The Job Support Scheme – how will it work and will it be effective?

In September, the Chancellor announced a new Job Support Scheme as a key element of the Government’s “Winter Economy Plan” to support businesses to protect jobs and manage their finances in the face of the continuing impact of the COVID-19 pandemic on the economy.

The backdrop to this new scheme is that the current furlough scheme, the Coronavirus Job Retention Scheme, is ending on 31st October 2020. The number of people in employment has already fallen by nearly 700,000 since March 2020, when the national lockdown began, and the Government acknowledges the ongoing risk to employment which remains in these challenging and uncertain times. The stated purpose of the new Job Support Scheme is to support viable UK employers who face lower demand due to COVID-19, and to keep their employees attached to the workforce. According to the ONS, 12% of employees, or around 3 million people, are still supported under the furlough scheme, either part-time or full-time.

 

How will the Job Support Scheme operate?

The full details of the scheme have not yet been published, however we can already see the overall shape and structure of the scheme.

The scheme will run from 1st November 2020 for a period of six months, until 30th April 2021.

The scheme will be open to all employers with a UK bank account and UK PAYE scheme, whether or not they have previously used the furlough scheme. All SMEs will be eligible, however large businesses (those with more than 250 employees) will be required to show that their business has been adversely affected by COVID-19 and it is expected that they will not be making any capital distributions such as paying dividends at the same time as using the scheme. It is not yet clear what extent of adverse impact a large business will need to show.

An eligible employee will need to work a minimum of 33% of their usual hours. The Government and the employer will each pay 1/3 of the employee’s usual pay in respect of the employee’s unworked hours, and the Government contribution will be capped at £697.92 per month. The employee will therefore receive at least 77% of their normal pay, subject to this cap. The employer will be reimbursed in arrears for the Government contribution.

For example, Sarah normally works five days a week and is paid £600 per week (£31,200 per year). She will for the time being work two days a week, 40% of her usual hours, and the employer pays £200 for those days. In relation to the other three days, the Government will pay £100 and the employer will pay £100, so in total Sarah is paid £500 per week (83% of her normal pay).

The Government grant will not cover Class 1 employer National Insurance contributions or pensions contributions, which will remain payable by the employer.

The minimum 33% threshold for an employee’s working hours may be increase in months 4 – 6 of the scheme, so from February 2021.

The employee must not be under notice of redundancy in order to be eligible for support, which is a key difference compared to the current furlough scheme.

The full details of the scheme will need to address eligibility and calculate claims for employees whose hours and pay are variable.

The Treasury has not so far given any indication of the actual costs of this scheme, although since the scheme is more targeted at “viable” employers and sustainable jobs these costs will clearly be much less than the cost of the furlough scheme. Initial estimates of these costs are in the region of £3 billion.

The new scheme will sit alongside the Job Retention Bonus announced in July, by which employers will receive a one-off payment of £1,000 for every employee for whom they previously claimed under the furlough scheme who remains continuously employed through to 31st January 2021 and who earns at least £520 a month on average between November and January.

 

Will the Job Support Scheme be effective to prevent redundancies?

The Chancellor has not made any predictions as to how many redundancies this scheme will prevent, other than to express the hope that a large number of jobs can be saved. There is a deliberate focus upon viability, with the 33% of normal hours threshold adopted as the test of whether a particular job is viable and so justifies support under the scheme.

These parameters to the scheme will not protect job roles which do not satisfy this viability test, notably across the business sectors which have been hardest hit by the impact of the COVID-19 restrictions, such as the hospitality, arts & entertainment and travel sectors. Many employers in these sectors will face the urgent need for widespread redundancies and potential business closures as soon as the furlough scheme finishes at the end of October. Those employers may simply be unable to bring furloughed staff back to part-time work, even though their businesses would be perfectly viable under normal economic conditions but for the effect of COVID-19 restrictions on their ability to open and operate as normal.

Furthermore the requirement for employers to pay a 1/3 contribution for the employee’s unworked hours may mean that it is more cost effective for them to make some redundancies rather than keep all their staff on part-time hours. Essentially it would be more cost-effective for them to retain one employee full-time than to keep two employees working part-time. While this is counterbalanced by the incentive of the Job Retention Bonus, this could create a new cliff-edge after the end of January 2021 and the prospect of a further wave of redundancies being made once the bonus payments have been received.

 

Please contact our Employment team for advice and support on any of these issues or if you have any queries.