As promised, on 12 June 2020, HMRC announced its guidance on the Government’s ‘Flexible Furlough Scheme’. Under the current rules, to be eligible for the scheme, the employee is not allowed to work – at all – for their employer. From 1 July 2020 the rules are being relaxed to allow the employee to work part time but still qualify under the scheme. This is welcome news to many who will look to lean on the support as they begin to reopen their businesses. Remember of course that an employee can only be furloughed under the scheme now if they have been furloughed for a minimum of 3 weeks by 30 June 2020 – so the latest start date was 10 June 2020.
The basic premise to the reformed relief is fairly simple: An employer can make a claim for the time that the employee does not work. So if they are a full time employee and they only work for 2 days out of 5, then the employer can claim under the scheme for the other 3. However, as always, the details are more complex.
The calculation looks carefully at the number of hours a person is contracted to do and the number of those hours that they work. You then apply this ratio to the maximum furlough payment due for that employee under the scheme using the old rules. The result is the amount that can be claimed by the employer.
An employee usually works full time – 8 hours a day – for their employer and has done so for a few years. Their gross monthly salary is £3,000 and they do not receive any other contractual payments. They have been on furlough since the beginning of May but their employer would like to bring them back to work from 1 July for 2 days a week – or 16 hours. They will work for 2 days a week for the whole of July.
First we must work out their maximum furlough amount. For an employee who is furloughed (which includes being under a flexible furlough arrangement) for a whole month, this is the lower of 80% of their monthly wage or £2,500. 80% of £3,000 is £2,400. As this is lower than £2,500, the maximum furlough amount is £2,400.
Unfortunately, this is where the calculation gets very complicated, even for a simple example. This is because HMRC does not calculate the claim based on the number of available hours in the month of July by simply multiplying the number of available working days by the number of working hours in each day, and deducting from that those hours that have been worked. Instead, the calculation works as follows.
To work out the maximum claim, you first determine the working hours they were contracted to in the last pay period before 19 March. You divide this by the number of days in the repeating working pattern period, including non-working days. For the employee in our example who is contracted to work full-time, their working hours are 8 hours a day 5 days a week. They are therefore contracted to do 40 hours a week. You then divide this number by the number of days in that pay period which is 7 – the 5 working days plus the 2 non-working days (i.e. the weekend). This gives you the rather odd result of 5.714 hours per day.
We then use this daily amount to work out the working hours in the claim period. In our example, the employee is on flexible furlough for the whole of July. The total working hours in the claim period are therefore 178 (5.714 multiplied by 31 rounded up).
To work out the furloughed hours you then subtract the actual hours worked in the claim period from the usual hours in the same period. In our example this is 80 as we assume they begin working two days a week on the 1 July (i.e. Wednesday and Thursday of each week) which is 10 days in total. The employee is therefore furloughed for 98 hours (178 less the 80 hours worked).
Finally, to find out how much can be claimed, we take the maximum furlough amount from step 1 – £2,400 – and divide it by total hours in the claim period from step 2 – 178 – and multiply it by the furloughed hours from step 3 – 98 hours.
£2,400 divided by 178, multiplied by 98 is £1,321.35.
This is of course a very straightforward example and only addresses calculation in respect of salary. You will also want to calculate the employer’s NI contributions and employer’s pension contributions so these can also be claimed for in line with the scheme’s guidance. The reimbursement for these two additional elements will still be paid from the scheme for July, but will have to be paid by employers from 1 August onwards.
There are three things that you must do if you are going to use the flexible furlough scheme:
1. Ensure that you have agreed the part-time working pattern with your employee in writing;
2. Maintain accurate records so that you can evidence when someone is working and when they are not; and
3. Prepare and submit accurate claims to HMRC.