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Major Furlough Changes from 01 August 2020

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01 August 2020 will see the start of some of the most significant changes to the Coronavirus Job Retention Scheme (“Scheme”).

From 01 August 2020, the level of Government grant will reduce and the reduction will continue each month until the end of the Scheme on 31 October 2020. Although the level of Government grant will reduce, employees need not fear. The amount an employee receives will remain at the same 80% of their wages up to £2,500 (assuming they are furloughed full time). With the new flexibility to the Scheme, the £2,500 per month wage cap is proportional to the hours work and so if an employee is furloughed for 50% of their normal hours, they are only then entitled to 50% of the £2,500 cap.

From 01 August, the Government will still provide a grant of 80% of salary up to £2,500, however employers will now become responsible for paying Employer’s National Insurance Contributions (ER NICS) and pension contributions for the hours in which the employees are on furlough.

From 01 September employers will start to see even more significant changes. The Government will only pay 70% of wages (down from 80%) up to a cap of £2,187.50 for the hours the employee is on furlough (down from £2,500). Employers will still pay ER NICs and pension contributions as they were required from 01 August, but in addition, they will now need to top up employees’ wages to ensure they receive the original 80% salary up to a cap of £2,500, for time they are furloughed.

From October, the Government contribution reduces further to 60% of wages up to a cap of £1,875 for the hours the employee is on furlough. Once again, an employer will then have to pay ER NICs and pension contributions and top up the employees’ pay to 80% salary up to a cap of £2,500, for time they are furloughed.

A table showing the changes for an employee on furlough for 100% of their hours has been produced on the Government website, as shown below.

 

July

August

September

October

Government contribution: employer NICs and pension contributions

Yes

No

No

No

Government contribution: wages

80% up to £2,500

80% up to £2,500

70% up to £2,187.50

60% up to £1,875

Employer contribution: employer NICs and pension contributions

No

Yes

Yes

Yes

Employer contribution: wages

-

-

10% up to £312.50

20% up to £625

Employee receives

80% up to £2,500 per month

80% up to £2,500 per month

80% up to £2,500 per month

80% up to £2,500 per month

Source: https://www.gov.uk/government/publications/changes-to-the-coronavirus-job-retention-scheme/changes-to-the-coronavirus-job-retention-scheme

As before, employers can continue to top up wages to 100% should they wish, although they are not legally required to do so. Any top ups offered by employers may reduce as the sliding scale of contributions will no doubt take its toll on businesses still struggling to recover.

If businesses do manage to retain staff after the furlough scheme ends and keep them until January 2021, Chancellor Rishi Sunak will now also offer an incentive bonus of £1,000 per employee. Whether the £1,000 incentive will be enough for business to continue employing the employee after January 2021 is unknown.