Chancellor Rishi Sunak has announced a new ‘Job Support Scheme’ to start when the current furlough scheme ends on 31 October. It will run for six months from 1 November. His intention, he said, was to save “viable” jobs by supporting wages for those working shorter hours as an alternative to being made redundant.
The new scheme is far less generous than the furlough scheme it replaces. The main feature is that the government will pay part of the wages for those on shorter hours as a result of the pandemic. Under the new scheme, employees will have to work at least a third of their normal working hours to qualify and receive pay for that time from their employers in the normal way. Of the remaining (up to) two-thirds, the employer will pay 33 percent and the government will pay 33 percent.
This means that the employee will always receive at least 77 percent of their full monthly wages and the government will be paying a maximum of 22 percent (as compared with 80 percent at the start of the furlough scheme). The government’s contribution is on a sliding scale so that, if someone works 50 percent of their normal hours for example, the government will pay 17 percent of wages. Further, the level of the government’s contribution will be capped at £697.92 per month. At this stage, there does not appear to be a corresponding cap on the employer’s contribution to pay for unworked hours.
To take a simplified example:
If someone earns £2,000 a month for their normal hours and they start to work for half of those, they’ll get £1,000 normal pay plus £333 extra from their employer and £333 from the government.
In essence, the ‘cost’ of unworked hours will be spread equally between the employer, the government and the individual.
Larger employers will benefit from the scheme only if their turnover falls as a result of the pandemic but it will apply to all small and medium size enterprises (generally understood to be those with 250 or fewer employees). It will apply even to businesses who have not previously furloughed staff.
The £1,000 job retention bonus will continue to be payable at the end of January in respect of all staff kept on for three months after furlough ends. But, importantly, businesses will not be able to issue redundancy notices to those employees on the Jobs Support Scheme (although full detail on that has yet to be published). So firms will need to carefully weigh up whether the job retention bonus, in combination with the government’s contributions under the new scheme, makes retaining staff that could otherwise be made redundant sufficiently cost-effective. They might, for example, find that it is better value for them to employ one person full-time than retaining two workers under these terms on a part-time basis.
As with furlough, similar rules will apply to the self-employed. And, to improve cash-flow, there will be further support for firms in the form of extended tax deferrals and loan payback deadlines.
Finally, for the beleaguered tourism and hospitality sectors, there was some limited help: a planned VAT rate increase from a reduced 5% to the usual 20% will now be put back to 31 March 2021. But there has been criticism that there is no wage support for business that cannot open (and so can’t provide work) such as many in tourism and hospitality. The Chancellor’s stated aim of protecting ‘viable’ jobs has caused resentment that jobs in these sectors are, by implication, seen as not viable.
The Chancellor dubbed this package of measures ‘pay as you grow’ - which, of course, remains to be seen. Concerns have been expressed that the new scheme will not prevent mass unemployment after furlough ends. It will be interesting to see if the government responds to pressure by increasing assistance to the firms most hard-hit by the measures taken in response to the pandemic.
For advice on any aspect of the furlough scheme or the new Jobs Support Scheme, please contact us.