Q&A on the UK Job Support Scheme for short-time working and closed businesses

• United Kingdom

• Employment law

23-10-2020

The Job Support Scheme (“JSS”) replaces the Coronavirus Job Retention Scheme (“CJRS”). It has two parts:

• A short-time wage subsidy scheme, aimed at protecting jobs in those businesses facing lower demand due to COVID-19 – known as “JSS Open”
• A closed business wage support scheme, aimed at subsidising employers’ wage costs where they are legally required to close their premises – known as “JSS Closed”

Both parts of the JSS commence on 1 November 2020 and will run for a period of six months. The Government has published a policy paper explaining the JSS and there is a factsheet available for each scheme (JSS Open and JSS Closed). Further practical guidance is expected by end October.

The latest version of the JSS reflects the recent resurgence in the virus and the introduction of further restrictions on businesses and the public, including the three tier restrictions in England and local lockdown measures, such as in the devolved nations.

Deciding which part of the JSS applies

• JSS Open applies, broadly, where reduced demand results in employees working short-time (a minimum of 20% of their usual hours). For further information, read part one below.
• JSS Closed applies where local or regional coronavirus restrictions legally require business premises to close as a direct result of COVID-19 restrictions set by one or more of the four governments of the UK and employees cannot work at all for seven consecutive days or more. For further information, read part two below.

Employers may need to access both parts of the JSS, for example, if some of their operations are required to close in one region while other locations, not subject to legal closure, agree short-time working arrangements reflecting reduced demand.

Employers may access either parts of the JSS even if they have not previously used the CJRS. Employers can claim both the JSS and the CJRS Retention Bonus if they meet the eligibility criteria.

The two parts of the JSS share some similarities, for example, in relation to redundancy restrictions, shareholder distributions plus payment of employee taxes and pension contributions. However, there are significant differences, such as employer eligibility conditions and the generosity of the JSS grants.

Organisations whose staff costs are fully publicly funded (even if they are not in the public sector) are not eligible to claim a JSS grant. However, organisations which are only partially funded by public grants, can use the JSS for the proportion of their revenue disrupted due to COVID-19.

Part one: JSS Open

The employer pays its employee for short-time hours worked, with the cost of the shortfall – i.e. the hours not worked - being split between the employer, the Government and the employee (through a wage reduction).

Which employers are eligible?

JSS Open is available to employers with a UK, Channel Island or Isle of Man bank account and enrolled for PAYE online (save where covered by the public funded exemption, above). All small and medium-sized enterprises (SMEs) are eligible.

However, large businesses (i.e. a legal entity with 250 or more employees across their payrolls on 23 September 2020) are required to demonstrate that their turnover is lower due to COVID-19 difficulties. Such employers will be required to meet a “Financial Impact Test” (FIT) which requires them to show that their turnover has remained equal or has decreased compared to the previous year.

The FIT only needs to be taken once before the employer’s first JSS claim. However, note that where an employer is part of a VAT group, it is the turnover of the group which is considered. Given the potential adverse reputational impact on some UK entities, which are part of much larger groups (whether purely UK or international), when accessing the scheme, employers may wish to be prudent when assessing their eligibility.

Furthermore, the Government “expects” (but does not legally require) that such large employers and their corporate groups using the JSS will not be making capital distributions, such as dividends, charges and equivalent payments that a partnership makes to its partners.

The policy paper sets out examples of applying FIT to larger employers who are VAT registered. Further guidance for larger employers who are not VAT registered is promised by the end of October.

Which employees are eligible?

Employers can only claim for employees that were in their employment on 23 September 2020. If employees ceased employment after 23 of September 2020 and were subsequently rehired, then employers can claim for them.

They must be treated as an employee for Income Tax purposes (this will include agency workers if they are employees for Income Tax purposes) and can be on any type of contract, including zero hours or temporary contracts.

A Real Time Information (RTI) submission notifying payment to the employee will need to have been made to HMRC at some point during the period between 5 April 2019 and 23 September 2020.

