Long reads

How will Rishi’s latest job support schemes work?

22 Oct 2020 By Maggie Baska

The government is closing pubs, bars and other businesses in some high-risk areas and offering a version of furlough for affected staff. But will this and the job support scheme be enough?

The furlough scheme was always set to end on 31 October – no ifs, no buts and no guarantees there would be a replacement. Then, in late September, its successor was announced: the job support scheme, designed to prop up ‘viable jobs’. There had been “no harder choice”, chancellor Rishi Sunak said at the time, than deciding to close the job retention scheme.

But now furlough is back, alongside the promise of tighter local restrictions where infection rates are spiking. Pre-empting the prime minister’s introduction of a new and more stringent local lockdown system for England, Sunak announced an extension of the job retention scheme to support businesses obliged to close because of the pandemic. The following week, Boris Johnson unveiled a three-tiered alert system categorising every local authority in England as either medium, high or very high risk. Areas designated very high – at the time of going to press, just Merseyside – will see hospitality, leisure and entertainment businesses close their doors (although Johnson said retail, schools and universities will stay open).

So the job support scheme provides some relief for firms facing depressed demand over the winter months, while the extended furlough scheme answers calls for support for businesses unable to operate. Through the former, the government is offering to top up the wages of employees who have been put on short hours, contributing a third of the lost wages up to a cap of £697.92 a month. However, a condition of the scheme is that the employer also has to contribute another third of the lost wages, making it far less generous than the furlough scheme. Employees are also required to work at least a third of their normal hours, which the employer pays as normal.

On the face of it, this means the scheme is not a great value proposition for employers, says Guy Pink, HR consultant and former HR director at addiction charity We Are With You. The scheme, which will be open for six months from 1 November, is also more selective than furlough. While all SMEs can apply, larger firms will need to show their turnover is lower as a result of the pandemic to be eligible.

There are, however, some benefits. The Treasury has argued it provides businesses with valuable flexibility, allowing them to change working patterns week by week to meet demand. It can also avoid the cost of making staff redundant and then rehiring them when the economy picks back up. Duncan Brown, an independent rewards adviser and researcher, says employers will most likely use the scheme this way: to retain experienced and highly skilled staff who will then be ready to carry on working once the pandemic dies down. But this logic will only hold for certain businesses. 

“If you have lots of employees on national living wage and zero-hours contracts, like in cinemas and restaurants, by contrast, then the scheme is unlikely to make much difference – redundancy and rehiring costs will be relatively low,” Brown says, adding that this is likely to further increase the disproportionate number of women in low-paid jobs being made redundant.

There is in fact nothing to stop such businesses from putting workers on reduced hours outside the scheme, as long as they get their employees’ consent (which is also required when reducing hours on the scheme). So why – to put it bluntly – bother, given utilising the programme will mean higher wage costs for the same amount of work? Well, there are some other good reasons to at least consider it. For a redundancy to be fair, employers must always consider potentially viable alternatives, says Barry Ross, director at Crossland Employment Solicitors. But, Ross concedes: “There is still a large cost to using the scheme and also a requirement to have some work to do, so it may not be practical or financially sound to use it.”

Employers could also face reputational consequences for not utilising it, particularly where businesses decide to put workers on short-time working outside of it, or where redundancies are made. “Society would look unfavourably on organisations that could have used this scheme to save jobs, but didn’t,” says Gary Cookson, director of Epic HR.

Of course none of this is of any help to companies forced to close because of local lockdown restrictions, which is where the extended furlough system comes in. Under this scheme – separate to the job support scheme – if a business is legally required to close for seven consecutive days or more, the government will pay two-thirds (67 per cent) of employees’ wages up to a maximum of £2,100 per employee per month for the duration of the closure. 

The extended furlough scheme will be open for six months from 1 November and, unlike the initial furlough scheme, employers will not be required to contribute any wages. They will have to pay national insurance and pension contributions where applicable, and payments will be made in arrears, with eligible businesses having to wait until early December to make claims.

Ben Willmott, head of public policy at the CIPD, welcomes the new scheme. But he warns many companies affected by coronavirus restrictions could still “fall in the gap between the two schemes”. He worries that while the furlough scheme risks being “too narrow” in only applying to firms required to close, the job support scheme will be “possibly too broad” and won’t provide enough support for those organisations needing it.

Acknowledging the challenges faced by the government in putting together a support package at such short notice, Willmott suggests the UK needs a simpler, more understandable and flexible system to support businesses through the peaks and troughs of the virus. “In Germany, they have an established wage subsidy system that employers understand and which can be tweaked by policymakers to change the criteria under certain circumstances,” he says. “We need something similar in the UK so we have a system that employers can understand and we’re not continuously seeing new schemes designed at very short notice.”

The job support scheme at a glance

Though businesses forced to close through the government’s three-tiered lockdown system will be able to utilise an extended version of furlough, the support available to most will be the job support scheme, which allows employers to reduce employees’ working time to as little as a third of their regular hours. The company continues to pay them as normal for hours worked, with their wages topped up to cover two-thirds of the pay lost – the government and employer paying a third each. This means an employee only working a third of their usual hours can expect to receive 77 per cent of their regular pay, 55 per cent covered by their employer.

Clearly, the new scheme is more complicated than furlough was. The government has promised further guidance, but at time of going to press this hadn’t been released. So here’s what we know so far...

What is a ‘viable’ job and do businesses have to prove this?

“The scheme says that to be viable, the employee must work at least 33 per cent of their usual hours and not be under notice of redundancy,” says Lauren Harkin, partner at Royds Withy King, adding that this minimum threshold will be reviewed at the end of January to see if it should be increased. She also highlights that HMRC “may audit the employer at some point to confirm what the employee’s normal contractual hours were against the reduced hours they are working under the scheme”.

How flexible can organisations be with employees’ hours?

Employees will be able to come off and on the scheme as long as each short-time working arrangement lasts for a minimum of seven days, the government’s factsheet says. “Claims can be submitted in respect of a given pay period,” adds Will Winch, legal director at Mishcon de Reya. “This is likely to mean that if employees are paid on a monthly basis, employers would need to show that the employee worked for a third of the month. If the employee is paid weekly, however, the employer would need to show that a minimum of a day and a half – or thereabouts – was worked during that week.”

How are tax, pension and NI contributions calculated and who pays?

Class 1 employer national insurance (NI) and pension contributions will remain payable by the employer. Although the factsheet does not not explicitly state this, Julia Wilson, partner at Baker McKenzie, says it implies these will also be payable in respect to the grant payment, and not just the portion of wages paid by the employer. The employer will also be responsible for paying the employee up front, with grant payments for the government’s contribution made in arrears.

Can you make staff part time or reduce their hours then put them on the scheme?

Employees must have been on an employer’s PAYE payroll on or before 23 September 2020 to be eligible for the scheme, and the government says a ‘usual wage’ calculation will be in place. For workers already on zero-hours contracts, the government has said employers will be allowed to change their contracts to make them eligible for the scheme. However, it does not seem there will be any requirement to do so.

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