With furlough confirmed to end on 31 October and faced with the prospect of rising job losses this autumn, the Chancellor of the Exchequer has announced the introduction of the Jobs Support Scheme.
How does the new scheme work?
- Employees must work a minimum of 33% of their usual hours, being paid as usual by their employer. For every hour not worked, the employer and the government will each pay one third of the employees’ usual pay, with the government’s contribution capped at £697.92 per month per worker.
- This means that the employee should receive 77% of their usual salary – 55% from employer and 22% from the government. ‘Usual salary’ will follow a similar methodology to the furlough scheme.
- Employees will be able to dip into the scheme and do not have to work the same pattern every month. However, each short-term work arrangement must cover a minimum of seven days.
- The scheme will run for six months from 1 November 2020. After 3 months, the minimum hours’ threshold of 33% will be reviewed and may be increased.
- The government's grant will not cover Class 1 employer NIC or pension contributions, although they remain payable by the employer
Who is eligible?
- All small and medium sized businesses are eligible. Larger businesses will have to meet a financial assessment test, showing that their turnover is lower now than before due to COVID-19
- The government has said that it expects large companies not to be paying dividends to shareholders while using the scheme.
- The employee must not be on a redundancy notice.
The new scheme has already been subject to a wave of criticism by unions who accuse the Chancellor of using a plaster to cover the ‘gaping wound’ of jobs losses. The furlough scheme provided some much needed breathing space for businesses whose business was impacted by the pandemic and there is no denying that the new scheme is far less generous. With anticipation of a second wave ahead, coupled with a less supportive scheme with greater barriers to eligibility, there is mounting concerns of a wave of redundancies come 1 November.
For businesses which have suffered really challenging conditions in the last six months, finding even 55% of the wages to pay their staff may prove difficult and the scheme may therefore make little, if any, difference to their planned redundancies. Even if such businesses are able to cover the costs of wages, there is the practicality of finding employees enough work to cover 33% of their hours with limited work. Such companies which could previously retain workers and provide them with a substantial proportion of their wages under the furlough scheme are now left with far more limited support. With hospitality and recreation sectors having been hit the hardest by the pandemic, coupled by the tightening of restrictions and the end of furlough, there is likely to be a disproportionate wave of redundancies in these sectors.
Nevertheless, the new scheme is certainly imaginative in the way it offers an element of flexibility. Furlough will cost the government well over £35 billion and its expense always meant its lifetime would be limited. With lockdown restrictions having eased, more employers are beginning to trade more normally again and the new scheme reflects this. Businesses which were not planning on redundancies but reducing hours can take advantage of the scheme, ensuring employees are not hit as hard financially by a reduction in their work.
The repeated use of the term ‘viable’ by the Chancellor is to be noted and it seems this new scheme is designed to protect those jobs which have long term sustainability. For businesses which have depended on the crutch of furlough to prevent redundancies, the new scheme will force them to look ahead beyond six months and assess the viability of retaining staff. 1 November will inevitably bring with it a wave of redundancies and there is no doubt the new scheme will not prevent this. However, it may provide a lifeline to those companies where trade is reduced but still consistent, easing the financial burden of paying full wages and preventing mass redundancies. The Bank of England originally expected unemployment rates to hit 7.5% before Christmas and it will be interesting to see whether this figure is altered, if at all, following the announcement of the new scheme.