Information announced on 12 June 2020

Information announced on the 12 June 2020:

  • Applications for the furlough grant for June 2020 have to be submitted to HMRC by the 31 July, at the latest.
  • From 1 July furloughed staff can do productive work for their employers while furloughed. The hours worked must be recorded and then paid to the employee in full as gross pay on their next payslip. The amount of furlough pay is then reduced as a proportion of normal working hours in the month so that the furlough pay excludes hours worked.  This calculation is based on total “normal” working hours expected in a period of furlough less the actual hours worked. The remaining hours are then used as a proportion for furlough. For example, if an employee who is paid the furlough cap of £2,500 per month and usually works 172.5 hours in July and is furloughed for the whole month, but they end up working one whole day of 7.5 hours then the furlough pay is calculated as: (172.5 – 7.5) / 172.5. this means the furlough pay is limited to £2,391.30 in this case.  The 7.5 hours that they actually worked is paid at their full rate or pay.
  • The earliest a claim can be made for “flexible furloughing” is the 1st July – important because you normally can file a claim 14 days ahead of the payment date. This needs to be considered if you have staff on weekly or fortnightly pay depending on the timing of your previous applications.  For most employers this shouldn’t cause too much concern as most commonly applications are being made mid-month ready for the end of month payrolls.
  • HMRC have confirmed that any staff previously furloughed can be put on furlough again from 1 July 2020. The guidance says from the 1 July employers are “only be able to claim for employees who have previously been furloughed for at least 3 consecutive weeks taking place any time between 1 March 2020 and 30 June” – a welcome relaxation of the rules since the original announcement
  • From 1 July the minimum period of furlough is 1 week, although in that week the employee can work for any amount of time while furloughed provided the hours work are excluded from the furlough grant claim and the employee is paid full hourly rate for those hours worked.
  • Staff returning from maternity or shared parental leave after 1 July 2020 can be returned and furloughed even if they have not previously been furloughed, and will be able to utilise the flexible working arrangements available from July.

Calculating your furlough claim

With the flexibility now being introduced to the system this means it will get very complicated in the final four months of the scheme. I recommend that payroll figures are calculated and passed to your payroll team as early as possible.

July 2020

This will be the most complicated month as employees can be on “flexible furlough” but as well as apportioning employees pay between hours furloughed and hours working during a period of furlough, an apportionment of employer’s national insurance and employers pension contributions will also need to be made.

HMRC have a calculator here you can use to help work out values. This shows that furlough claims will be worked out by the employee’s usual hours of work.

In coming weeks we hope to have a calculator that you can use for multiple employees on one report that can ten be used to aid your claim.

For the furlough claims from July onwards you will need some extra details that were not needed for previous claims where you have taken advantage of flexible working for:

  1. Normal hours the employee works in a payment period
  2. (Optional) How many hours they work per day and how many days a week they work
  3. How many hours in the period the employee was furloughed for (ignoring any flexible working they did during the furlough)
  4. How many hours work they did while furloughed?

Overall, claims for July should mean that any time a furloughed member of staff isn’t working under the flexibility of the new scheme their pay is covered by the grant in full.

August 2020

From August the grant will no longer cover the cost of employer’s national insurance or employers pension contributions. This simplifies the calculation slightly where a staff member is on flexible furlough working but overall means there will be a slight increase in cost for employers keeping staff on furlough.

For example if a staff member is furloughed for the whole of august with no flexible working and they are being paid the full £2,500 gross pay per month, under the furlough pay cap, then you as the employer will have to pay for the £243.98 of Employers national insurance and £59.40 Employers Pension (if the staff member is enrolled).

The furlough grant will no longer cover these costs, so the maximum increase in cost to you per employee on furlough is £290.14 per month.

September 2020

In September the grant available will begin to reduce.

HMRC will reduce the grant to employers, meaning that they will effectively pay 87.5% of the gross furlough pay member of staff is paid. Officially, the statement is that HMRC will now cover 70% of the employees’ wage, rather than the previous 80%, but it is for the most part easier to get practical numbers thinking of this as a grant in effective rates.

Someone being paid the maximum of £2,500 in a month, with no flexible working, would therefore result in an HMRC grant of £2,187.50, the employer being left to fund the remaining £312.50 plus National Insurance of £243.98 and Pension of £59.40.

Therefore, maximum cost to an employer of a furloughed member of staff in September is £615.88.

October 2020

October marks the last month the scheme will remain open. The grant will reduce again now being 60% rather than the original 80% of normal wages.

In effective terms HMRC will only fund 75% of the gross furlough pay member of staff. To put numbers to this for an employee being paid the cap of £2,500 per month, with no flexible working arrangements, HMRC will fund £1,875, and the employer will have to fund the remaining gross pay of £625 plus National Insurance of £243.98 and Pension of £59.40.  Therefore, maximum cost to an employer of a furloughed member of staff in October is £928.38.

On the face of it this looks like it is getting very unattractive but given that this is based on the furlough pay cap employees who are furloughed on salaries much higher than £37,500 then the furlough scheme could still be saving a lot of money compared to paying the staff member full pay while there is no work to do.

Final thoughts

On balance, the furlough extension is more generous than we had expected. The maintaining of employees on 80% pay does cause some headaches for employers where it can be hard to motivate staff to return to the work force.

The scheme originally caused many businesses to pause plans to reduce staff levels. While the scheme continues to October future staffing levels most likely need reviewing now to make sure that the furlough scheme isn’t just delaying an inevitable crunch point for your businesses cashflow and longer-term profitability.

Our Principal Advisers and Client Managers have been working diligently to help businesses get to grips with the numbers and draw up workable projections to help make decisions.

If you need to have someone to discuss thoughts and ideas as you move forwards then please get in touch with your Client Manager or Principal Adviser, call 01474 853 856 or email discovery@a4g-llp.co.uk

Contact me today!

Josh Curties

BA (Hons) ACA

Partner & Principal Adviser

01474 853856

Send me a message

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