Ultimate guide to the Job Support Scheme

With the subject of lockdowns dominating the headlines we thought it was important to review what we know currently about the successor to furlough: The Job Support Scheme.

We await more information about the technical details, and some of the requirements, but there is now a lot of information about the general direction of the scheme.

The scheme now has two parts:

• Job Support Scheme for workers on short hours – where business is running but not at normal capacity
• Job Support Scheme for workers whose employment is closed due to lockdown restrictions – when things are paused

As seems so common these days we do not have all the information available from HMRC yet to confirm all the practical elements to these schemes. To support our clients, we have noted the key aspects and some of our practical considerations below to try and help you know what options you have available so you can plan where possible.

Who can apply?

• Any employer with a UK bank account and UK PAYE scheme running with a submission made on or before 30 September 2020. You don’t have to have made a claim previously under the Coronavirus Job Retention Scheme.
• Employees must work at least 20% of their normal hours for at least 7 seven days. Employees can alternate between short working and full-time hours provided each period of short time working is for a period no less than 7 days.

You can put an employee on more than one third of normal hours and the scheme will still apply.

This may result in the government top up being slightly less. The guidance says HMRC will pay “one third of hours not worked” so if an employee ends up working 40% of their normal working week the hours not worked are less.

How to organise short term work patterns

Another aspect to consider is how to work out the short-term working patterns.

The guidance states that a “short-term working arrangement must cover a minimum period of seven days” suggesting that short-term working could be based on a 7-day week, rather than looking at hours worked on a daily basis.

The examples provided by HMRC confirm that there is freedom for you as an employer to structure the reduced hours work pattern in a flexible way so that it works for both the employer and the employee.

For example, if an employee usually works 37.5 hours in a 7-day period, then a one-third reduced working pattern would require them to work 12.5 hours a week. You could, for example, ask them to work:

• 6 hours and 15 minute, 2 days a week or
• 4 hours 10 minutes, 3 days a week

These all add up to one third hours worked over a 7-day period. You may want more practical timings and must ensure this is practical for the employee, e.g. if they have a 2-hour commute to complete a 2-hour job, the agreement will not be fair.

This may end up with the staff member working slightly more than the one third, so ensure you keep a log on the actual hours worked – this will be vital for claiming the grant.

The work pattern can result in the staff member working more than the 20% minimum. Be sure you keep a log on the actual hours worked – this will be vital for claiming the grant.

Considerations for putting employees on this scheme

As we will see when we look at the payment side of things, the scheme isn’t without costs. This means putting staff onto the scheme should be done with consideration. Where your businesses capacity is higher than demand the scheme is most useful to help in these two cases:

1. Retain good staff that you will need for a recovery of trade
2. Avoid staff on reduced hours being able to force you as the employer to make them redundant (see how short hours give employees rights to claim redundancy here)

I would recommend that you ask yourself these 4 questions for each staff member you consider for the scheme:

1. Does the employee earn less than £33,500 gross pay per year?
2. Do you want to retain the employee for the long term, even though there is not enough work for them at this time?
3. Will the employee have worked for you for more than 2 years by the time the scheme or claim ends (March 2021 would be a good date to estimate)?
4. Do you forecast that there will be work for them post-pandemic?

If you answer yes to all of these then you are most likely on the right track. Employees earning over £33,500 are likely to see a greater drop in income than those on a lower salary. The second question is vital to make sure you are using the scheme for the right purpose. The third question is to assess your risk to redundancy costs if the employee were to be laid off.

The last question is possibly the most important. The scheme could end up delaying the inevitable for staff that are either not up to the job or that will not be needed in recovery. By using the scheme to delay a redundancy you could be increasing the costs to your business of this eventual and possibly daunting action. We would advise that the scheme isn’t used to delay difficult decisions.

How much you need to pay

You need to pay your employee(s):

• For the hours they work
• 2/3 of the hours lost (HMRC will then cover half of the lost payment)

As employer you will be reimbursed for £61.66 of the top up element by HMRC.

Example

If an employee is usually paid £350 for a 5-day week (effectively £70 a day), but you only have 2 days work for them, they will need to be paid as follows:

• Worked hours at full rate: £140 (2 days at £70)
• Top up for lost hours: £140 (3 days at 2/3 pay – £70 x 2/3 x 3)
• Total gross pay for the week: £280
• HMRC will pay: £86.32 (61.66% of the payment for lost hours)
• Total cost to employer: £193.68 (plus Employers NI and pension for 2 days work)          

As you can see, you will be paying a slight premium for employees on reduced hours under the scheme, compared to putting them on reduced hours without using the scheme.

