Andrew Wilson: Changes to the job support scheme
Andrew J.P Wilson, dispute resolution partner at Wright Johnston & Mackenzie, discusses the recent changes to the coronavirus job support scheme.
On 22 October 2020, The government published a Policy Paper which provides additional details in relation to the Job Support Scheme, which is due to open on 1 November 2020. There are now two versions of the Scheme – Job Support Scheme Open (JSS) and Job Support Scheme Closed.
The JSS Open is aimed at businesses who remain open, but are faced with diminished demand. Only employers with over 250 employees will have to prove diminished demand through the Financial Impact Test. Generally, these businesses will have to show that turnover has decreased or remained the same compared to last year through VAT returns. There is no Financial Impact Test for businesses with less than 250 employees, however some, or all, of their employees must be working reduced hours.
There are two key changes from when the Scheme was announced in its original form on 24 September 2020.
Firstly, when first announced, the Scheme required employees to work at least 33% of their usual hours. The new position is that an employee is required to work 20% of their usual hours. An example of which would be that an employee who usually works eight hours a day, five days a week would only have to work for four days to qualify for the Scheme.
Secondly, the Scheme required the employee to forego one third of their usual pay, with the government and the employer splitting the remaining two thirds on a 50:50 basis. Another significant change here is that the government will contribute 61.67% (instead of 33%).
An example would be as follows:
A salaried employee is contracted to work 140 hours per month. Due to a down-turn in demand, the employee only works 80 hours in November. The employer would pay the 80 hours worked in the usual way. For the remaining 60 hours, the government will pay 61.67% of the employees salary and the employer will pay 5%.
The JSS Closed is applicable to businesses who have been required by COVID-19 restrictions to close their premises. You can read further information on JSS Closed in our Briefing Note of 12 October 2020. There are no alterations to the JSS Closed set out in the Policy Paper. The government will contribute two thirds of an employees usual pay, with the employer required to pay the national insurance and pension contributions.
For both the JSS Closed and JSS Open, there must be a written agreement in place which provides for the changes in the employment contract. Government contributions are capped at £1,541.75 per month and employers are able to top up the pay of their employees if they choose to do so. Neither the JSS Open or JSS closed covers pension or National Insurance contributions. These must continue to be paid by the employer. HMRC Income Tax and Employee National Insurance deductions must be deducted from the amount the employee is paid.
Although it is clear that employers are not able to claim under the Scheme for any employee who is serving a redundancy notice, it is not clear whether claims can be made for employees who are serving notice for reasons aside from redundancy.
The Policy has also set out that the government “expects” for larger businesses to not apply for the Scheme whilst also making shareholder distributions. However, this expectation is not binding in any form of legal requirement. It has also become clear that fully publicly funded organisations are ineligible for the scheme, but those who receive private investment which has decreased may be eligible.
The definition of ‘usual pay’ has also be clarified. The Policy Paper which can be accessed here, details:
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
• 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 CJRS 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 2020the average wages payable from 1 February 2020 (or the employee’s start date if later) until 23 September 2020”.
The ‘Reference Salary’ (i.e. the employees ‘100%’ full pay) referred to above is the amount used to calculate how much the government’s 61.67% and the employer’s 5% contributions amounts to.
The Scheme opens on 1st November 2020 and back-dated claims can be made from 8 December 2020.
Further information is expected from Her Majesty’s Treasury in the coming days.