The next phase of the Job Retention Scheme starts in May. The Government has released details on how this phase will work.
In his March budget, Chancellor Rishi Sunak announced the latest extension of the Coronavirus Job Retention Scheme (CJRS).
The scheme had been due to end on 30 April, after a previous extension in November last year.
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It will now run until the end of September 2021, providing furloughed employees with a significant proportion of their salary paid for by the Government, including those on flexible furlough.
Up until the end of June, furloughed employees will receive 80% of their salary, capped at £2,500 a month. But after July, when businesses and the UK economy are largely expected to have reopened, government support for furloughed employees will reduce as follows:
- July – The Government will cover 70% of unworked employee hours, with employers contributing 10%.
- August and September – The Government will cover 60% of unworked employee hours, with employers contributing 20%.
As with previous CJRS versions, eligibility for the furlough scheme remains roughly similar, with employers expected to pay Employers’ National Insurance Contributions (NICS) and pension contributions as before. There are, however, slight differences this time:
- It is no longer a requirement for employees to have been furloughed in a previous version of CJRS to be eligible now.
- Newly eligible employees must have been on payroll on or before 2 March 2021 in order for employers to claim from 1 May 2021 onwards.
- There is no limit for the number of eligible employees who can be furloughed under this version.
We asked accountants what they’ve been hearing from businesses about the CJRS extension and what additional challenges it’s created this time around.
Businesses need to be aware of the impact of lower government support on cash flow
Ercan Demiralay, Partner at Wellers
The main challenge this time is to monitor work patterns, look at eligibility criteria and to keep on top of the admin tasks that comes with not only furloughing people, but also taking them off furlough as demand and activity changes over time. It is also important to factor in the reduction of support by the Government from July onwards and the cash flow impact of covering the extra 10-20 per cent of salary for those months.
Now that we have both full and flexible furlough in operation, as well as the reduction in contribution from 1 July (70% contribution) and a further reduction in August (60% contribution), the calculations are somewhat more complicated. However, similar calculations have been in place since the summer of 2020, and hence although not simple, clients and advisors have had time to digest and understand the methodology.
Next steps: We’ve been helping clients forecast the cash flow impact of these changes and compare them to the hardships associated with recruiting new staff at short notice when (if) demand returns should they decide to make redundancies, something we have seen at an all-time high over the last 12 months.
However, as businesses open up with the easing of restrictions and if the expected boom does indeed materialise, the number of clients claiming the latest CJRS will significantly reduce in the coming months.
Verdict: There’s a lot to factor in this time around, including full and flexi-furloughs, and businesses must measure cash flow impact of reduction in government support from July.
Tapering from July is a challenge for companies needing to plan for the short to medium term
Ben Cranfield, Director, MEAS Accountancy
The main challenge we have faced with the CJRS extension is making sure we’re passing the message on to clients with the required level of detail, but without bogging them down with too much complexity.
Essentially, we are being asked the same questions as with previous schemes: can we continue to work? How much can we work? can we continue to claim one month when not claiming the previous month?
With the introduction of the taper from July, this has become a new question and ultimately a challenge for companies with short to mid-term planning. As such, we have seen an increase in questions regarding the taper and how this will affect them and their staff moving forward.
Next steps: Our clients seem to be receiving small batches of work, possibly a 3-week contract/programme and then no work for a spell, so they continue to require furlough scheme as and when.
Verdict: Companies are finding the tapering from July a challenge when looking at their short to mid-term planning.
Older employees are losing out: subsequent pay rises are not accounted for under CJRS
Zara Rodwell FMAAT AATQB Assistant Accountant
From a client perspective, it feels like older employees are losing out. Employees who were eligible to be furloughed in March 2020 are furloughed based on their salary at the time, but subsequent pay rises are not taken into account for future claims. Yet for colleagues who have joined more recently and benefit from new pay rate, they are also furloughed at these new rates.
Helen Morphew MAAT Accountant
Some of the challenges our clients have been experiencing include calculating claims for zero-hour contracts or variable hours as well as difficult pay structures where they include holiday or commission as part of the normal pay calculations. Some clients have found it difficult to accept that if an employee’s contract has changed during the pandemic, they can’t now claim for the increased amounts.
Next steps: We’re often needing to look back at data from March 2019 to calculate amounts as part of the CJRS claim. This can be challenging if data is not available i.e. a new client came on board relatively recently.
Verdict: The nature of the CJRS claims means employers cannot claim higher amounts for existing employees even if their contract has changed.
It’s all about cash flow this time around
Rachel Martin, director accountant_she
The main challenges which businesses have needed to factor in is all about cash flow and cash flow again! For a lot of businesses, as they now move back into opening up, strategically managing to bring staff back whilst juggling furlough will always come down to cash management.
As you move from furlough to flex-furlough to taper, each claim increases and varies in complexity as the number of hours, contracts and payments will to start to change as taper begins.
The CJRS has been vital to a lot of businesses during the last twelve months and will continue to be, especially as businesses are opening back up, so I’m expecting many of my clients to be applying for the CJRS extension.
Next steps: Lots of clients really need just a little bit of hand-holding, support and guidance. They’re all fantastic business owners, but sometimes it’s the confidence and reassurance we provide that’s the most valuable for them.
Verdict: It’s a balancing act between furlough and bringing staff back from furlough so good cash management will be essential for business.
Annie Makoff is a freelance journalist and editor.