Welcome to our October newsletter
Part time job support scheme
Chancellor Rishi Sunak announced his successor to the furlough scheme and, to be fair, it was not well received by employers.
The key features were that:
- Employees must work 33% of their usual hours
- Employers were to pay employees for 33% of these hours PLUS 33% of the hours not worked
- The Government would pay 33% of the hours not worked up to a maximum of £697.92 per calendar month
- Employees would therefore have received about 77% of their salary per calendar month
- Employers were to pay NI and pensions as usual
Put simply it didn’t make financial sense. If you paid three employees on this basis you would be paying 165% of paying one employee 100% for equivalent hours.
Not for the first time, the Government has changed its position and on 22 October revised rules were announced.
The new job support scheme (furlough in another name?)
The first thing to note is that, although highlighted for Tier 2 areas, the new scheme applies for all Tiers.
The new arrangements are known as JSS Open and JSS Closed.
JSS Open (businesses)
To qualify for support, employees need to work a minimum of 20% of their usual hours, paid by the employer in the usual way. In addition, the employee will receive 66.67% of their normal pay for the hours not worked, paid by the employer and the Government. The employer will contribute 5% of the reference salary for the hours not worked (up to a maximum of £125 per month) and the Government will pay the remaining 61.67% up to a maximum of £1541.75 per month. The result is that such employees will receive at least 73% of their normal wages, if they earn £3125 per month or less and employers can top up the wages if they choose to do so.
It may seem complicated but here is an example for an employee usually working for 35 hours a week:
- The employer pays for 20% of the hours worked, i.e. 7 hours
- The employer pays for an additional 5% of the hours not worked, i.e. 1.4 hours, so the total paid by the employer is for 8.4 hours for 7 hours worked
- The Government pays for 62% of the hours not worked, i.e. 17.36 hours
- The employee receives pay for a total of 25.76 hours
- The remaining 9.24 hours will be unpaid (unless the employer chooses to top this up)
So the upshot is that, in this example, for 7 hours working, the employer will pay for 8.4 hours (or 17.64 hours if pay is topped up), the Government will pay for 17.36 hours and, if not topped up by the employer, the employee will lose 9.24 hours per week (about 26.4% of weekly pay).
Although not yet announced (as far as I’m aware) it must be assumed that employers will also have to pay NI and pension contributions.
Overall, this is a big improvement on the initial announcement and should be welcomed as far more workable.
JSS Closed (businesses)
This is largely as previously announced. Only available to businesses that have been legally required to close, each employee will receive two thirds of their normal pay, up to a maximum of £2083.33 per month and fully funded by the Government. Low-paid employees may be able to top up payments with Universal Credit.
If you’ve been following the news you can’t have missed the furore that this has caused. The Government has said that, for those on the minimum wage, with Universal Credit top ups this will equate to, variously, 70%, 80% or 93% of usual wages, according to which press conference or House of Commons statement you listened to. The likelihood is that it is about 80%. The obvious problem for those on lower wages is that this is not matched by 80% of their rent, utilities or shopping bills, so this means real hardship.
Both schemes will run from 1 November 2020 to 30 April 2021, with a review after three months (an insight into how long the Government thinks that the pandemic will continue to restrict businesses from fully operating). As before, employers will have to make the payments and then reclaim the Government contributions from 8 December. Payments are subject to approval which is, perhaps, an indication of more scrutiny than with the furlough scheme.
Both schemes are available for all employees, i.e. not those who were previously furloughed so this is, in effect, a fresh start. Employees need to have been on the payroll on 23 September but, if they are rehired, employers can claim for them.
Notwithstanding the concessions businesses are still being squeezed, particularly in the hospitality sector, because the number of businesses that are “forced” to close has been reduced by the bizarre suggestion that, for example, traditional “wet trade” pubs can stay open by offering drinks with a “substantial meal”. So what does that mean? In a breakfast TV interview Communities Secretary Robert Jenrick suggested that this might be a Cornish pasty with salad! The reality is that many businesses are effectively closed without satisfying the conditions for entitlement to the JSS Closed benefit. As one London restaurateur said on the Radio 4 Today programme, hospitality businesses that are not forced to close are being slowly suffocated. While not addressing the core problem, the JSS Open scheme is undoubtedly an improvement.
It’ll end in Tiers
After the Great(er) Manchester stand-off, we are rapidly approaching roughly half the English population falling into the two most severe levels of Coronavirus restrictions with the percentage only likely to increase substantially in the coming weeks. Ultimately, it doesn’t matter whether this is local, regional or national – there will be an effective duplication of the first lockdown for most of the winter, no matter how it is described.
