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Does the Job Support Scheme make sense?

Last week Rishi Sunak announced the Job Support Scheme to replace the Coronavirus Job Retention Scheme (CJRS).

Hundreds of thousands of workers remain on Furlough and are reliant on these government payments. However, in October the CJRS payments reduce to 60% of the employee’s wages, up to £1875, with the employee contributing 20% and in November, the scheme will end completely.

The new Job Support Scheme comes into effect on 1st November 2020 and will run for six months. Designed to enable employees to keep their jobs, under the new scheme the company will continue to pay its employee for the 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.)

One key feature of the old CJR scheme was that employees were not allowed to do any work for their employers whilst on Furlough.  The new scheme insists on the employee working a minimum of 33% of the time, which will trigger a matched-funded, 22% contribution from the government with a compulsory 22% from the employer.

Comparing the two schemes – using the government example:

We have Beth, who normally works 5 days a week and earns £350 a week. The company puts Beth on the Job Support Scheme working two days a week. The employer pays £140 for the days she works. The employer would also then pay an additional £70 for the days she doesn’t work, and the government would also top up £70.

Let’s compare the two schemes:

Scheme Job Retention Scheme (old) Job Support Scheme (new)
Days Worked 2 2
Income Earned (2 Days) £140 £140
Cost to Employer £42 £70
Government Support £126 £70
Beth’s Income £308 £280

Under the new scheme, Beth’s two days would cost the employer £210 (£140 for the days she works and £70 as a contribution towards the new scheme). This is 50% more than they would normally pay for two days worked and 15% more than they would pay under the old scheme.

So, what are the employer’s options?

Reduced Hours

Some employers will instead look to agree a reduced working week with Beth in which she is simply paid £140 for the hours she works, but without the extra financial support. Beth would then lose out on the additional support from both the government and the employer, but from the employer’s point of view, it saves £70 for the same amount of work.

Redundancy

Let’s consider the case where you have two employees both doing two days a week – would it be financially more viable to make one redundant and keep one and opt-out of the scheme?

Scheme Job Support Scheme (new) Redundancy*
Number of Employees 2 1
Total Days Worked 4  (2 each) 4
Income Earned £280 £280
Cost to Employer £140 £0
Government Support £140 £0

*Assuming no cost of redundancy.

In this scenario, it would cost the employer £420 a week (£280 + £140) to keep both workers under the Job Support Scheme, but if they made one redundant, it would cost £280 to get the same amount of work completed.

Therefore, only one of these jobs is viable.

Supporting viable jobs only

The government have been keen to point out that key to this whole thing, is the concept of a viable job. It is our opinion that the scheme is not designed to support jobs that are not financially viable. Therefore, it is not designed to head off the wave of redundancies that is coming, only to reduce it.

If your business has suffered a terminal loss of business and there are no signs that this will change in the foreseeable future, then the Job Support Scheme will not encourage you to keep staff on. If there is light at the end of the tunnel, then maybe the scheme will encourage you to support employees in the short term.

Compared to the alternative – no scheme – the Job Support Scheme is a good thing, but this is a clear message that if your business has gone away, then you have to act sooner rather than later as the government will not support “zombie” jobs.