On 22 October 2020, the Chancellor unveiled an enhancement to the Job Support Scheme (JSS), now the Job Support Scheme Open (JSS Open), following pressure to support ailing businesses in Tier 2. Critical changes include a reduction in the amount employers must pay for unworked hours from 33% to 5% and a reduction in the minimum hours an employee must work from 33% to 20%.
A factsheet for the JSS Open has been published here.
Many businesses have been radically affected by the Tier 2 restrictions, in particular the hospitality sector. The ban on households mixing indoors and the 10pm pub closure has pushed many businesses to breaking point. As predicted, the original version of the JSS did not provide the support required with many employers favouring redundancies instead of using it. It required employees to work at least 1/3 of normal hours and the employer to pay for these hours plus an additional 1/3 of unworked hours on top. Paying more for less (at worst 55% pay for 33% work) was unpalatable and uneconomic for many.
What are the main changes?
The Chancellor has announced two critical changes:
- Under the previous version of the JSS, employees would have had to work at least 33% of their usual hours. Under the JSS Open, employees will only have to work 20% of their usual hours - one day a week for a full-time employee.
- As originally announced, employers had to pay for the hours worked plus 1/3 of unworked hours. Under the JSS Open, the employer contribution for the unworked hours is reduced to 5% (capped at £125 per month).
The employee will continue to receive pay for up to 2/3 of their unworked hours, as under the original version of the JSS. The government will therefore pay 61.67% of the hours not worked (capped at up to £1,541.75 per month).
- An employee earns £1,100 per month and is full time
- They work 20% of their normal working hours, being one day a week
- The employee is paid by the employer for that time, being £220
- The remaining 80% of what would have been the employee’s normal working hours (£880) is split (the unworked hours), with 61.67% being paid by the government (£542) and 5% being paid by the employer (£44)
- The employer pays a total of £264, being 24% of normal wages
- The employee receives £806, being 73% of their normal wages
- The remaining 27% is unpaid
- An employee earns £1,100 per month and is full time
- They work 70% of their normal working hours
- The employee is paid by the employer for that time, being £770
- The remaining 30% of what would have been the employee’s normal working hours (£330) is split (the unworked hours), with 61.67% being paid by the government (£203.51) and 5% being paid by the employer (£16.50)
- The employer pays a total of £786.50, being 71.5% of normal wages
- The employee receives £990.01, being 90% of their normal wages
- The remaining 10% is unpaid
This means the employee works 70% of the time but receives 90% of their normal earnings. It also means the employer pays 71% of the employee’s salary for 70% of their normal output.
Employers can top up employee’s wages at their own expense if they wish.
What happens to tax, national insurance and pension contributions?
Importantly, the grant will not cover Class 1 employer National Insurance Contributions (NICs) or pension contributions and these contributions will remain payable by the employer. Employers must deduct and pay to HMRC income tax and employee NICs and pay any employer NICs on the full amount that is paid to the employee, including any amounts subsequently met by a scheme grant.
Employers must also still pay pension contributions in accordance with the applicable pension scheme terms. If applicable, Student Loan deductions and the Apprenticeship Levy must also still be paid.
Which employers are able to benefit from the JSS Open?
The JSS Open will be open to businesses across the UK even if they have not previously used the furlough scheme, provided that they have a UK bank account and operate a UK PAYE scheme. All SMEs will be eligible. Larger businesses (with 250 or more employees) will be eligible if they meet a Financial Impact Test showing that their turnover has stayed level or been lower as a result of experiencing difficulties from COVID-19.
The Financial Impact Test is set out with examples in the policy paper here and involves comparing total sales figures on their VAT return for the same quarter or three month period in 2019, as appropriate.
