Coronavirus Job Retention Scheme and Flexible Furlough

The introduction of flexible furlough from 1 July brought with it further complexities in the calculation of the CJRS grant. The minimum furlough pay, which must be paid by the employer to qualify for the grant, is based on the ‘furloughed hours’ as a proportion of the ‘usual hours’ applied to ‘usual wages’.

Each of these terms is strictly defined by HMRC and they are not what they appear to be at first glance. The latest update to the guidance deals with the situation where an employee is taken off furlough part way during a claim period and applies to claims made on or after 14 September.

Employers must pay employees at least 80% of their ‘usual wages’ (capped at £2,500 per month) for the hours they are on furlough, to qualify for the grant. Usual wages are determined by the rate of pay before the furlough scheme started in March 2020.

For example, an employee with a salary before March 2020 of £2,400 per month, then contracted to work 37.5 hours per week, has ‘usual hours’ of 161 hours for September (37.5 divided by 7 days, times 30 days in month). His ‘usual wages’ for September are £80 per day (2,400 divided by 30). Suppose he is on flexible furlough, working 3 days per week throughout September. His actual hours are, say 90 (12 days working at 7.5 per day), which means his ‘furloughed hours’ are 71, the difference between usual hours and actual hours

He is paid £1,440 per month for the days worked (2,400 x 3/5) In addition to that he must receive furlough pay for his employer to qualify for a grant, which should be at least 80% of 80 x 30 x 71/161, namely £846. The amount of the grant is £740, seven eighths of the minimum furlough pay. No grant is available for employers NIC or employers pension contributions which must be paid by the employer.

The latest guidance makes it clear that where an employee comes off furlough part way through a pay period, the usual hours and furloughed hours are only calculated up to the end of the furlough period. For example, suppose the employee’s last flexible furlough day is 11 September, having worked 6 days up to then. Usual hours for that period are 59 (37.5 divided by 7 times 11). Actual hours worked are 45 (6 days at 7.5), furloughed hours 14. Minimum furlough pay is 80% of 80 x 11 x 14/59, namely £167.

In October the amount of grant is reduced to six eighths of the minimum furlough pay. The Furlough Scheme (CJRS) will end on 31 October 2020 and will be replaced with the new Job Support Scheme from 1 November 2020.

The complexity of the calculations inevitably mean that mistakes will be made. It is important that HMRC are informed of errors as soon as they are found, to avoid the possibility of penalties.

The new Job Support Scheme, announced on 24 September by the Chancellor, uses the same ‘usual wages’ calculation, again referred back to the contracted arrangements prior to March 2020.