuse of CJRS, with an estimated £3.5bn claimed incorrectly, sending out over 30,000 letters and arresting those found to be claiming fraudulently.

However, as schools have returned, so has a bleaker picture for mid-winter. Covid-19 cases are rising again and the Government has been forced to act by putting in place longer term measures until March 2021. These have included closing pubs at 10pm, increasing the need for mask wearing and shutting the door on attending live sports fixtures.

These announcements have taken that brief whiff of optimism away from many businesses and, with the end of furlough and business loans, many employers have felt on the brink (the CJRS Bonus payable in February 2021 is not going to save them). Given this, and growing media speculation as well as pressure from MPS, Industry bodies etc to announce extended support to employers and continue to protect jobs and the economy, the Government has now made an announcement and has launched the Job Support Scheme.   

So, what did Rishi say?

Rishi has announced the following:

• As expected, the CJRS arrangement will come to a close on 31 October;

• The Job Support Scheme will go live from 1 November and will be available to all employees who were employed as at 23 September 2020 (i.e. appeared on a payroll submission on or before this date), regardless of whether they were furloughed or not. It will run until 30 April 2021.

• In order to support viable jobs, for the first three months of the scheme the employee must work at least 33% of their usual hours, with the employer paying this salary as normal. After 3 months, the Government will consider whether to increase this minimum hours threshold.

• The Government, together with employers, will then increase employees’ wages to cover two thirds of the pay that they have lost through a reduction in their working hours.

• The Government will pay one third and the employer will pay the other third.  The Government’s contribution will be capped at £697.92 per month – effectively a maximum of £4,157.82 per employee between 1 November and 30 April.  It will not cover Employer NIC or Pension costs.  

• It will only be payable if the employee is not under notice of redundancy.

• Employees will be able to cycle on and off the scheme and do not have to be working the same pattern each month, but each short-time working arrangement must cover a minimum period of seven days.

• To calculate “usual wages”, a similar approach will be taken to that which was in place for the CJRS. HMRC will confirm this shortly.

• Grants will be payable in arrears meaning that a claim can only be submitted in respect of a given pay period, after payment to the employee has been made and that payment has been reported to HMRC via an RTI return.

• All Small and Medium sized businesses (SME) will be eligible. It is anticipated that this will follow the EU definition of a SME but further clarity on this is expected.

• However, larger businesses will only be able to use the Job Support Scheme after a financial assessment where they will have to show that their turnover has fallen and will not be allowed to use it if they pay out dividends/share buy backs etc.

• Businesses are eligible even if they have not previously used the CJRS arrangement.  

• Additionally, employers retaining furloughed staff on shorter hours can claim both the Jobs Support Scheme and the Jobs Retention Bonus.

What does the announcement mean?

It is probably best putting this into numbers as analysing your costs will be key to helping you take action between now and April 2021 in making your business as robust as possible.

The below highlights a few scenarios and the cost to the employer overall. In each case, the employee earns £2,000 per month and we anticipate that the whole payment, including the portion paid by the Government to the employer will be subject to Class 1 NIC and pensionable.  

Furthermore, and playing devil’s advocate:

• If the employee works for 32% of their working time, the cost to the employer would be £643.60 per month (£2,000 x 32% = £640 + Employer Pension contribution of £3.60). This is cheaper for the employer, the Government but leaves the employee is a perilous position. One would question whether morally and reputationally, this would be the right thing to do, unless it protected a job that would otherwise be made redundant. The cost of that extra 1% for the employer is therefore £611.15 per month (or £444.48 if able to claim the CJRS Bonus).

• Looking at it from a different perspective if that employee worked 100 hours per month – what would be the additional cost of them working 33 hours as opposed to 32 hours? Based on our analysis,:

• 32 hours would cost the employer £643.60 (32 x £20 per hour, plus employer pension costs). The employee would only receive £640 in pay.

• 33 hours would cost the employer £1,253.99 (an extra cost of £610.39 per month for that hour) and the employee would receive £1,557.80 for the month, giving them an extra £917.80 per month to get through a challenging winter period.

• Overall, and if the employee is an eligible furloughed worker for the CJRS Bonus, the overall additional employer cost for those 6 months would be £2,662.34 (£3,662.34 – £1,000).

On the basis of the above, employers are going to have to plan carefully if they wish to use the scheme. With the Government capping their contribution to a maximum of £697.92 per month and more cost being placed on to the employer than there was during CJRS, employers will need to seriously consider how to protect jobs, manage costs and how to adapt the business accordingly, as well as balance productivity and activity generally.

After helping many employers throughout the UK during Covid-19, we have now developed both a calculator and best practice approach that is helping support businesses with reviewing their costs and options in relation to the above, CJRS and broader aspects that need consideration including the Government’s Kickstart and Apprenticeship packages.

What should employers do next?

We recommend the following:

1. Don’t panic by making redundancies without careful consideration. Consider your approach to organisational design and personnel requirements – if you had drawn up redundancy plans on the basis of Government support being removed from 31 October, this new announcement may help you protect more jobs, think about utilising apprenticeships and the Kickstart scheme, as well as considering how the business can be structured to keep more people in employment, even where it is for less hours than they previously worked. Alongside this, businesses need to adapt for the new environment being created by Covid-19 so that they can continue to succeed and grow despite the challenges Covid-19 presents.

• Think about Cost Reduction and retaining cash – over the last few months we have helped many employers to save money (as well as protect/enhance net pay) by implementing Pension Salary Sacrifice, reviewing company car/travel allowances, Apprenticeship Levy, assessing the interaction between tax and benefits in kind (see article here), advising on the use of Time To Pay arrangements and helping employers prepare their R&D claims given the need to be innovative and change processes and practices.

• Manage Risk – HMRC is in the process of reviewing CJRS claims made to date and will start charging penalties from 20 October. Additionally, there is also wider governance to manage that can impact on Senior Accounting Officer, Corporate Criminal Offence, National Minimum Wage obligations and leave Directors/organisations liable for CJRS debts, as well as potential criminal prosecution.  Make sure you can demonstrate appropriate governance and considered assessment.

Finally

Please do get in touch. We have helped hundreds of employers with CJRS from reviewing and submitting calculations, establishing robust governance controls, to thinking about wider organisational design, office/home work strategy and what new Pay and Reward models should look like to retain and recruit talent in the future.

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