Here are the rules employers and employees need to know to access the government’s flexible furlough scheme that launched on 1 July.
1. Who can go on flexible furlough?
From 1 July 2020 only employees that employers successfully claimed a previous government grant for will be eligible for more grants under the Job Retention Scheme.
This means they must have previously been furloughed for at least three consecutive weeks taking place any time between 1 March and 30 June 2020.
2. How do I put someone on flexible furlough?
Employers should discuss with employees who they wish to place on the flexible furlough scheme, outlining which hours they will be expected to work. Staff will need to agree on the arrangements of their part-time work.
This agreement should be confirmed in writing and a written record kept of it for five years.
3. How long must flexible furlough last?
Previously, staff needed to be furloughed for at least three weeks to benefit from the scheme. However, flexible furlough agreements can last any amount of time.
That said, the period that employers claim for must be for a minimum period of seven calendar days. Employees can enter into a flexible furlough agreement more than once.
4. How much can I claim?
The scheme will allow employers to recover the remainder of wages to a maximum cap. Wage caps are proportional to the hours an employee is furloughed. For example, an employee is entitled to 60% of the £2,500 cap if they are placed on furlough for 60% of their usual hours.
The amount that the scheme will cover will begin to decrease from September 2020, and employers will be responsible for all of the national insurance and pension contributions from August 2020, regardless of the employee being on flexible furlough.
5. What records should I keep?
Employers will need to keep records of how many hours their employees work and the number of hours they are furloughed during flexible furlough.
6. How do I calculate working hours?
There are two different calculations employers can use to work out their employees’ usual hours, depending on whether they work fixed or variable hours.
Where the employee’s working hours are fixed, or their pay does not vary with the number of hours worked, the reference period for calculating their hours is the hours your they were contracted for at the end of the last pay period ending on or before 19 March 2020.
Where an employee works variable hours, employers will use the higher of:
- – the average number of hours worked in the tax year 2019 to 2020; and
- – the corresponding calendar period in the tax year 2019 to 2020.
CJRS claim calculations are based on calendar days of pay and calendar days of hours. You need to consider the elapsed time of the claim, and forget about working hours and days
Tom is a monthly paid salaried employee working 37.5 hours per week. He only receives a basic salary and no overtime. In the legislation Tom is referred to as a ‘fixed rate’ employee.
Tom has been fully furloughed since 11 April on 80% pay ie no top-up and is returning to work part-time on 6 July and will be working 82 ½ hours during the month of July. The employer wants to make a claim for 1 to 31 July which corresponds with Tom’s pay period. The HMRC guidance (see example 2.4) indicates the employer can round up usual hours in this scenario.
The calculation would be:
|Weekly contracted hours||Daily contracted hours||Days in claim and pay period||Usual hours rounded up|
|37.5||37.5/7 = 5.357||31||5.357 x 31 = 166.07 = 167|
|Actual hours||Furloughed hours|
|82.5||167 – 82.5 = 84.5|
The base salary is still the last payday before 19 March 2020 so in Tom’s case, February 2020 when he was paid £2,269.62. The proportion of pay which relates to furloughed hours is £2,269.62/167 x 84.5 = £1,148.40.
The employer pays 80% of Tom’s usual pay for those furloughed hours: £1,148.40 x 80% = £918.72 furlough pay.
We then compare that to the pro-rated cap on earnings in July of £2,500/167 x 84.5 = £1,264.97. As the furlough pay is below the cap the employer can claim all of the furloughed pay under the CJRS.
In order to calculate the employer’s NIC and workplace pension contributions, we knock the pence off the furlough pay, (rounding to £918 in this case).
The NIC threshold is apportioned to the furlough hours: £732/167 x 84.5 = £370.38.
- £918 – £370.38 = £547.62 x 13.8% = £75.57 employer NICs to be claimed
Pension threshold is apportioned to the furlough hours: £520/167 x 84.5 = £263.11.
- £918 – £263.11 = £654.89 x 3% = £19.65 pension contributions to be claimed
Dick is a zero-hours employee, paid monthly who has been employed throughout 2019/20. In the legislation, Dick is referred to as a ‘variable pay’ employee.
Dick has also been furloughed for at least 21 days up to 30 June. He is returning to work on 13 July and will work 60 hours in the month of July at a rate of £9.30 per hour: £558 for the month.
Throughout CJRS v1 we had to consider Dick’s average pay in 2019/20 and compare that to the same pay period last year and choose the best outcome for Dick. As Dick is flexi-furloughed, in CJRS v2 we have to carry out an additional first step to work out the best outcome in terms of usual hours for Dick.
Step 1: Compare average usual hours in 2019/20 to July 2019 usual hours
- July 2019 hours: 62
- Total hours 2019/20 : 828.75 worked hours + 89.41 holiday hours = 918.16 / 366 days = 2.508 per calendar day in the tax year
- Claim period is 1-31 July, the same as his pay period, so usual hours are 2.508 x 31 = 77.75 = 78 rounded up
- Average hours are higher than July 2019 so use 78 for usual hours
- Dick works 60 hours in July.
- usual hours 78 – worked hours 60 = furloughed hours 18
Step 2: Consider the best pay outcome for Dick.
- Calculate 2019/20 average pay for a 31 day month. Total pay £8,299.07/366 = £22.675 per calendar day
- For 31 days in July = £22.68 x 31 = £703.08
- Pro-rate to furloughed hours £703.08/78 x 18 = £162.25 (rounded)
- £558 actual pay in July 2019 £558/78 x 18 = £128.77 (rounded)
so the average of £162.25 is higher. We would then go on to calculate 80% of £162.25 and any NIC and pension cost recovery as for Tom.
Harry works 20 hours per week and is paid weekly. He has been employed since 2017 and has been furloughed since 10 June 2020.
The employer wants to flexi-furlough him from 1 July to 10 July 2020. He is due to work 10 hours in the week ending 5 July and 10 hours in the week ending 12 July. This claim covers two pay periods so the usual hours are now rounded up or down as appropriate mathematically (see example 2.1 of HMRC guidance).
Step 1: Week ending 5 July: 20 worked hours /7 x 5 calendar days in claim period 1 -5 July = 14.29 rounded down to 14 hours
Step 2: Week ending 12 July: 20 worked hours /7 x 5 calendar days in claim period 6- 10 July = 14.29 rounded down to 14 hours.
Usual hours are 14 + 14 = 28. Actual hours are 20, so furloughed hours are 8.
Harry will have some furlough pay for 28 -30 June, included in the June 2020 CJRS claim, but this is based on his pay, not usual hours, as he wasn’t working at all.
You may have thought that as Harry was working 20 hours over two weeks and is paid for 40 hours we could claim for 20 hours, but that is not how the HMRC logic operates.
You must work out what you are going to be able to claim for, before deciding on the CJRS claim periods. The ability to round up for claims in line with whole pay periods may seem trivial, but it can make a difference when you have hundreds or thousands of employees in a claim.
You can use Hmrc’s Coronavirus Job Retention Scheme calculator to work out the figures you’ll need when you complete a claim through the scheme. It also gives a detailed breakdown of calculations for each pay period for your records.
The figures are for one employee, for the claim period you specify. Run the calculator again for any other employees you’re claiming for and add up the results.
The calculator works for most employees paid weekly, 2 weekly, 4 weekly or monthly.
Contact MCL Chartered Accountants today on 01702 593 029 to optimise your tax position or if you need any assistance with calculating flexible furlough claims for your employees.