Many employers will be scratching their heads over the Chancellor’s announcement of the Job Support Scheme (JSS) and what it means in practice.
The JSS 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 is a viable alternative to redundancy for some employees and, if not, have clear reasons why that is the case.
What does the scheme propose?
Information has been set out in a JSS factsheet which is available here.
The JSS comes into effect from 1 November 2020, following the end of the furlough scheme on 31 October 2020 and lasts for six months. Provided that an employee works at least 33% of their normal hours and is paid their usual pay for these hours by the employer, the government and the employer would each pay 1/3 of the employee’s usual salary in respect of the remaining unworked portion of those normal working hours.
In order to support viable jobs, for the first three months of the JSS the employee must work at least 33% of their usual hours. After three months, the government has indicated it will consider whether to increase this minimum hours threshold.
Grant payments will be made in arrears, reimbursing the employer for the government’s contribution. 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.
So, for example:
- An employee works 1/3 of their normal working hours and is paid by the employer for that time.
- The remaining 2/3 of what would have been the employee’s normal working hours is split into three, with 1/3 being paid by the government (capped at £697.92 per month) and 1/3 being paid by the employer. The remaining 1/3 is unpaid.
- This means the employee works 33% of the time but receives 77% of their normal earnings.
- It also means the employer pays 55% of the employee’s salary for 33% of their normal output and the government pays 22% of the employee’s salary (capped at £697.92 per month).
- An employee works 70% of their normal working hours and is paid by the employer for that time.
- The remaining 30% of what would have been the employee’s normal working hours is again split into three, with 1/3 being paid by the government (capped at £697.92 per month) and 1/3 being paid by the employer. The remaining 1/3 is unpaid.
- This means the employee works 70% of the time but receives 90% of their normal earnings.
- It also means the employer pays 80% of the employee’s salary for 70% of their normal output and the government pays 10% of the employee’s salary (capped at £697.92 per month).
The Chancellor’s emphasis was on protecting “viable” jobs, rather than those jobs which have only remained in existence because of the furlough scheme. In his announcement Mr Sunak referred to a wish to support those businesses who faced uncertainty and reduced demand. The factsheet published today clarifies that the focus is on those businesses that are being impacted by Coronavirus and who can support their employees doing some work, but need more time for demand to recover.
Which employers are able to benefit from the JSS?
The JSS 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, and larger businesses will be eligible if, but only if, they meet a financial assessment test. Their turnover must be lower now than before as a result of experiencing difficulties from COVID-19. The factsheet published today also states that the expectation is that large employers using the JSS will not make capital distributions, such as dividend payments or share buybacks, whilst accessing the grant. We understand that further details will be set out in guidance.
Which employees are eligible?
Employees must be 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.
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.
Why might employers use it? What are the pitfalls?
On the information we have to date, it seems that unfortunately the JSS may not be the answer to avoiding redundancies for many employers. We anticipate that employers may be reluctant to pay more to staff for less output, such as paying staff 55% of their salary in return for staff working just 33% of their hours. It appears employers will also be liable for all payments in relation to tax, NICs and pension contributions.
It’s likely that the detail of the JSS will be complex and that many struggling SMEs may not have the resources to grapple with complicated guidance and pay calculations. Employers will also have to agree the new short-time working arrangements with their staff, 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.
Employers would need to be confident that there will be full time jobs for employees to return to once the JSS ends after six months, which may not be the case for many sectors impacted by the pandemic. This is especially the case as employees cannot be made redundant or put on notice of redundancy during the period within which their employer is claiming the JSS grant for that employee. Many employers may see that as an unacceptable straitjacket if a further downturn means that they have to act quickly to reduce costs.
Whilst we await the detailed guidance, at present it appears that there are a number of considerations employers should bear in mind when deciding whether to benefit from the JSS:
- Employees must work for at least 33% of the time. This means that there must be at least 33% of their work to do. This will not help certain industries such as aviation, night clubs, hospitality and leisure where, for many, there isn’t 33% of work left for employees to do. Further, after three months the government may increase the minimum hours required to be worked in order for employees to be eligible for the grant.
- The more hours an employee works, the potentially more attractive an option the scheme becomes. For example, if an employee worked 80% of their normal hours, the employer’s additional contribution would only be a further 6.7%. However, employers may be tempted to avoid the complexities of the scheme (not least working out what forms an employee’s “normal working hours” and “usual salary” for those who work variable hours) and to instead use other measures, such as agreeing reduced working hours with employees or even redundancies. However, if the employer only needs an employee to work 80% of the time, and agrees a 20% reduction in time and pay with the employee, the employer would pay a salary of 80% of the normal working time, rather than the 86.7% they would be required to pay if they made use of the JSS.
- Large employers are only eligible to the extent that they can demonstrate a “reduced turnover” over the period of the crisis. It isn’t clear how that will be determined or how employers will be able to do that when the reference period is a partial financial year, meaning there aren’t yet audited accounts for that period. It’s also not clear whether employers would cease to be eligible for the scheme if turnover recovered before the scheme’s expiry in May 2021.
- If employers are prevented from making employees for whom they are claiming under this scheme redundant throughout its duration (so until the end of April 2021), it provides employers with fewer options in relation to its employees if the situation worsens further and
- Many large employers may be reluctant to take part in a scheme which prevents them from paying out dividends.
Whilst it’s a bleak assessment, unfortunately it is not immediately obvious that the scheme will make much material difference. It remains to be seen whether the full written guidance will address the complexities of assessing normal working hours and usual salary, as well as the detail around factors such as holiday pay.
For many employers the fact that they appear to be being asked to pay “more for less” to employees would make the scheme appear a relatively unattractive alternative to redundancy. The risk is that many employers may find that it makes more financial sense to proceed with redundancies at the end of the furlough scheme rather than bring employees back and retain a larger headcount, of which many would be working reduced hours.