The winners and losers of furlough’s extension
The government announced an extension to the furlough scheme as the new Job Support Scheme was postponed. But will you benefit for the duration of the month-long lockdown?
Prime Minister Boris Johnson announced a second national lockdown to take effect in England from Thursday 5 November until Wednesday 2 December.
As part of the move to support the economy and livelihoods, the furlough scheme – Coronavirus Job Retention Scheme – was extended, while its replacement – Job Support Scheme – was postponed.
Furlough was due to end on 31 October after gradually being wound down since its introduction in March. The Job Support Scheme will now be pushed back until the furlough scheme ends in December.
But given the switch in schemes, will you be a winner or loser?
Here’s a recap of the two schemes:
Furlough: Employees on any type of contract will receive 80% of their current salary for hours not worked, up to a maximum of £2,500. This resets the scheme back to its more generous level seen in August.
To be eligible, employees must be on an employer’s PAYE payroll by 23:59 on Friday 30 October.
Furloughed employees can be brought back to work on a part-time basis or full-time basis.
Job Support Scheme: Businesses that can operate safely but faced reduced demand over winter because of coronavirus were due to access the JSS (Open). Employees were required to work for at least 20% of their regular working hours with employers covering the wages for those worked hours. For hours not worked, employers would be asked to contribute 5% of employees’ wages while the government was to contribute 61.67% of wages (for hours employees do not work), to a monetary cap of £1,541.75 per month per employee.
Where businesses were legally required to close their premises temporarily as a direct result of coronavirus restrictions, they would be able to access the JSS (Closed). Here, the government was to pay two-thirds of each employee’s salary, up to a maximum of £2,083.33 a month per employee. Employers were not required to contribute towards staff wages but would have to cover National Insurance Contributions (NICs) and pension contributions. See YourMoney.com’s Everything you need to know about the Job Support Scheme for more information.
The winners: Low income and part-time workers
The furlough scheme is more beneficial to low income and part-time workers while the JSS would have seen them with less take-home pay.
This is because furloughed staff will receive 80% of their normal pay (capped at £2,500), while under the JSS, whether the Open or Closed scheme, they would receive less.
Kate Palmer, HR advice and consultancy director at Peninsula, explains: “The JSS (Open) would have provided at least 73% of wages subject to the maximum cap. But this figure would adjust depending on the amount of time the employee worked with 73% being the minimum that someone would have got if they worked the minimum 20% of working hours.
“The JSS (Closed) would have provided 66.67% of wages subject to the maximum cap so the 80% furlough pay subject to the cap is more beneficial for employees. Regardless of the government contribution to wages, employees are more concerned with what their take home pay is and are less concerned about whether it comes from the government or the employer.”
Analysis by wealth management firm Quilter, also found that someone on lower pay will be better off under the new furlough scheme compared with if they just worked 20% of their hours under the JSS, broadly the same if they work 40% of hours and slightly worse off than if they worked 60% of normal hours under the JSS. This is assuming their employer doesn’t top up their wages.
The losers: Higher earners and those who work more hours
Higher earners will be worse off under the furlough scheme than if the JSS had been brought in as planned.
And it’s all to do with the maximum pay cap of £2,500 under furlough. While the JSS (Open) had a monthly cap of £1,541.75 per month and the JSS (Closed) had a 2,083.33 a month cap – this related to the maximum government subsidy.
Quilter said that the overall income level, including pay for worked hours, plus the government and employer subsidy for unworked hours, was not capped.
As an example, someone on JSS working four out of five days (80% of normal hours) on a monthly wage of £5,000 would have received £4,000 for their worked hours and around £600-£700 for their unworked hours. This is well above the furlough cap of £2,500.
Overall, it found workers earning an annual salary in excess of £40,000 a year would be better off under JSS than furlough, even if they only worked the minimum 20% of normal hours.