On 24 September, the Chancellor announced the creation of a new Job Support Scheme (JSS) to replace the Coronavirus Job Retention Scheme (CJRS) which ends on 31 October 2020. The JSS is designed to support “viable jobs” by providing Government support for an employee’s usual wages where an individual is working at least one-third of their usual hours. Although the impact of the JSS on pension contributions appears to be less complex than under the CJRS, clarity is needed on which elements of pay will be pensionable.
What is the JSS?
The JSS will be available for 6 months from 1 November 2020 and will be in addition to the Job Retention Bonus scheme. The purpose of the JSS is to avoid the redundancy of employees working reduced hours in “viable jobs” and, therefore, eligibility will be conditional on an employee working at least one third of their usual hours.
HM Treasury has published a brief factsheet which provides further details of the scheme. This confirms that:
- all small and medium sized enterprises will be eligible; larger employers will need to meet a financial assessment test demonstrating that their turnover has been reduced by the pandemic (and will be expected not to make capital distributions such as dividend payments or share buybacks while accessing the grant – it is unclear as yet whether this will be a condition of eligibility);
- the scheme can be used for employees who have not been furloughed provided they have been included in a RTI submission made on or before 23 September 2020;
- the scheme cannot be used to cover wages for employees under notice of redundancy (unlike the CJRS);
- employees must work at least 33% of their usual hours (and this minimum may be increased after 3 months), but can cycle on and off the scheme and work varying shift patterns, provided each short-time arrangement is for a minimum of 7 days;
- changes to the employment contract must be agreed and confirmed to the employee in writing;
- the employer must continue to pay an employee their usual contractual wages for the hours worked, plus one third of their usual wages for the hours unworked, and must also continue to pay pension contributions and Class 1 employer NICs (although the factsheet does not specify on what proportion of the usual wages paid to an employee);
- the Government will pay for one third of usual wages for the hours unworked subject to a cap of £697.92 a month (these grant payments will be made in arrears, reimbursing the employer for having paid the Government’s contribution); the Government does not expect employers to be able to top-up their employees’ wages further (and it is not clear whether this will be prohibited under the scheme).
What does this mean?
The way the scheme works means that employers will have to pay at least 55% of an employee’s usual wages (where the employee is only working 33% usual hours), with the employee receiving at least 78% (assuming the monthly cap on the Government contribution does not apply).
The factsheet shows that the employer’s percentage increases to 67% where the employee is working 50% usual hours, and 80% where the employee works 70% of usual hours.
What about pension contributions?
The factsheet confirms that employers will be required to continue to pay pension contributions and Class 1 employer NICs and that the Government grant will not cover these. However, it is unclear whether pension contributions (and Class 1 employer NICs) will be payable on the wages paid by the employer and the Government or just the usual wages paid by the employer. Whilst we would expect both employer and employee pension contributions to be payable on both elements, it is hoped that this will be confirmed in the coming weeks when further guidance is published.
Although the impact of the JSS on pension contributions appears to be less complex than under the CJRS confirmation is needed on which elements of pay will be pensionable.
Despite helping to preserve jobs, the introduction of the JSS (like the CJRS before it) will still lead to lower contributions (in £ terms) being paid into pension schemes by and on behalf of emloyees covered by the JSS. It may also lead to more people opting-out of workplace pension schemes as a result of their take-home pay being reduced. This may increase the calls for the auto-enrolment legislation to be amended to enable employees who are suffering financial hardship as a result of Covid-19 to temporarily stop their pension contributions (whilst employer contributions continue) in order to preserve the retirement savings culture that has been secured by the introduction of auto-enrolment.