The employee must continue to work at least 20% of their usual contracted hours.

Employees will be able to cycle on and off the scheme and do not have to be working the same pattern each month, but each short-time working arrangement must cover a minimum period of seven days.

Employees (or their representatives) must agree to any changes made to their employment contract to reflect their new short time working arrangements and must be notified in writing by the employer. This agreement must be retained for five years, made available to HMRC on request and a record kept of how many hours employees work, together with the usual hours they are not working.

The employer may only commence the JSS Open claim from the later of the date that the employee starts working reduced hours or the date when working reduced hours is confirmed in writing, not when the decision is made. This means that no ‘backdating’ option is available and it is important to get letters in place by 1 November if an employer wishes to claim from the outset (such as with staff moving straight from CJRS to JSS). We can assist with such letters – please contact your usual Eversheds Sutherland advisor.

Can employees agree to undertake training when not working?

Yes. However, where time spent on training attracts a minimum wage entitlement in excess of the grant payment, employers will need to pay the additional wages.

What if employees agree to undertake training when they are working?

Employers can chose to use some or all of the minimum 20% hours to train employees (i.e. paid at their full rate of pay and counting towards 20% of their usual hours). This will assist the employer who, due to reduced trade, has little if any ‘normal’ work to allocate to staff. It is to be contrasted from the earliest days of the CJRS when there was concern that any activity was work and therefore infringed the ‘no work’ principles of furlough.

What about redundancy restrictions?

Employees cannot be made redundant, be put on notice of redundancy or be serving a contractual or statutory notice period during the period within which their employer is claiming the JSS grant for them.

What is the process for submitting JSS Open claims?

Employers will be able to make a claim online through Gov.uk from 8 December 2020, covering salary for pay periods ending and paid in November, and will be paid on a monthly basis in arrears. This will present a cash flow challenge for some employers.

How much can be claimed under JSS Open?

An employee must work for a minimum of 20% of their usual hours and employers cannot claim for employees’ wages for the time they spend working.

For the remaining usual hours which are not worked (i.e. up to 80% usual hours), the Government will pay 61.67% of hours not worked up to a cap of £1,541.75 per month, with the employer contributing an additional 5% of non-worked hours up to a cap of £125 per month. These caps are based on a monthly reference salary of £3,125. This will ensure employees earn a minimum of at least 73% of their normal wages, where they earn £3,125 a month or less.

The calculation of 73% usual pay is arrived at as follows in this example from the Government’s factsheet:

• Andrew normally works 5 days a week and earns £1,400 a month, working in a restaurant in the hospitality sector. His company is suffering reduced sales due to coronavirus. Rather than making Andrew redundant, the company puts Andrew on the Job Support Scheme, working 20% of his usual hours.
• His employer pays Andrew £280 a month for these hours.
• And for the time he is not working (80%), he will get 66.67% of his pay for that time. His total wage package is 73%, equal to £1,027.
• The Government will give a grant worth £691 (61.67% of hours not worked) to Andrew’s employer to support them in keeping Andrew’s job, and his employer will pay a further £56 for hours not worked (5% of wages).
• In addition, the employer will cover the Employer NICs and auto enrolment pension contribution on the payment (£56).

Employers must have paid the full amount claimed for an employee’s wages to the employee before each claim is made. They cannot agree with the employee to reduce wages below the amount claimed (such as a salary sacrifice scheme). This includes any administration charge, fees or other costs in connection with the employment.

Where an employee had authorised their employer to make deductions from their net salary, these deductions can continue while the employee is working reduced hours provided that these deductions are not administration charges, fees or other costs in connection with the employment (for example, pension contributions and charitable giving).

Can the employer top-up pay?

Yes, an employer can top up the employee’s wages above the 5% contribution at their own discretion.

What rate of pay is used to calculate usual pay?