However, the scheme means a member of staff can’t use the reduced hours to trigger redundancy.

Issues to note with payment:

• The government grant application process will not be open until December 2020. Therefore, you will have to fund all the top up for the next one to two months.
• The government top up is capped at £1,541.75 per month. This means an employee with gross earnings over £33,500 in a year gross will face a drop in income far greater than 33% of hours not worked.
• The cap to employer contribution is £125 per month
• The grant will not cover employers National Insurance of employer’s pension contributions. These remain the cost of the employer.
• If you put an employee on the scheme you cannot top up their wages beyond the amounts set out in the scheme. The employee will have to suffer the reduced gross pay.

Agreeing the short-term working arrangement with employees

Employers must agree the new short time working arrangements with their employees, make any changes to the employment contract by agreement, and notify the employee in writing. This agreement must be made available to HMRC on request.

The agreement will need to cover the reduced hours that the employee will be working, the extra top-up pay they will receive through the scheme, and what happens in respect of the unworked hours that are not covered by the top-up. It should also cover the arrangements for moving the employee out of the Job Support Scheme if necessary.

Employers may want to wait until full guidance is released before finalising any arrangements with employees, although this needs to be balanced against the short window of time that is available before the scheme comes into effect on 1^st November.

Employers who anticipate using the Job Support Scheme on a large scale, or who are already in the course of redundancy consultations in relation to which the scheme may be viewed as an alternative, have little choice but to move more swiftly.

How holiday entitlement will be impacted

At present, it is unclear whether holidays will “count” towards the 20% minimum working hours or if they will be treated as unworked hours. Employers may need to top up holiday pay in some cases to ensure that employees are receiving the correct statutory entitlement.

How Statutory Sick Pay will be impacted

The employee would be entitled to statutory sick pay (SSP) in these circumstances, but it is not yet clear how time off sick will be treated under the Job Support Scheme.

When does the scheme end?

The scheme is set to run until April 2021, but the guidance appears to leave this open ended.

We can assume this scheme will run to 31 March 2021 but if we still have restrictions placed on the economy beyond that then it is likely the scheme will be extended. However, the government funding may become reliant on the employee working more than one third of their normal hours after March (if not sooner when a review has been hinted at for December 2020/January 2021).

Who can apply?

This scheme doesn’t help businesses that are struggling from indirect causes from the pandemic. It only helps those that are forced to close places of operation, by law, due to lockdown restrictions.

Businesses asked to close by local authorities are not included. But if you operate in an area that is under the tier 3 local lockdown system that requires your business to close its doors then you should be covered by this scheme.

If the business was already closed due to Government rules, then the scheme is available to claim for wages from 9^th October.

Staff have to be unable to work for at least 7 days.

How much you need to pay

• The scheme will pay two thirds of an employee’s “normal pay” up to a maximum of £2,100 per month
• You need to pay for the employer’s National Insurance and pension contributions
• You can choose whether to top up the wages of employees (if paying employees for reduced hours, you cannot do this!)

HMRC are not opening the online application until December, so you will have the process the payroll and pay your employees before HMRC pay you the grant.

As with the furlough scheme the payment from HMRC has to be declared as other income and is taxable, to offset the wages costs.

Other items to note

• You cannot put an employee on notice of redundancy or make a colleague redundant while using the scheme. This is a big difference to the furlough scheme and addresses some criticism the old scheme came under. But there are no restrictions on consultations meetings taking place while on the Job Support Scheme as no decisions have been made regarding redundancies. As soon as they have, then the employees need to be removed from the Job Support Scheme and you cannot claim for any hours worked under this scheme
• Large businesses cannot make capital distributions if they claim the grant such as dividends or share buybacks
• If you claim the Job Support Scheme for an employee and had previously claimed furlough grants, you can still get the job retention bonus (£1,000 per employee still employed at 31 January 2021) provided they meet the previous given eligibility
• As an anti-abuse measure HMRC will be publishing the name of employers who use this scheme with a hotline for individuals to inform them of any fraud. Beware, the Salem Witch Trials are being rekindled by HMRC!