The impact of the 2021 Budget on employers

Following a rather bleak introduction to the Budget announcement on Tuesday (700,000 job losses, economy shrunk by 10% and borrowing at war time levels), the Chancellor announced in his Budget speech on Wednesday that he will do whatever it takes to protects jobs and livelihoods and outlined a series of measures aimed at helping the economy recover from the devastating blow of the Covid-19 pandemic. We consider how the proposals will impact employers below:-

1.    Extension of Coronavirus Job Retention Scheme (the Scheme)  

Most notably, the Chancellor confirmed the extension of the Scheme from 30 April to 30 September 2021.

Under this further extension to the Scheme, employees will continue to receive 80% of their wages (capped at ￡2,500 a month) while on furlough until September. However, from July, employers will need to contribute 10% towards employees’ wages, followed by 20% in August, on top of continuing to pay national insurance and pension contributions.

Whilst we don’t think it was said in the Budget, we note that the cut-off date for eligibility is also being extended. From 1 May 2021, anyone employed on 2 March 2021 can be furloughed as long as an employer has made a PAYE Real Time Information (RTI) submission to HMRC between 20 March 2020 and 2 March 2021, notifying a payment of earnings for that employee. You do not need to have previously claimed for an employee before 2 March 2021 to claim for periods starting on or after 1 May 2021 (see link to updated guidance here).

With no mention of the Job Support Scheme (JSS), we can only assume that it has been completely scrapped.

Comments

We are surprised at the length of the extension to the Scheme. We anticipated that it would be extended but maybe only until the legal restrictions are due to end in June. The Chancellor appears to have given employers a reasonable amount of breathing space in which to ‘get back to normal’ by extending the Scheme to September, appreciating that, it will take time over the Summer months for certain sectors to get going again (most notably the airline sector).

That said, we expect that other sectors will have to ramp up quickly; for example, the hospitality sector, as people seem desperate to get out for a meal/ drink with their friends and family again. In this sector, we may see a drop off in those accessing the furlough grant, especially as employers will be required to contribute from July. We note, however, that some do not think the extension to the Scheme is long enough with, for example, the TUC commenting that it should have been extended until the end of the year.

Does the extension of the Scheme to September mean we won’t see as many redundancies as we once expected? Our view is unfortunately not. Employers will need to contribute to the cost of furlough payments from July (albeit only 10%, increasing to 20% in August), and this cost may prove too much for those businesses that are not able to ‘bounce back’ straight away.

We also expect that some businesses have changed the way they operate for the long term. In the retail sector, for example, consumers have, as a result of the restrictions, been forced to shop online and may well continue to shop online for the foreseeable, potentially resulting in the redundancy of a large number of shop workers. These businesses may well make early decisions based on this change to the way they operate and not keep hold of people for longer than they need to. Some consumers may also remain nervous about travel despite the roll-out of the vaccination programme, and so we may well see further redundancies in the travel sector too. And whilst a certain section of society are desperate to get back socialising again, others may be a bit more wary of mixing with a large group of people in a confined space too quickly. We may see an initial buzz followed by a petering off of going out once the novelty has worn off, resulting in job losses in some hospitality establishments as well. We are speculating of course, but we highly doubt that all businesses will just ‘bounce back’ fully to pre-Covid levels without the need for at least some cuts.

In terms of the mechanics of the scheme, furlough payments are still proving a headache for some; we have recently started to see a number of tribunal claims for underpayments where there is disagreement over how furlough pay should have been calculated. If you are in any doubt about how to calculate furlough pay for your employees, you should seek advice so that you don’t face such claims further down the line (since we are finding that trying to remember what rules were in place at the time of the particular complaint requires a cold towel or two!).  We also note that HMRC plan to recruit over 1,000 new investigators as part of its Taxpayer Protection Taxforce to tackle furlough fraud and so this will be a hot topic.

Taking a step back for a moment, we note that this is the fourth time the furlough scheme has been extended since it was first introduced in March 2020. With the potential for more lockdowns in the future, we wonder if the government will look to announce a long-term version of the Scheme at some point prior to the end of September which can be used as and when required in the future.

2.    ‘Help to Grow’ schemes

The Chancellor announced two schemes:-

·        a “management training” scheme for SMEs, of which 90% of the cost will be covered by the government; and

·        a ‘digital’ scheme that will give small businesses access to free expert training and a 50% discount on productivity enhancing software worth up to ￡50,000

Comment

It’s encouraging to see an initiative which will help businesses to help themselves. Many employers want to up-skill their existing employees and provide management training but do not know where to start. The scheme will hopefully provide SMEs with access to a good quality management training which will in turn motivate employees and promote good employee relations. If you are interested in one or both of the schemes, you can register your business here https://helptogrow.campaign.gov.uk/

3.    National Living Wage (NLW) and National Minimum Wage (NMW)

The Chancellor confirmed the NLW this will increase from ￡8.72 to ￡8.91 per hour from 1 April 2021. The Chancellor stated:

‘We reaffirm our commitment to end low pay, increasing the National Living Wage to ￡8.91 from April - an annual pay rise of almost ￡350 for someone working full-time on the National Living Wage.’

