HMRC's furlough scheme is a victim of its own success. With over 6 million staff placed on furlough by around 800,000 companies, the cost to the taxpayer is very significant. At the same time, however, the Government is wary of triggering a wave of redundancies by shutting down the scheme.
The Chancellor's announcement today that the furlough scheme will be extended until the end of October will be very welcome for employers. Many are now grappling with the Government's guidance on re-opening workplaces but are concerned about staff with medical conditions or childcare obligations who will struggle to return to work immediately. The extension of the furlough scheme will offer those businesses an option for preserving the employment of staff who are currently unable to return to work due to the knock-on effects of coronavirus.
However, the Chancellor is clearly conscious of the cost to the taxpayer and the extension comes with strings attached.
From 1 July 2020, furloughed staff can return to work on a part-time basis. Employers will need to agree these terms in writing with the relevant staff and report their usual working hours and actual hours worked to HMRC when submitting claims for reimbursement. The furlough grant will cover 80% of their wage costs for the proportion of their normal hours which they are not working and they will be entitled to pay under their employment contract for the hours they are working. The furlough pay cap will be adjusted proportionately. More detailed guidance on this aspect of the scheme will be published on 12 June 2020.
Then from 1 August 2020, employers with furloughed staff will need to contribute to their furlough pay as follows:
- From 1 August, employers will need to pay employer NICs and pension contributions in respect of furlough pay
- From 1 September, employers will also need to pay 10% of wages (and the furlough grant will cover the remaining 70%)
- From 1 October, employers will need to pay 20% of wages (and the furlough grant will cover the remaining 60%).
The latest date by which any businesses can furlough staff for the first time is 10 June 2020. From 30 June the scheme will be closed to new entrants. Claims can be made under the new scheme from 1 July 2020.
The key issue for employers will be certainty. The furlough scheme has been very popular but, with frequent changes to the guidance and apparent inconsistencies between the Treasury rules and government guidance, deciphering and implementing it has been a full-time job. Hopefully the guidance due by 12 June will be prepared in less haste, and with fewer gaps and inconsistencies, than previous versions of the furlough guidance.
Businesses are already looking to the next phase of the coronavirus crisis and considering what steps they will need to take when the furlough scheme ends. In many cases, redundancies are, unfortunately, very likely. However, they can only make realistic plans if they have timely, accurate information about the support they can expect from the Government.