The policy paper also states that the government expects that large employers and their corporate groups using the scheme will not make capital distributions whilst claiming the JSS grant. This includes dividends, charges, free or other distribution and any equivalent payment that a partnership may make to its partners. The policy paper states that this is not a contractual or legal condition of the scheme but encourages business to “reflect on their responsibilities and that taxpayers should be able to rely on public money only being claimed where it is clearly needed”.
Which employees are eligible?
Employees must have been on their employer’s PAYE payroll on or before 23 September 2020. This means a Real Time Information (RTI) submission notifying payment to that employee to HMRC must have been made on or before 23 September 2020.
Employers can only claim for employees that were in their employment on 23 September 2020. If employees ceased employment after 23 of September 2020 and were subsequently rehired, then employers can claim for them.
The government factsheet states that employees will be able to cycle on and off the scheme and do not have to be working the same pattern each month, but each short-time working arrangement must cover a minimum period of seven days.
How do I calculate reference salary?
The policy paper sets out similar rules as were in place for the furlough scheme. Reference salary is made up of the regular payments the employer is obliged to make, including regular wages, non-discretionary payments for hours worked, including overtime, non-discretionary fees, non-discretionary commission payments and piece rate payments. There is a list of exclusions covering payments made at the discretion of the employer or customer such as discretionary bonuses, discretionary commission payments, tips, non-cash payments, non-monetary benefits like benefits in kind and salary sacrifice schemes.
For employees who are paid a fixed salary, the reference salary is the greater of:
- The wages payable to the employee in the last pay period ending on or before 23 September 2020 or
- The wages payable to the employee in the last pay period ending on or before 19 March 2020, this may be the same salary calculated under the Coronavirus Job Retention Scheme
For employees whose pay is variable, the reference salary is the greater of:
- The wages earned in the same calendar period in the tax year 2019 to 2020
- The average wages payable in the tax year 2019 to 2020 or
- The average wages payable from 1 February 2020 (or the employee’s start date if later) until 23 September 2020
How do I work out usual hours?
This is one of the more complicated questions that has arisen over the furlough scheme and JSS, especially for those with variable hours. Details and examples are set out in the policy paper. There are different calculations depending on whether the employee’s hours are fixed or variable.
Can employees undertake training in working or non-working hours?
Yes, employees will be able to undertake training voluntarily in non-working hours. Where time spent on training attracts a minimum wage entitlement in excess of the grant payment, employers will need to pay the additional wages.
Employees can also do training in working hours while being claimed for under the JSS Open.
What do we need to document with the employee to use the JSS Open?
Employers must agree the new short-time working arrangement in writing, amend the employment contract by agreement and notify the employee in writing. This agreement must be made available to HMRC on request.
HMRC are due to publish further guidance on what to include in the written agreement by the end of October 2020.
Employers must keep a written record of the agreement for five years and keep records of how many hours employees work and the number of usual hours they are not working.
Do we need to consider the JSS Open if we are already making redundancies?
Yes, the JSS Open is potentially an alternative to redundancies. In particular, those employers in the midst of redundancy processes should be able to demonstrate that they have considered whether the JSS Open is a viable alternative to redundancy for some employees and, if not, have clear reasons why that is the case.
Can we make an employee redundant whilst using this scheme for them?
No, an employee cannot be made redundant or put on notice of redundancy during the period within which their employer is claiming the grant for that employee.
How is the JSS Open grant paid?
Employers can make a claim online from 8 December 2020. Grant payments will be made monthly in arrears, reimbursing the employer for the government’s contribution. So, employers must be in a position to pay the employees themselves in order to get the reimbursement.
What other schemes are still available?
Businesses in Tier 3 who have been required to shut down will continue to have support from 1 November 2020 under the newly called Job Support Scheme Closed (JSS Closed). The Coronavirus Job Retention Scheme Bonus is also still in place (see our analysis).
The JSS Open will run for six months from 1 November 2020 after the furlough scheme ends on 31 October 2020. The terms of the scheme will be reviewed in January 2021. We expect a Treasury Direction giving details of this scheme next week.