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Government to pay bonus for retaining furloughed workers

31 July 2020

The Chancellor has announced a new job retention bonus as part of its Plan for Jobs 2020. Employers who bring workers back from furlough and retain them in employment until the end of January 2021 will qualify for a £1,000 bonus, and further guidance on the scheme was published on 31 July.

How will the job retention bonus work?

The Chancellor has been under continued pressure to extend the furlough scheme, particularly for employers in sectors such as retail, leisure and hospitality who face a gap between the planned end of the furlough scheme in October and the return of pre-Covid trading levels.

In his one-off summer statement on 8 July, the Chancellor repeated his insistence that there would be no extension of the furlough scheme. Instead, he intends to provide further financial support in the form of a bonus for those employers who are able to bring staff back to work.

The details released after the statement confirm that employers will be paid a job retention bonus of £1,000 for each employee they bring back to work from furlough. The bonus will be paid from February 2021.  Further details have now been provided in a policy paper published on 31 July.  This states that “detailed guidance” will be published in September, including guidance on how employers should claim for the bonus. The policy paper makes it clear that bonuses will only be paid for employees that were eligible for the scheme.  HMRC will withhold payment where it believes there is a risk that furlough claims may have been fraudulently claimed or inflated, until their enquiries are completed.

To qualify for the bonus, the employee would need to remain continuously employed through to the end of January 2021 and earn an average of £520 per month over that period (this is the lower earnings limit for qualifying for certain benefits). The employee must have earned something during each of these months, and only earnings recorded through HMRC Real Time Information (RTI) records can be counted. 

A bonus will not be paid for any employee who is serving a contractual or statutory notice period that started before 1 February 2021, even if they are still employed on 31 January.  As well as affecting employees who have been given notice of dismissal before this date, this means that an employer may lose out on the bonus if an employee resigns shortly before it would have become payable.

The bonus amount is the same for each employee irrespective of the employee’s actual wages but is clearly targeted at employers with lower paid workers.  If put towards the wages of someone earning the lower earnings limit of £520 per month, the bonus would cover nearly two thirds of their wage costs, whereas it would cover only 13% of the wages of someone earning £2,500 per month.

How will the job retention bonus impact employers?

  • Will employers reconsider redundancies? The key question is whether this is enough of a subsidy to make employers reconsider redundancies, or if it will benefit only those employers who were planning to bring staff back anyway. It will have a greater beneficial impact in sectors such as retail, leisure and hospitality, where it could potentially tip the balance in favour of keeping staff on. However, for employers who have already decided that redundancies are inevitable, it is unlikely to be enough to make them reconsider.
  • Does any of money need to go to the employees? The payment is a bonus for employers, rather than a wage subsidy for employees, and it seems that employers will not be under any direct obligation to put the money towards the wages of their staff or pass it directly to staff (as is the case with the furlough grant).
  • How does it affect ongoing redundancy programmes? Employers who are currently in consultation over redundancies should put the announcement of the bonus on the consultation agenda and be prepared to discuss if it could help to avoid, delay or mitigate the redundancies.  
  • Will it prompt discussions about bringing employees back on reduced pay or hours? If the bonus is not enough by itself to avoid redundancies, an employer may wish to use it in combination with temporary pay or hours reductions.
  • Will it be paid to employers who have already brought employees back? The policy paper says that the bonus is payable for any employees that were eligible for the furlough scheme and they have claimed a grant for. This indicates that the bonus will be payable for employees who had returned to work even before the original announcement was made, so long as they had been furloughed at some point.
  • What if overall trading conditions have not been badly impacted or have improved? A small minority of employers are even considering repaying their furlough grant in these circumstances. There are likely to be discussions about whether all employers should accept the new bonus, and a number of major employers have already said that they will not be claiming the job retention bonus.  
  • Will this be the only source of support for employers through local lockdowns? Local lockdowns are likely to be more common in the months ahead, which could potentially result in the re-closure of some of the businesses the bonus is designed to support.
  • What about employees who can’t come back to work? There may be some furloughed employees who are unwilling or unable to return when the furlough scheme ends in October, whether because of clinical vulnerability, concerns about travel, ongoing childcare disruption or otherwise.  Employers may need to explore a range of options for these employees, including unpaid leave, but it seems that the bonus would not be payable for non-returners unless they remain employed and paid at the £520 per month minimum until the end of January. 

To view our analysis of the job rentention bonus scheme, please click on the infographic below. 

 

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