The calculations follow a similar methodology as for the CJRS, using a “reference salary” made up of the regular payments an employer is obliged to make, such as regular wages and non-discretionary payments for hours worked, including overtime, but excluding payments made at the discretion of the employer or a client, where they were under no contractual obligation to pay. The policy paper states the following:

Reference salary for employees with fixed pay

For employees who are paid a fixed salary, the reference salary is the greater of:

• the wages payable to the employee in the last pay period ending on or before 23 September 2020
• the wages payable to the employee in the last pay period ending on or before 19 March 2020, this may be the same salary calculated under the CJRS scheme

Reference salary for employees with variable pay

For employees whose pay is variable the reference salary is the greater of:

• the wages earned in the same calendar period in the tax year 2019 to 2020
• the average wages payable in the tax year 2019 to 2020
• the average wages payable from 1 February 2020 (or the employee’s start date if later) until 23 September 2020

Note that the Government has committed to introducing legislation to ensure that parents do not lose (as a result on being on JSS) their entitlement to maternity allowance, statutory maternity, paternity, shared parental, adoption and parental bereavement pay.

How are an employee’s usual hours calculated?

The policy paper provides guidance and a number of examples for calculating fixed or variable hours. Full sample calculations are promised in the guidance at the end of October.

In broad terms, the employer must take the higher of various calculation alternatives to obtain the reference hours and reference pay for the purposes of the claim.

How will HMRC monitor the operation of the JSS Open?

Employers must ensure that grants are used as reimbursement for wage costs actually incurred.

HMRC have said that they will check claims. As with the CJRS, payments may be withheld or need to be paid back, with penalties, if a claim is found to be fraudulent or based on incorrect information. Furthermore, HMRC have stated their intention is that employees will be informed by HMRC directly of full details of the claim and/or will publish the name of employers who have used the scheme. This is clearly intended to serve as an additional anti-fraud measure.

Practical considerations

As a minimum, employers should:

• check their eligibility to claim (in particular, whether they are a large company)
• decide whether it is commercially viable to claim the JSS Open. Cash flow may also be problematic given the subsidy operates monthly in arrears
• review the interaction between redundancies planned or underway and the JSS Open (given that redundancy notice is a bar to JSS). Clarification is needed on whether JSS is available when conducting redundancy consultation (it appears that it is). If available, reputational considerations will exist. Tribunals may also expect employers to have formally reviewed JSS Open as an alternative to redundancy as part of a fair process. Current redundancy consultations should be reviewed
• if the JSS Open is being offered to part of the workforce, with others being retained as normal or being made redundant, consider fair and reasonable selection criteria, avoiding discrimination risks
• decide whether to top-up employee pay
• engage with trade union/employee representatives and employees individually
• agree a new short-term working agreement or side letter, notifying affected employees in writing
• invest time now in understanding JSS Open pay calculations. The JSS calculations are not a straight replication of CJRS definitions and calculations, although lessons learned from CJRS will be helpful
• plan for the end of the JSS Open at the end of April 2021

Part two: JSS Closed

Which employers are eligible?

All employers with a UK, Channel Island or Isle of Man bank account and enrolled for PAYE online on or before 23 September 2020 are eligible (save where covered by the public funded exemption, above) to claim under the JSS Closed if, as a direct result of restrictions imposed by one or more of the four governments in the UK, they are legally required to close their business premises at one or more locations. This includes businesses that are required to provide only delivery and collection services from their premises, or food and drink outdoors from their premises.

It excludes businesses required to close as a result of specific workplace COVID-19 outbreaks by local public health authorities. Employers are also ineligible if there is no legal requirement to close premises, such as where closure is on a voluntary basis, due to reduced demand.

Employers are only eligible to claim for periods during which the relevant COVID-19 restrictions are in place. Employers will not be able to claim JSS Closed to cover periods after restrictions have lifted and their business premises is legally allowed to reopen (although they may then be able to claim JSS Open). Further details on eligibility conditions will be provided by end October.

As this is an evolving situation, employers should check the latest closure requirements for their business premises.

