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How will the job support scheme actually work?

25 Sep 2020 By Jonathan Owen

With so much about the chancellor’s new initiative still unclear, People Management asked legal experts for their steer on some key grey areas

Many businesses breathed a sigh of relief yesterday when chancellor Rishi Sunak announced the launch of a new job support scheme to replace the job retention scheme that comes to an end next month.

Under the initiative, also known as a short-time working arrangement, firms will be able to reduce their employees’ working time to as little as a third of their regular hours, and will continue to pay them as normal for hours worked. The employee will then have their wages topped up to cover two-thirds of the pay lost by the reduction in hours, with the government and the employer paying a third of the remaining wages each. The government’s contribution will be capped at £697.92 a month, and the scheme will be open for six months starting in November.

But, reminiscent of the launch of the furlough scheme back in March, this new package has yet to be backed by any detailed guidance, leaving unanswered questions about who exactly is eligible and how the scheme will work.

When the furlough scheme was launched, employers had to wait a week for the first guidance notice to be released – with some 21 amendments made over the five-month period that followed, points out Malcolm Gregory, partner at Royds Withy King. 

It could be a similar wait for this latest scheme. Sunak told MPs yesterday: “The conditions will be set out in guidance, which will be published shortly, and then over the next few weeks the further details will be worked through with businesses and unions, as we did with the furlough scheme.”

In the meantime, People Management asked legal experts for their views on how the scheme is likely to work, and key areas where clarity is needed...

Who is eligible for the scheme, and do businesses need to prove their eligibility?

In short, we’re still not sure, says James Tamm, director of legal services at Ellis Whittam: “The basics are that any UK employer can use the scheme provided they have a UK bank account and a UK PAYE scheme. Beyond that it gets complicated.”

While small and medium-sized businesses will be able to access the scheme, “large employers can only use the scheme if they pass a financial assessment test that shows their turnover is lower now as a result of the pandemic,” says Tamm. “As things stand, we have no further guidance as to what constitutes a ‘large employer’, or the details of the financial assessment.”

Julia Wilson, partner at Baker McKenzie, adds that there is as of yet no definition of ‘small and medium sized’ either for the purposes of the scheme. But, she adds, it is likely the government will adopt the same criteria used for the existing coronavirus business interruption loan scheme – so any business with an annual turnover of up to £45m.

Wilson also points out that the government’s factsheet says it does not expect employers will be in a position to top up their employees’ wages beyond the requirements of the scheme at their own expense, but it isn’t clear if this is an eligibility criterion.

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

A viable job appears to be one where there is work available but at reduced levels over the winter months, says Lauren Harkin, also a partner at Royds Withy King. “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,” she says, 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 businesses be with the hours employees on the scheme work week to week?

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 for short-time workers on the scheme, and who pays?

Class 1 employer national insurance and pension contributions will remain payable by the employer, as the job support scheme grant will not cover these costs.

Although not explicitly stated in the factsheet, Wilson says it implies employer national insurance and pension contributions will also be payable in respect to the grant payment, and not just the portion of wages paid by the employer. "Full details on this are expected shortly,” she says.

The employer will also be responsible for paying the employee up front, with grant payments for the government’s contribution made in arrears.

Can employers reduce a worker’s contractual hours or make them part time before putting them on the scheme?

Employees must be 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 similar to the one used for the furlough scheme will be in place – although full details are yet to be released.

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 for businesses to do so.

Is there anything stopping businesses cutting workers’ hours without using, and therefore contributing to, the scheme?

One of the issues with the scheme is that it makes it more expensive for an employer to pay the employee – not only will they have to pay them for hours worked as usual, but also a third of the hours not worked. There is nothing currently stopping employers from agreeing with an employee to move them onto fewer hours outside the scheme as long as it is done consensually, which would be less expensive for the employer, says Gregory.

“The downside is that the employee will only be paid for the hours they actually work without receiving any top-up. But an employee might prefer this to the potential of being made redundant, and there is no obligation for an employer to use the scheme,” he says. 

But, he adds: “Any employer making redundancies when it may be possible to avoid them by using the scheme could be criticised in an employment tribunal.”

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