The age threshold for qualifying for the NLW (as opposed to the NMW) is also set to reduce from 25 to 23.

The NMW rates will also increase as follows:

·               Those aged 21 to 22 will receive ￡8.36 per hour – an increase of ￡0.16

·               Those aged 18 to 20 will receive ￡6.56 per hour – an increase of ￡0.11

·               Those aged 16 to 17 will receive ￡4.62 – an increase of ￡0.07

·               Apprentices under the age of 19 or in their first year will receive ￡4.30 – an increase of ￡0.15

Comment

The key impact of the increases is that it is going to cost employers more to retain the same number of employees. Not only will the wage bill increase for those at the bottom of the pay scales but employers will need to look at those at each level above and increase them accordingly too. In times of crisis, where is this extra money going to come from? May we see, as a result, cuts in other places to pay for these wage increases, whether that is job losses or cuts in, for example, “nice to have” discretionary payments, such as bonuses or other benefits such as spend on team events or Christmas/ birthday vouchers?

Remember, also, that if you have workers returning to work from furlough leave after April (or indeed from any other form of leave), you should ensure that they return on the correct level of pay. It is easy to remember to increase the pay of those currently in work but forget about those who are out of the office and currently on much lower rates of pay at the moment.

4.    Apprenticeships and training

Employers can currently benefit from a ￡2,000 bonus to take on apprentices aged 16 to 24, while those that employ new apprentices aged 25 and over are paid ￡1,500. The Chancellor announced yesterday that this bonus scheme will be doubled and extended, meaning that any employers who hire a new apprentice between 1 April 2021 and 30 September 2021 will receive ￡3,000 per new hire, regardless of the apprentice’s age.

The government is also going to provide an additional ￡126 million for “high quality” work placements and training for 16- to 24-year-olds in the 2021/22 academic year. From July 2021, the government will also provide a new “flexi-job” apprenticeship which will mean apprentices can work with a number of employers in their chosen sector.

Comment

It’s possible that, as a result of the uncertainty and upheaval caused by the pandemic, a large number of individuals will be looking to up-skill and secure employment as an alternative to relying long-term on ‘gig-economy’ work. Individuals who have lost their jobs as a result of the pandemic may also be looking to learn new skills in other areas. The promotion of apprentices and work placements can, we believe, only be a good thing. These schemes may, for example, encourage businesses to think about the longer term, taking people on and train them up rather than always employing the finished product.

 5.    Statutory Sick Pay

 Up to 2 weeks of Statutory Sick Pay (SSP) can still be claimed by small and medium- sized employers for each employee off sick.

 Comment

The budget makes it clear that the "scheme is a temporary Covid-19 measure intended to support employers while levels of sickness absence are high. As with other business schemes, the government will set out steps for closing the scheme in due course".

In an ideal world, this initiative would last indefinitely, particularly as Covid is not going anywhere soon and employers can possibly expect some sickness absence as a result of the annual vaccination programme. That being said, the scheme is surprisingly susceptible to fraud - employers are not expected to provide fit notes supporting their claims (they simply need to provide absence dates, the reason for the absence and the employee’s national insurance number) and so we (rather cynically) wonder whether this will lead to some to claim ‘Covid’ when in fact employee absences related to other health issues.

6.    Self-Employment Income Support Scheme (SEISS) - (fourth and fifth grants)

The Chancellor announced an extension to the SEISS, which will now be available to approximately 600,000 newly self-employed people, provided they have filed a 2019/20 tax return by midnight on 2 March and have satisfied the eligibility criteria which can be found here. The fourth grant will provide a taxable grant calculated at 80% of 3 months’ average trading profits (capped at ￡7,500 in total) and will be paid out in a single instalment. Previously anyone who had become self-employed after 6 April 2019 was ineligible. 

HMRC will contact eligible individuals in mid-April to give them a personal claim date. This will be the date that they can make their claim from.

There will also be a fifth grant available covering May to September (individuals will be able to claim from late July if they are available for this grant).  

Comment

We note that self-employed people will be able to claim the funds from late April. This is likely to be a problem for many self-employed individuals who are currently having to rely on loans to pay their bills.  

We also note the Chancellor failed to set any further support for small limited company directors who take most of their income through dividends and can only claim a small amount (or even nothing) on the CJRS scheme.

Closing Thoughts

We hope that the measures outlined by the Chancellor will enable as many businesses as possible to survive until they see a return to pre-Covid levels of activity.

The easing of restrictions and the return of employees to the workplace may well result in an increase in more typical HR challenges - flexible working requests, disciplinaries, grievances, the continuation of performance management processes etc. but we anticipate that these issues will be welcome headaches for management and HR teams who have been facing the prospect of restructuring and redundancy exercises as a result of the pandemic.

We hope that this note is helpful. Do contact the Knights Employment Team if we can assist with any specific queries. The law is constantly changing and the position set out in this note may not be current. You should not rely on this note as a comprehensive statement of the law. Please contact us if you require specific legal advice on your situation.

? Knights plc 5 March 2021