What is the Furlough Scheme and How is it Changing?
As a response to the coronavirus pandemic and the need for social distancing, as well as the closing of many shops and businesses, the government implemented the furlough scheme. Officially called the Coronavirus Job Retention Scheme, it is designed to enable employers to pay their workers during the lockdown.
The logic was to safeguard jobs by allowing employers to keep jobs on standby, ready for a quick restart when lockdown ends, and to avoid mass redundancies. Originally, the scheme was intended to cover salaries in March, April, and May, but was previously extended to also cover June. Earlier this month, it was announced that it will run until at least the end of October.
How does it work at the moment?
Currently, the state pays your employer 80% of a furloughed employee’s salary, up to £2,500/month. A furloughed employee cannot work for their employer while on furlough and nothing changes in that regard until 30 June 2020.
However, from 1 July 2020, furlough employees will be able to go back and do some work for employers part-time. This had previously been announced, though it’s been moved forward from the originally stated date of 1 August 2020.
Another important point is that the scheme will close to new entrants on 10 June 2020 – so if an employer hasn’t furloughed their staff by then and made at least one claim for furlough payments, they will not be able to access the scheme and put employees on furlough later.
Who will be paying part-time workers?
The Treasury announced that employers are responsible for paying wages for the time employees work. Your employer will also decide the hours and shift patterns that staff will work when they go back and there is no limit on the number of hours employees can work.
For example, if someone ordinarily works a 40-hour week, an employer can ask them to work 39 hours and then furlough them for the remaining hour. The amount of time an employee works each week can also vary over the month with employers varying it week by week. When an employee is working, they should be paid their normal wage for those hours. For the hours they do not work, they will be covered by furlough pay and receive at least 80% of their normal wage.
An example of how this will work
The Independent provided this example to demonstrate how part-time furlough would work: “Let’s assume you work a 40-hour week, and you earn £1,000 a month for that. On furlough, you don’t work and you get £800 a month. Yet, if you went back to work for 10 hours a week, that’s a quarter of your normal working time.
“So, you’d earn £250 a month for the work you do. Yet, you’re still furloughed for 30 hours a week, so you get three-quarters of your monthly furlough pay; that’s £600. Adding it up, you’d get a total of £850 a month working those 10 hours, compared with £800 on full furlough.” HM Revenue & Customs will announce more details of how the furlough scheme interacts with work on Friday 12 June.
Staying on furlough
Those who remain on full furlough until October will not see any changes in terms of how much they are paid or when and will still get a minimum of 80% of their normal wage. What is changing is more a behind-the-scenes adjustment of what the state covers and what the employer has to cover. HMRC have laid out this roadmap:
- June and July: The state will continue to pay 80% of salaries, plus national insurance and pension contributions as it does now. Employers are not required to pay anything
- August: The state will pay 80% of wages, up to a cap of £2,500/mth. Employers will now have to pay national insurance and pension contributions
- September: The state will pay 70% of wages, up to a cap of £2,190/mth. Employers will have to pay national insurance and pension contributions, and 10% of wages to make up 80% of the total, up to a cap of £2,500/mth
- October: The state will pay 60% of wages, up to a cap of £1,875/mth. Employers will then need to pay national insurance and pension contributions, and 20% of wages to make up 80% of the total, up to a cap of £2,500/mth
Chancellor Rishi Sunak said: “Our top priority has always been to support people, protect jobs and businesses through this crisis. The furlough and self-employment schemes have been a lifeline for millions of people and businesses.
“We stood behind Britain’s businesses and workers as we came into this crisis and we stand behind them as we come through the other side.
“Now, as we begin to reopen our country and kick-start our economy, these schemes will adjust to ensure those who are able to work can do so while remaining amongst the most generous in the world.”
If you would like to talk to a member of the team here at gpfm, please don’t hesitate to get in touch over email email@example.com or call 01992 500 261.
This article is for information only and must not be considered as financial advice. We always recommend that you seek independent financial advice before making any financial decisions. Investments can go down as well as up and you may get back less than you invested.
*Please be advised by clicking this link you are leaving the gpfm financial planners page
gpfm are an independent financial planning company dedicated to the provision of personal, professional, and objective-driven advice for our clients. We have been awarded the Chartered Financial Planners title by the Chartered Insurance Institute for offering high quality, independent and informed advice that meets the needs of our clients.