How the Flexible Furlough Scheme Works
As the Government tries to chart a course towards the easing of lockdown restrictions, Chancellor Rishi Sunak has been setting out how the furlough scheme will change over the coming months. His announcement includes greater flexibility, ongoing support and renewed help for the self-employed.
What if you have workers on furlough?
Anyone enrolled in the existing furlough scheme will continue to receive 80% of their pay. This is more generous than had been expected with most observers predicting a cut in the amount of pay received. The Government will continue to fully fund the scheme through July before they start asking employers to start contributing.
From August companies will have to pay employer national insurance and pensions contributions. From September the Government will reduce its coverage to 70% of an employee’s wage with an upper limit of £2,190 per worker. From October it will be 60% up to a maximum of £1,875.
The scheme is already said to have cost £14 bn and the Institute of Fiscal Studies estimates the final price tag could top out at more than £100bn, so it’s unsurprising the Government wants to claw something back.
Businesses have been urging the Government to give them more flexibility to get people back to work and they have listened.
From July, people will be able to return to work without losing any money. They can work any amount of time and any shift pattern, but while at work they should receive the full wage.
For example, if you bring an employee back for a couple of days a week, you will still need to pay them in full for those days. However, the Government will cover 80% of their remaining wages.
Devil in the detail
To benefit from the scheme, the furlough must have started by June 10th. If you want to register staff, you’ll need to have everything in order within the next week or so.
New starters are still missing out. To prevent fraud, the Government excluded any new starters. Although the latest cut off point has been extended to March 19th, this still leaves many people excluded.
Will it be extended?
The Chancellor says not. However, if the economic outlook is particularly dire and we’re dealing with a second wave it’s perfectly possible the Chancellor will be forced to extend the scheme still further.
What about the self-employed?
There is more good news for the self-employed. The original plan announced in March runs out at the beginning of June. It had paid out 80% of a self-employed person’s income based on their last three tax returns.
Any self-employed person who had seen their income affected by Covid 19 could claim up to £2,500 a month for three months.
This new grant reduces the level to 70% of a freelancer’s average monthly trading profits and is paid out in a single lump sum covering three months’ worth of profits. The total amount anyone can claim will be capped at £6,570. Taken alongside the first grant, freelancers will be entitled to a maximum of £14,070 each.
Mind the gap
Self-employed people will be relieved. The threat of a May cliff edge has gone. However, if you’re one of the thousands of contractors who register as a limited company and take most of their income through dividends there’s bad news: you’re not covered.
It also doesn’t cover those self-employed people with profits of more than £50,000.
There may also be more to come. The Chancellor is rumoured to be working on a large job retention scheme with Boris Johnson