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Essential Advice for Business Owners: Calculating Flexible Furlough Hours

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On Tuesday 30th June, the government released updated guidance on the flexible furlough scheme as many employees prepared to return to work part-time.

The announcement detailed how businesses should calculate usual hours for partially furloughed staff under the second phase of the Coronavirus Job Retention Scheme (CJRS V2). The flexible furlough scheme aims to ensure employers have maximum flexibility to decide on the safest and most suitable arrangements for the return of their employees.

Flexible Furlough: The Story So Far

In mid-March, lockdown measures saw the closure of non-essential businesses and the creation of the Coronavirus Job Retention Scheme. Up until August, the furlough scheme will continue to cover up to 80% of workers’ wages. At the end of May, chancellor Rishi Sunak announced a new flexible furlough scheme would be introduced from the 1st of July. This meant furloughed employees could be brought back to work on a part-time basis.

During this time, the government also introduced new legislation in the form of the Finance Bill 2020. In this, HMRC will have the power to investigate claims made through the Coronavirus Job Retention Scheme for up to five years. This legislation makes it clear that the government is leaving no room for error or misuse with regard to furlough claims.

Any company found to have breached the terms of the scheme will be required to pay back all furlough claims in full. If HMRC can prove an employer intentionally broke the rules of the furlough scheme, and did not admit it during the 30-day amnesty period, employers could face a prison sentence of up to 10 years.

As a result, businesses need to have robust reporting and time tracking systems in place to ensure compliance with the scheme – as well as protecting themselves against the serious financial and legal consequences of committing furlough fraud.

Guidelines and Examples for Calculating Flexible Furlough Hours

On the 1st July, the government updated their guidance on how to calculate your employees’ wages, NI contributions and pension contributions with examples of working out your employees usual hours and furloughed hours.

There are two types of calculations for employers to consider; employees who are contracted for a fixed number of hours and employees who work variable hours.

Calculating Fixed Hours for Flexible Furlough Claims

Following the government’s guidance on how businesses should calculate furlough grant claims using the CJRS V2 is incredibly complicated and has led to a lot of confusion among employers. The update on the 30th June has provided greater clarity on the issue with HMRC confirming with the Institute of Chartered Accountants in England and Wales how to calculate the hours for furlough claims.

For the period of the claim, the employers must submit usual working hours, and actual working hours. The difference between these is the furloughed hours on which the grant claim is based. HMRC’s published guidance gives instructions for working out usual hours for an employee who is contracted for a fixed number of hours and whose pay does not vary according to the number of hours they work. In order to do this you should:

  • Start with the hours your employee was contracted for at the end of the last pay period ending on or before 19 March 2020 (e.g. 35 hours for an employee working Monday to Friday, 9am – 5pm with a one hour unpaid lunch break)
  • Divide by the number of calendar days in the repeating working pattern, including non-working days (e.g. 35 hours/7 days = 5)
  • Multiply by the number of calendar days in the pay period (or partial pay period you are claiming for (e.g. for whole of July, 31 x 5 = 155)
  • Round up to the next whole number if the outcome isn’t a whole number

It is important to note following these guidelines means for many employers the grant they receive will be less than they may have predicted if they were working on an employee returning to work for a percentage of their normal working week.

Calculating Variable Hours for Flexible Furlough Claims

Calculating furlough hours for an employee that works flexible hours is a little more complex. New guidance was published on the 1st July with a full breakdown of how to cover

The “usual hours” in this case will be calculated based on the higher of either:

  • the average number of hours worked in the tax year 2019 to 2020
  • the corresponding calendar period in the tax year 2019 to 2020

You need to calculate the usual hours for each pay period, or part of a pay period, that falls within the claim period.

To calculate based on average hours:

  • Start with the number of hours worked (including paid leave) in the tax year 2019/2020 before the employee was furloughed (e.g. 1850 hours worked in tax year before being furloughed)
  • Divide by the number of calendar days the employee was employed in the tax year, up until the day before they were furloughed (e.g. employee furloughed on 23rd March, so 352 days worked in the tax year. Calculation is 1850/352 = 5.26)
  • Multiply by the number of calendar days in the pay period (or partial pay period you are claiming for) (e.g. employee gets paid 4 weekly, so claim period is 28 days. Calculation is 5.26 x 28 = 147.16)
  • Round up to the next whole number if the outcome isn’t a whole number. (e.g. usual hours for the month of July would be 148).

To calculate based on corresponding calendar period in the tax year 2019/20:

  • Identify the pay period in the 2019/20 tax year that correspond to at least one calendar day in the pay period you are claiming for.
  • If the pay period you are claiming for starts and ends on the same calendar days as the identified pay period in the 2019/20 tax year, use the number of hours they worked in that pay period (e.g. this will usually be the case if the pay period is a calendar month, so for example, for a claim for July, you would look at July 2019 and the employee may have worked 150 hours during that month).
  • If the pay period you are claiming for does not start and end on the same calendar days as the identified pay period in the 2019 to 2020 tax year – you’ll need to add together a proportion of the hours worked in each of the pay periods you’ve identified (e.g. this is likely to be the case for pay periods that don’t fall on a calendar month, e.g. weekly, four weekly etc)

Please note this information is correct at the date of publishing (7th July 2020) We always recommend reviewing the government guidance in regards to calculating and submitting claims.

How Can Record-Keeping Be Made Easier?

In order for employers to comply with the Coronavirus Job Retention Scheme and be eligible for furlough grants, the government has strict record-keeping requirements. Employers must keep a copy of all records for six years, including:

  • The amount claimed and claim period for each employee
  • The claim reference number for your records
  • Your calculations in case HMRC need more information about your claim
  • Usual hours worked, including any calculations that were required, for employees you flexibly furloughed
  • Actual hours worked for employees you flexibly furloughed

Because of these detailed requirements, many businesses are going to need far more robust and efficient systems to track the attendance of employees. Failure to adhere to these requirements or inaccurate submissions of grant claims could result in having to make significant repayments to the government and further investigations into furlough fraud.

Essential Software for Formal Time-Tracking and Hours Reports

It is essential businesses not only understand how to calculate the usual hours for partially furloughed staff but they have effective processes and systems in place to track these hours. If you aren’t already using a robust time and attendance system, then now is the time to invest.

Implementing an intelligent technology platform now will make complying with the second phase of the coronavirus job retention scheme much less of a burden on your administrative staff. It will also ensure you are fully eligible for all of the support you have access to.

Time and attendance software will play a critical role in the accuracy of your workforces’ records and compliance with the government’s requirements. Our time and attendance software is designed to reduce the friction of managing a remote, flexible workforce.

Over the span of forty years, we have worked incredibly hard to refine, optimise and streamline our software to reduce the burden of remote workforce management administration and minimise the risk of errors which, especially now, could be incredibly costly to businesses of all sizes. It is one of the most powerful pieces of software on the market, and will help to ensure you are not risking your eligibility for financial support due to inaccurate, or poorly maintained, employee attendance records.

The software is intuitively designed to help you manage attendance, absence, shifts and flexible hours through reports and payments on a person-by-person basis. It also delivers an overview of your entire workforce at a glance. Whether you have a workforce of 50, or 500, the clever automation features and self-serving interface is designed with your business needs in mind.

If you are concerned about managing your workforce during this time, we can help assess your current workforce management solutions and can even get time and attendance systems up and running in under two weeks. Talk to a member of our team about your unique challenges today.

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