How the furlough scheme will change from August 1st

Advice by Paul Holcroft, Associate Director at Croner

The Coronavirus Job Retention Scheme was put in place to support employers who were not able to operate as usual due to the pandemic. Since its inception, thousands of employers have furloughed all, or part, of their workforce and claimed 80% of wage costs, to a maximum of £2,500 per employee per month, to pass on to employees.

Until now, employers have been able to claim the portion of the employee’s wages, together with employer National Insurance and pension contributions.

Even though the scheme does not end until 30 October 2020, firms must begin to contribute to furloughed workers’ wages. The first phase of contributions, introduced from 1 August 2020, will see employers required to pay the employer’s National Insurance (NI) and pension contributions of furloughed workers’ wage costs in relation to the hours that the worker does not work. Employers must pay NI and pension contributions for all hours that furloughed employees are working under a flexible furlough arrangement (which began on 1 July 2020).

Further contributions from employers will be needed from September. The 80% grant paid by the Government will continue at a cap of £2,500 until the end of August, after which the following will apply:

• in September, the Government’s grant will decrease to cover 70% of furloughed employee wages at a decreased cap of £2,187.50
• in October, the Government will cover 60% of furloughed employee wages at a cap of £1,875

Employers will need to continue paying employer National Insurance and pension contributions for not only August but September and October as well. Once government contributions begin to decrease, employers must also top this up to ensure that furloughed employees still receive 80% of their wages up to £2,500 per month. For example, a 70% grant up to £2,187.50 per month will attract a 10% top up from employers to a maximum of £312.50 per month; and a 60% grant up to £1,875 per month will attract a 20% top up to a maximum of £625 per month.

Lastly, there is a deadline for employers to make claims to the scheme for periods ending on 30 June. This means that employers will not be able to recover any money from the scheme, from 1 August onwards, for periods relating to before the end of June. Employers must make sure a claim pertaining to pre-30 June is submitted by 31 July.