Jul 2021

Employer contribution to furlough – what happens if their pay has changed?

Although lockdown restrictions are continuing to ease, many businesses are still dependant on the Coronavirus Job Retention Scheme for paying their employees. The latest HMRC figures show that 2.4 million people still relied on the furlough scheme for their income at the end of May 2021. Although numbers continued to fall in June, it is estimated that there are now between 1.3 million and 1.9 million people on the scheme.

New rules since 1st July mean that employers are now required to pay 10% of their employees' wages to make up 80% of their pay (up to a maximum of £2,500 per month), with the government contribution now reduced to 70% of the employee’s wages.

But now that employers have the added expense of contributing to wage costs, they are looking for more clarity on how their employees' wages are calculated for the purposes of furlough.

Calculating Employee’s Furlough Pay

There are different calculations to consider when calculating your employee’s usual wages for furlough, depending on whether they work fixed or variable hours:

Employees on fixed hours - You must work out 80% of the employee's usual wage by looking at the wages payable to your employee in the past pay period ending on or before the employee’s reference date.
Employees on variable hours - How you work out the usual wages for employees with variable hours also depends on their reference date. You must also take the lookback period into consideration.

Click here to find out more about furlough reference period rules.

Calculating furlough when their pay has changed

Regardless of what the employee’s pay is now, you must still use the wages payable in the relevant reference period when calculating their furlough pay. The majority of employees have a 19th March 2020 reference date, i.e. those who were eligible for furlough under the original scheme, regardless of whether or not they were actually placed on furlough at that time.

For employees who are paid minimum wage, there have been two increases to the National Minimum Wage rate since 19th March 2020. While employees must be paid the new rate for hours worked (or doing work-related training), the furlough pay is still calculated on the wages payable in the reference period, even if this means that their hourly rate will fall below minimum wage.

Read: Minimum Wage Increases and Furlough: What Happens Now?

Regardless of the National Minimum Wage, where employees pay has increased (for example if they got a promotion or an annual wage increase), the wages payable at the reference period must still be used when calculating the 80% of wages.

On the other hand, where an employees pay has been reduced, for example if there has been a slowdown in business and the employee is now working fewer hours, again the reference period must still be used. Therefore, in this scenario, the employee’s furlough pay may, in fact, work out much higher than the wages they would be earning if they weren’t on furlough.

Furlough Calculations Made Easy

BrightPay provides functionality to calculate and apply furlough pay to an employee's payslip, and this includes support for flexible furlough. By entering in the employee’s usual hours worked and the actual hours worked into BrightPay, the software will automatically calculate the pro-rated subsidy. For more information, you can also view HMRC’s help guidance for examples of how to work out 80% of your employee’s usual wage.

Free Furlough Webinar

Join BrightPay for a free webinar on 28th July where their team of payroll and HR experts discuss recent changes to the furlough scheme and the challenge of reference periods. There will also be a live Q&A session to answer any questions that you may have.

Limited Places Remaining – Click here to reserve your place.