Here is the current list of local COVID alert levels by area: https://www.gov.uk/guidance/full-list-of-local-covid-alert-levels-by-area.
The big difference from a business perspective this time is that it is a crippling blow on the back of a prior blow and without the full extent of the initial furlough scheme so the prospects for many businesses that just about survived the first restrictions are dire. There is no point dressing it up or suggesting that there is as easy alternative. The whole of the UK is just mirroring what is happening in other countries and, as I’m writing this, Spain has just become the first European country to record over one million COVID cases.
Sweden, put forward by many people as an example of a country that avoided widespread restrictions, has finally given way and introduced “strong recommendations” including a lockdown as the only way to address the problem. It’s also notable that, unlike the UK, benefits there are very generous (about 85% of usual full salary) so the option of isolating is nowhere near as financially harmful as the UK option of taking the SSP rate which is currently £95.85 per week.
Without getting too much into the politics, the unavoidable truth is that there is a grim winter in prospect. For many businesses, the figures just won’t add up and there will be a huge increase in the unemployment figures, including SME owners as well as those who worked for them. Add to this the uncertainty caused by Brexit and it’s very hard for most business owners to produce an optimistic business plan.
After announcing that the self-employment grants scheme had now closed for new applications, on 22 October Chancellor Rishi Sunak declared that it has been extended from 1 November. Like the JSS schemes, the extension will last for six months, to April 2021 and, as before, grants will be paid in two lump sums.
The Government will provide a taxable grant of 40% of average monthly trading profits and capped at £3750 per grant. The intention is to provide broadly the same level of support as for employees through the new JSSs. As well as being taxable, they are also subject to National Insurance contributions.
Returning to the office?
Research conducted by the Institute of Directors has revealed that 74% of businesses intend to maintain the higher levels of remote working forced to be introduced by the pandemic. Many office-based businesses have found that productivity can be largely maintained without the need to carry significant office overheads. 44% of 958 directors surveyed reported that working from home has proved to be more effective than their previous working arrangements.
The implications for town and city centre businesses as well as commercial landlords are stark, although experts in the sector have suggested that this is no more than an acceleration of what an increasingly web-connected society was going to produce in any event (by about five years). I remember all too well that, only ten years ago, the fast method of communication was by fax and many “traditional” lawyers complained about the need to respond to them so quickly.
The hard truth is that our society is changing rapidly, and the process is being dramatically accelerated by the pandemic. In business, there will be winners and losers and there is no point in thinking that “things will go back to the way that they were”. It’s a difficult pill for many businesses to swallow but it’s not the first time that this has happened. The “Spanish flu” lasted from April 1918 to April 2020. It infected 500 million people and the death toll has been estimated at between 17 million and 100 million. It’s entirely plausible that the ultimate figures this time will be much higher as a direct result of the extent to which international travel has increased. Back then, there had not been a commercial transatlantic flight (the first one involved 23 stops)!
As an aside, here is a fascinating article from the British Journal of General Practice, published in 2009 and reviewing the “Asian Flu” pandemic of 1957: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC2714797/.
Here are what are probably the last set of the monthly statistics for the initial support schemes which I’ve reported for the last few months.
As at 18 October there had been a total of 9.6m people who had been furloughed with a remaining 1.2m, at a total cost of £41.4bn.
On the same date there had been 2.3m claims under the second tranche of the self-employment income support scheme at a cost of £5.9bn.
The final bill for the Eat Out to Help Out Scheme was £522m (100m covers claimed).
113,500 (of an eligible 349,900) VAT payments were deferred with an aggregate value of £28.2bn.
Also, as at 18 October, 73,094 CBILS (159,277 applications) loans have been approved with an aggregate value of £17.16bn. £4.57bn worth of large CBILS loans were made, along with 1.34m bounce back loans with a value of £40.2bn!
Case reports and “winter is coming”
I will get back to reporting employment law cases of note shortly but, as I’m sure you’ll understand, the vast majority of SME owners are preoccupied with the rapidly changing and unforeseen challenges to their very survival caused by the rapidly revealed true extent of the pandemic. Whether you are a lockdowner, a denier, a shielder or a supporter of herd immunity, the unavoidable truth is that most SMEs are facing challenges that they could not have imagined less than 12 months ago. It makes business forecasting and cashflow projections nothing more than wild conjecture, even for the most successful businesses before this most pernicious disease took hold of all aspects of our business and social life. Although I hate to say it, please don’t be under any illusion about what is to come. There are a tough winter and spring in store and, notwithstanding what some may say, there will not be a (partial) solution until there is a widely available vaccine, unless you are Donald Trump!
Kind regards and, as I have said for several months now, very best wishes during this difficult time.