The Fizz! Blog

The Job Support Scheme v2 – significantly more generous than v1

In an earlier blog following the announcement of the Job Support Scheme, we said that the numbers weren’t really likely to encourage a rational employer to keep staff on under the scheme. Anyway, the rules for the scheme have been torn up and replaced – it turns out the numbers weren’t really likely to encourage a rational employer to keep staff on under the scheme. Who knew!

Here’s what’s changed.

The new scheme still begins on 1 November.

Previously, it was going to require an employee to be working at least 33% of the time. The employer had to pay them for that time, of course. For the remaining non-working time, the employer would pay a third, the government would pay a third, and a third would go unpaid. The employer would pay the NI and employer pension due on the whole payment. That was pretty expensive for the employer – they were paying for a lot of idle time.

The considered, more generous scheme has two variants. One for businesses that can still legally open (JSSO) and one for ones that must close (JSSC).

JSSC is easy – if your business has been mandated to close because of government restrictions, the government will basically pay two thirds of employees' pay. The employer need pay no salary.

JSSO is more complex, naturally. Basically, the proportions have changed. The employee must now be working at least 20% of the time (so one day a week is enough, albeit someone working every - say - Wednesday might technically find themselves working less than 20% of their usual hours depending on whether there were four or five Wednesdays in that particular month, under the obtuse way that Usual Hours are framed under the JRS and JSS rules). The employer has to pay them for all their actual working time. For the remaining non-working time, whatever that may be, the employer now only has to pay 5%, the government will pay 62%, and the remaining third will still go unpaid just as before. The employer will continue to pay the NI and pension costs on the total payment, but that’s still a considerably less onerous burden for them to bear.

A bit of guidance came out last Friday, there's more due at the end of this week.  The last minute nature of it is frustrating when you might need to write to your employees to tell them what’s going to be happening to them next week.  But at least the scheme might now be useful for more employers.

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Excel problems that aren't Excel problems

As an accountant, you do most accounting jobs using accounting software, and a few using Excel.  It's usually the smaller ones where you'd use Excel; maybe a sole trader who doesn't need to track debtors and creditors and doesn't have a dedicated business bank account, say.

Sometimes a reluctant business owner might be resistant to using accounting software, and the classic objection is "why do I have to pay for a glorified spreadsheet?".  It's not a glorified spreadsheet, that's why.  It's a database, and a database has built-in checks on the integrity of the data (in the case of accounting software, thanks to the beauty of double entry bookkeeping).

If you're not careful, then those little Excel jobs that seem the most straightforward can actually be the riskiest ones, where you can make expensive or embarrassing blunders.  When we do accounts in Excel, we always build in some kind of proof that all the transactions feeding into the accounts have been captured once, and only once, and that any adjustments are complete and transparent.  If you don't do that, all you've got is some numbers that may or may not be right.  Generally, when staff join us from another firm, they've not come across this kind of check before.  But  the extra minute or two spent proving that the output is consistent with the inputs are vital if you want the output to be reliable and credible.

Whenever we read about a big error involving the numbers in the accounts of some listed company - say an enormous error in a stock valuation - we always speculate that it will be a problem that's arisen in Excel, outside of the core accounting software.  A SUM formula that hasn't been stretched to pick up some extra rows, for example.  We're *always* right.  And often the company will try to explain it away as a problem with Excel.  It's not, of course.  It's a problem with Excel being used for an inappropriate purpose, or Excel being used for an appropriate purpose but without some kind of integrity check in place.

So, when you're using Excel for accounting, it's important to think "we need to have some sort of proof in place that the data is complete".  You also need that if you're using it to track a deadly infectious disease.

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The Job Support Scheme – does it add up?

As of 31 October, the Coronavirus Job Retention Scheme (the JRS) will cease to exist.  We now know about the details of its successor, the Job Support Scheme, or JSS.  The JSS isn’t as generous as the JRS – it’s clear that the government are now at the point where they recognise that many jobs simply aren’t coming back any time soon, and can’t be subsidised forever. 

Here’s an example.

Let’s say you’ve an employee on £24,000 a year, so £2,000 a month – adding in £175 of National Insurance and £44 of pension contributions, they’ll cost you £2,219 a month.

At the moment, you don’t have enough work for them to do, but as long as you bring them in at least 33% of the time and pay them for that time, the JSS will contribute towards the rest of their wages.  It’ll pay a third of the remainder (up to a maximum of £697.92), with you paying another third, the rest going unpaid.  The employee doesn’t quite get a full wage, but it’s a decent deal for them.

If you’ve enough work for our example employee to come in 50% of the time, you’ll have to pay £1,000 a month for that.  That leaves a balance of another £1,000.  The JSS will pay a third of that - £333 – and you have to pay another £333.  That gives the employee a total wage of £1,666 for the month – 83% of their usual salary for working 50% of the time, not too bad!

It’s not such a good deal for the employer though.

As well as paying £1,333 of salary (£1,000 for the time they’re working and another £333 for the time they’re not), you have to pay National Insurance of £129 and pension contributions of £35.  So your total outlay is £1,497.  If the employee works a 40 hour week, then when they were working full-time the total cost to you worked out as just less than £13 an hour.  Now the cost per hour is more than £17 – it’s more than 33% higher than it used to be.

Presumably you considered what you used to pay to be a fair economic bargain for the value generated by the employee, and it’s unlikely that they’ve now become 33% more productive.  So, is a rational employer likely to think that the JSS offers a good deal?  Probably not, especially if you’re juggling a bunch of employees – two people working 50% of their normal hours clearly cost miles more than a single employee working full-time, so there’s a big financial incentive to get rid of part timers and try and give the work to a smaller number of full-time staff (whereas normally NI and pension thresholds mean there’s a small financial incentive to favour part-timers). 

So, just based on the numbers, it doesn’t on the face of it make much financial sense for employers, which is just the inevitable corollary of it being a great arrangement for employees with a fairly small government contribution (contrast the maximum government contribution of £697.92 with the maximum of £2,500 they'd contribute under the JRS).

But, there could still be some situations where the numbers stack up.

There could be “switching costs” that you need to think about.  If that employee’s been with you for a while, they’ll have built up some entitlement to redundancy pay.  That could be, say, £5,000.  And if you think you’ll need to recruit a replacement for them in the Spring if things pick up again, and you’ll do that by paying a recruiter, that could be another £5,000.  So you might think that overpaying someone for a while is better than shelling out £10,000 to ditch them and replace them in the Spring – although that does of course rely upon the degree of confidence you have about 2021.

And there will also be situations where it’s not all about the numbers, of course.  Many employers will want to support employees through a difficult time, and may well be content with what’s a bad deal based on the numbers.  It’s not always about spreadsheets!

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