Unlike the JSS Open, above, there is no large employer reduced turnover condition. However, like the JSS Open, the Government expects that large employers using the support for closed business premises will not be making capital distributions, such as dividends.

Which employees are eligible?

Employers can only claim for employees that were in their employment on 23 September 2020. If employees ceased employment after 23 of September 2020 and were subsequently rehired, then employers can claim for them.

They must be treated as an employee for Income Tax purposes (this will include agency workers if they are employees for Income Tax purposes) and can be on any type of contract, including zero hours or temporary contracts.

A Real Time Information (RTI) submission notifying payment to the employee will need to have been made to HMRC at some point during the period between 5 April 2019 and 23 September 2020.

Eligible employees are those whose primary work place has been legally required to close as a direct result of coronavirus restrictions and who have been instructed to and who cease work for a minimum period of at least seven consecutive calendar days. The policy paper indicates that further eligibility criteria may be published by the end of October.

Employees (or their representatives) must agree to any changes to their employment contract and have been notified in writing. This agreement must be retained for five years and made available to HMRC on request.

Can employees agree to undertake training when not working?

See under JSS Open, above.

What about redundancy restrictions?

See under JSS Open, above.

What is the process for submitting JSS Closed claims?

See under JSS Open, above.

How much can be claimed under the JSS Closed?

The employer pays employees 2/3rds (67%) of their normal salary, up to £2,083.33 per month and the Government reimburses the employer.

Employers are required to cover employer NICS and automatic enrolment pension contributions in full, where applicable.

Employers must have paid the full amount claimed for an employee’s wages to the employee before each claim is made. They cannot agree with the employee to reduce wages below the amount claimed (for example a salary sacrifice scheme). This includes any administration charge, fees or other costs in connection with the employment. Where an employee had authorised their employer to make deductions from their net salary, these deductions can continue while the employee is working reduced hours provided that these deductions are not administration charges, fees or other costs in connection with the employment (for example, pension contributions and charitable giving).

Can the employer top-up pay?

As with JSS Open, the Government has stated that employers can top up employee pay under this part of the JSS, if they wish.

What rate of pay is used to calculate usual pay?

The Government has provided information on the reference salary for JSS Open but has said that further guidance at the end of October will set out how to work out reference salary for JSS Closed.

Note that the Government has committed to introducing legislation to ensure that parents do not lose (as a result on being on JSS) their entitlement to maternity allowance, statutory maternity, paternity, shared parental, adoption and parental bereavement pay.

How will HMRC monitor the operation of the JSS Closed?

See under JSS Open, above.

Practical considerations

As a minimum, employers should:

• if they have not already been legally required to close, they should review whether their premises are vulnerable to future closure requirements. For example, those in the hospitality/indoor sports/night time entertainment sector and in areas of rising virus infections
• if a large employer, check whether capital distributions planned or actioned (whilst not a legal criteria – see above – it brings reputational risk)
• double-check eligibility: has a premise been legally required to close, rather than forced to close due to local restrictions making it impractical or unviable to continue trading? Take advice if there is any doubt, to avoid future problems accessing the JSS Closed
• decide whether it is commercially viable to claim the JSS Closed for closed business premises. For example, although there is no requirement to contribute to employees’ wages, NICS and auto-enrolment contributions must be made and there is a delay in receiving the JSS Closed grant. This may be financially challenging for distressed businesses
• decide whether to top-up employee pay beyond the 67% JSS Closed grant
• review the interaction between redundancies planned or underway and the JSS-wage support (given that redundancy notice is a bar to JSS). Clarification is needed on whether JSS is available when conducting redundancy consultation (see above) Tribunals may expect employers to have formally reviewed the availability of JSS Closed as an alternative to redundancy as part of a fair process
• engage with trade union/employee representatives and employees individually
• agree a new closure agreement or side letter with employees/their representatives, notifying affected employees in writing. This must instruct employees not to work and be for a minimum seven day period
• ensure that affected employees do not do any work other than training during the claim period