Covid-19 (UK): Government extends Coronavirus Job Retention Scheme but employers must cover pension contributions

The Prime Minister’s announcement of a new national lockdown in England from Thursday 5 November to Wednesday 2 December (subject to parliamentary approval), was accompanied by a decision to extend the Coronavirus Job Retention Scheme (CJRS) for UK businesses until March 2021, and a consequent delay to the start of the less generous Job Support Schemes which were originally scheduled to apply from 1 November.

Unlike the position when the first national lockdown began, under the extended CJRS, employers will be required to cover the cost of employer pension contributions and NICs, even for hours not worked. However, the Government will cover 80% of the cost of furloughed employees’ wages for hours not worked (up to a maximum of £2,500).

The detail

The legal framework and guidance for the extended CJRS have yet to be put in place. However, the Treasury’s announcement confirms that the protection afforded by the extended CJRS will be based on the version of the scheme that applied during August. This means that:

• Employees can be fully or partially furloughed and will be paid 80% of their salary for hours not worked (up to a maximum of £2,500). An employer can choose to top up their employees’ pay if they wish.
• Employers will be required to cover employer pension contributions and National Insurance Contributions for hours not worked (and also pay for any hours actually worked).
• All employers with a UK bank account and PAYE scheme will be eligible and they do not need to have used the CJRS previously.
• All employees for whom an RTI submission has been made on or before 30 October 2020 will be eligible – there is no need for an employee to have previously been furloughed.
• Payment will be upfront as before (although payment for the next few days, while the legal terms of the scheme and the administrative systems are updated, will be in arrears).
• There will be no gap in eligibility for support between the previously announced end-date of CJRS and the commencement of the extended scheme.

Employers that have taken steps to place employees on the Job Support Scheme, including switching furloughed employees onto that scheme, will need to contact those individuals as soon as possible to ensure that they are covered by the extended CJRS instead.

HMRC has published further guidance on the CJRS and the Treasury has published a factsheet.

Please contact with your usual Herbert Smith Freehills adviser for assistance with this.

Comment

Employers whose businesses will be impacted (once again) by another national lockdown and their employees will no doubt welcome the extension of the CJRS. Although the terms are not quite as generous as they were back in March, the Government is still committing to underwrite up to 80% of the salaries of furloughed employees. This will come at a cost to the Exchequer with suggestions that the UK’s national borrowing for the current financial year could reach nearly £400bn (compared with £56bn in 2019/20).

According to the Pensions Regulator, the first lockdown and the economic disruption this caused did not lead to a significant spike in missed employer automatic enrolment contributions. However, the cost of employer auto-enrolment contributions was picked up by the Government under the CJRS during the first lockdown (up until the end of July). Therefore, there is a risk that the default rate may be higher this time around as businesses, some of which may already be in financial distress, are required to continue to cover this cost for furloughed employees.

Recent posts

Final reminder: Webinar: Pensions regulation: The new normal? – 10:30am, Wed 4 Nov – Register now

Pressure points: Key pensions-related guidance (UK)

Pensions Regulator’s new long term strategy recognises shift from ‘Generation DB’ to ‘Generation DC’

Covid-19: Recent developments for employers (UK)