1. What contributions do businesses have to make from 1 July?
The scheme contributions remain unchanged in July. In August, businesses have to cover the employers National Insurance Contributions (NIC) 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 NIC 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 NIC and pension contribution on the full amount received by the employee, and the Government would pay £2,187.50.
2. How does the part-time furlough work when the scheme starts in July?
We are still waiting for guidance to be published on 12 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 1 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.
3. Are there any other costs that the employer incurs from furloughing an employee?
The following may represent additional costs:
- 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.
4. I have just two employees, and only work available for one employee. Would it be possible for the work to be shared from 1 July, as previously furloughed employees could not work?
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 10 June.
- There is also a condition that from 1 July, you cannot have more employees on furlough than you had in previous claim periods.
- Both employees had to have been included on a payroll submission by 19 March 2020.
In this example, as there are only two employees, the only way in which furlough could be claimed in July, is if both employees were on furlough in June, and that the minimum furlough period of three weeks had been observed.
5. One of my employees is uncontactable as he is on annual leave. How do I furlough him by 10 June?
In short, you have a problem. Employers should write to their employee confirming that they have been furloughed and the employer should keep a copy of the letter for five years. But the employee must accept these terms, and this acceptance must be before 10 June.
Employers considering furloughing additional staff must start the consultation immediately in order to meet the 10 June deadline, and to give the furloughed staff adequate notice.
6. Why is holiday pay an issue?
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.
It is unlikely that many furloughed employees will take holiday. This therefore represents an ever-increasing cost to the employer.
7. I have furloughed some of my staff but have not yet made any claims. Will this cause me a problem?
Due to the change to permit part-time working from 1 July, all claims for periods up to 30 June must be submitted by 31 July 2020.
8. What other considerations must businesses make?
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. 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. Undoubtedly, if employers are considering redundancies, they should take legal advice as the costs of redundancy are also dependent on specific contractual terms.
Would you like to know more?
If you would like to discuss any of the above guidance or have other queries about how you can make the right decisions for the future of your business and your income, please contact your usual Blick Rothenberg contact or one of the partners to the right.
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