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Flexible Furlough Scheme

Under the flexible furlough scheme, employees can work for some of the week and be furloughed for the rest, in proportions decided between employee and employer. This change brings additional complexity to the scheme, in particular in terms of calculating the amount of grant recoverable by the employers.

Below we have summarised the main changes which will take effect next month.

Update (1 July) – HMRC releases further details on Flexible Furlough Scheme

The flexible furlough scheme

As of 1 July, employers will be able to bring furloughed employees back to work for any amount of time and any work pattern, whilst still being able to claim the grant for the hours not worked.

There is an important caveat in that employers will only be able to make a claim for employees who have been previously furloughed for at least 3 consecutive weeks prior to 30 June. In practice, it means that the last day for putting new employees on furlough was 10 June.

In a nutshell, employers will be able to claim a pro rata’d amount of 80% of salary, based on the proportion of hours not worked out of normal working hours. The complexity of the calculations will ultimately depend on whether the employee is fully or flexibly furloughed, and whether they normally worked fixed or variable hours.

Employees on “full-time furlough”

If the employee is fully furloughed, the calculations will not change as such and the employer will only have to work out the maximum wage amount, based on the employee’s normal salary (i.e. 80% of the salary, up to a cap of £2,500).

Employees on “flexible furlough”

If the employee is flexibly furloughed, the employer will have to work out the employee’s usual hours, record the actual hours they work as well as their furloughed hours for each claim period.
There are two different calculations depending on whether an employee worked fixed or variable hours.

In order to calculate the normal working hours for those with fixed hours, employers simply have to take the number of hours worked in the pay period before 19 March 2020. To calculate the normal hours for those with variable pay, employers must calculate it based on the higher of (a) the average number of hours worked in the tax year 2019 to 2020 or (b) the corresponding calendar period in the tax year 2019 to 2020.

Once the employer established the actual and furloughed hours, they will be able to proceed with calculating the amount of grant available. This can be done via an online calculator which can be utilised in the majority of ordinary cases. At this stage, the calculator can also be used to work out what employers will be able to claim in the period between 1 and 31 July and, including the flexible furlough scenario.

HMRC also published examples of how to calculate employees’ wages, NI and pension contributions, as well as actual and furloughed hours worked.

The employer will have to pay wages for any hours worked. If the employee works 20% of their usual hours, the employer will have to pay 20% of the usual pay to the employee and the government will currently still provide a reimbursement 80% of the usual pay.

Future changes

Please note that from August, employers will no longer be able to claim a grant towards the employer’s NI and pension contributions.

Thereafter, in September and October the amount of grant available to employers will decrease to 70% (up to a cap of £2,187.50) and 60% of wages (up to a cap of £1,875) respectively. Employers will have to “top up” their employees’ salaries to 80 % or the cap (or more, depending on what has been previously agreed with the employee). These figures are however based on the assumption that an employee would be fully furloughed. If an employee is flexibly furloughed, then employers will only be able to recover a proportion of the 70% or 60% of wages, depending on the ratio of hours worked and furloughed.

This will bring additional complexity and some calculations may indeed become very confusing. We are hopeful that the online calculator will be updated accordingly, in order to streamline the process.

We would recommend that all employers ensure to familiarise themselves with the updated guidance.

Update – 1 July

HMRC has issued a further Treasury Direction on the Coronavirus Job Retention Scheme (CJRS), modifying the effect of the previous Direction. The new Direction sets out the rules that will apply as of today, with a focus on the ‘flexible furlough’ arrangements.

We have summarised the most important points below:

Time limit for making a claim under the original CJRS (covering the period until 30 June) must be made by 31 July.
Claims under the “new” CJRS can only be made if an employer had previously made a qualifying CJRS claim (by 31 July) in respect of an employee who has been furloughed for at least 3 weeks on or before 10 June.
Employees can now be flexibly furloughed – the wording of the Direction suggests that flexibly furloughed employees cannot work the full amount of their usual hours.
It appears that employees can continue to be fully furloughed beyond 1 July.
Agreement must be reached on flexible furlough arrangement. The agreement must be made before the beginning of the claim period to which the claim relates. It must be in writing and it appears that a letter from an employer together with a confirmation from an employee (including in an electronic form) would suffice. The agreement or confirmation must be retained by the employer until 30 June 2025.
Claim periods starting from 1 July must start and end within the same calendar month and must last at least 7 days in that month.
The Direction sets at length the details for calculating the reference salary and usual hours for the different types of workers. We would recommend that employers familiarise themselves with these.

Unfortunately, the Direction does not provide any clarity on some of the more nuanced points, such as an issue of notice pay (and PILON payments) whilst on furlough.

If you require tailored legal advice, please get in touch with our employment team.

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