As part of the government’s efforts to support the economy during the coronavirus lockdown, the chancellor Rishi Sunak has announced a new job support scheme. It has received much positive press coverage, but Barry Fine, a director of Alexander Bursk, remains unimpressed.
How effective will the new Job Support scheme be at stopping redundancies ?
It requires employers to pay their employees at a rate of pay that could be a 1/3 higher than normal. So companies would be paying a third higher per hour for some employees under this new scheme.
The scheme will open on 1 November 2020 and run for 6 months.
The company will continue to pay its employee for time worked, but the cost of hours not worked will be split between the employer, the Government (through wage support) and the employee (through a wage reduction). This is aimed at helping companies that have less business in the current climate to retain employees and reduce redundancies, but it is unlikely to work as intended.
For the hours not worked, the Government will only pay a third which is up to a cap, with the employer also having to contribute a third. This will ensure that employees earn a minimum of 77% of their normal wages, where the Government contribution has not been capped.
So as an example. For someone working 30 hours a week on £8.72 per hour, and only working 33% of their hours:
Working: 10 hours @ £8.72 = £87.20 (Paid by employer)
Not working: 20 hours @ £8.72 = £174.40
1/3rd funded by Government =£58.13 1/3rd funded by Employer = £58.13
Total Payable to Employee = £203.46
Ers NI of £4.78
Ers Pen of £2.50
Total cost to employer = £210.74. Reimbursement from Government brings this down to £152.61. Total cost without scheme = £87.20. Additional cost to employer = £65.41.
As we can see from this example, the employer is having to pay the employer for hours they aren’t working. With businesses already under huge strain due to the lockdown, this doesn’t offer them many reasons to retain staff.
In addition, the government subsidy is capped at £697.92 per person per month (£161.06 per week). The employer doesn’t have to cover any shortfall in the subsidy vs 2/3rd amount (at present!)
Will an employer retain 3 workers part-time or 1 employee full-time ?
Under this scheme, paying 1 worker full-time will be much cheaper than paying 3 part-time workers. It may be that full-time workers are protected whereas part-time workers are made redundant.
Companies will receive £1,000 in January for keeping people on after furlough, will that help the situation?
The new scheme requires a 6 month commitment, so employees have to be retained for six months before receiving government money. Employers may feel that an extra £1,000 does not outweigh the additional cost per part-time employee for 6 months.
What are the alternatives ?
Ireland has introduced a wage subsidy that doesn’t require employers to pay for hours not worked. It has also reduced the rate of Ireland’s equivalent of Employer’s National Insurance.
|Less than €151.50||No subsidy payable|
|Between €151.50 and €202.99||€151.50|
|Between €203 and €1,462||€203|
|More than €1,462||No subsidy payable|
This seems to be much simpler and perhaps more effective at avoiding redundancies.
Which employees will it help ?
It will help employers retain key members of staff when they cannot afford to pay their entire wages and whom they are prepared to pay a higher wage for shorter hours.
Which employees will not benefit ?
Everyone else essentially. Any non-key members of staff may be more likely to be made redundant under this scheme, as companies might not want to pay them more for less work.
Similarly, teams of employees with reduced amounts of work available will likely have to cut teams down to ensure the companies can remain solvent.
If you have any questions about the effects of the coronavirus lockdown on your business, or how to properly access government schemes, feel free to contact us on 0161 773 7737, or via email at email@example.com.