Owner Kate Upcraft Consultancy Ltd
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CJRS: What are usual hours for flexi-furlough purposes?

Coronavirus Job retention Scheme (CJRS) 2.0 came into effect on 1 July, but HMRC has updated the guidance again on 11 September. Kate Upcraft unpicks the calculation of an employee’s “usual hours”.

14th Sep 2020
Owner Kate Upcraft Consultancy Ltd
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It is vital that employers and payroll agents record which iteration of the HMRC guidance they relied upon when making each CJRS claim, in order to defend any assertion from HMRC that the claim is incorrect and needs to be repaid. Given that records need to be kept for six years, and no one will remember why certain decisions were made, the financial and reputational risk could hangover employers for up to a decade.

Usual hours – when do you need them?

The determination of usual hours is the starting point for any flexi-furlough claim, so it is vital that this is calculated correctly. The furlough hours must be calculated as:

Furlough hours = Usual hours – worked hours

If an employee is on full furlough for the whole of the claim period, in theory there is no need to calculate, or report, usual hours. However, the templates to use for 100 or more furloughed employees include columns for usual, actual and furloughed hours. HMRC is telling employers that these fields do need to be completed in all cases, even for individuals who are fully furloughed, or the spreadsheet submitted may be rejected. This applies even if the overall claim period starts before their individual furlough start date and, or ends after their individual furlough end date.

For CJRS2 claims for fewer than 100 employees you are asked at the outset whether it’s a flexi-furlough claim or not. If you answer ‘yes’ to the flexi-furlough question then you will be asked for usual and actual hours, the system will then calculate the furloughed hours.

From 14 September 2020 new guidance applies for employees who come off furlough part way through a claim period. For such employees you should calculate the employee’s usual hours up to the last day of furlough, instead of to the end of the claim period. Do not include any working hours after the last day of furlough. This applies even if your claim period includes days after the employee’s last day of furlough. Claims made before 14 September do not have to be amended for this new guidance.

Two methods, several steps

Calculating the employee’s usual hours is not logical or familiar, so don’t make assumptions.

CJRS claim calculations are based on calendar days of pay and calendar days of hours. You need to consider the elapsed time of the claim, and forget about working hours and days.

If you use software to calculate CJRS2 claims, make sure the software provider has not used the software developer spec that was issued on 5 June as HMRC has withdrawn that spec, although the software developers may have not been told, yet.

This is my understanding of the calculations as at 4 July 2020.

Example 1

Tom is a monthly paid salaried employee working 37.5 hours per week. He only receives a basic salary and no overtime. In the legislation Tom is referred to as a ‘fixed rate’ employee.

Tom has been fully furloughed since 11 April on 80% pay ie no top-up and is returning to work part-time on 6 July and will be working 82 ½ hours during the month of July. The employer wants to make a claim for 1 to 31 July which corresponds with Tom’s pay period. The  HMRC guidance (see example 2.4) indicates the employer can round up usual hours in this scenario.

The calculation would be:

Weekly contracted hours Daily contracted hours Days in claim and pay period Usual hours rounded up
37.5 37.5/7 = 5.357 31 5.357 x 31 = 166.07 = 167
Actual hours Furloughed hours  
82.5 167 – 82.5 = 84.5

The base salary is still the last payday before 19 March 2020 so in Tom’s case, February 2020 when he was paid £2,269.62. The proportion of pay which relates to furloughed hours is £2,269.62/167 x 84.5 = £1,148.40.

The employer pays 80% of Tom's usual pay for those furloughed hours: £1,148.40 x 80% = £918.72 furlough pay.

We then compare that to the pro-rated cap on earnings in July of £2,500/167 x 84.5 = £1,264.97. As the furlough pay is below the cap the employer can claim all of the furloughed pay under the CJRS.

In order to calculate the employer’s NIC and workplace pension contributions, we knock the pence off the furlough pay, (rounding to £918 in this case).

The NIC threshold is apportioned to the furlough hours: £732/167 x 84.5 = £370.38.

  • £918 - £370.38 = £547.62 x 13.8% = £75.57 employer NICs to be claimed  

Pension threshold is apportioned to the furlough hours: £520/167 x 84.5 = £263.11.

  • £918 - £263.11 = £654.89 x 3% = £19.65 pension contributions to be claimed

Example 2

Dick is a zero-hours employee, paid monthly who has been employed throughout 2019/20. In the legislation, Dick is referred to as a ‘variable pay’ employee.

Dick has also been furloughed for at least 21 days up to 30 June. He is returning to work on 13 July and will work 60 hours in the month of July at a rate of £9.30 per hour: £558 for the month.

Throughout CJRS v1 we had to consider Dick’s average pay in 2019/20 and compare that to the same pay period last year and choose the best outcome for Dick. As Dick is flexi-furloughed, in CJRS v2 we have to carry out an additional first step to work out the best outcome in terms of usual hours for Dick.

Step 1: Compare average usual hours in 2019/20 to July 2019 usual hours

  • July 2019 hours: 62 
  • Total hours 2019/20 : 828.75 worked hours +  89.41 holiday hours = 918.16 / 366 days = 2.508 per calendar day in the tax year
  • Claim period is 1-31 July, the same as his pay period, so usual hours are 2.508 x 31 = 77.75 = 78 rounded up
  • Average hours are higher than July 2019 so use 78 for usual hours
  • Dick works 60 hours in July.
  • usual hours 78 – worked hours 60 = furloughed hours 18

Step 2: Consider the best pay outcome for Dick.

  • Calculate 2019/20 average pay for a 31 day month. Total pay £8,299.07/366 = £22.675 per calendar day
  • For 31 days in July = £22.68 x 31 = £703.08 
  • Pro-rate to furloughed hours £703.08/78 x 18 = £162.25 (rounded)

Compared to

  • £558 actual pay in July 2019 £558/78 x 18 = £128.77 (rounded)

so the average of £162.25 is higher. We would then go on to calculate 80% of £162.25 and any NIC and pension cost recovery as for Tom.

Example 3

Harry works 20 hours per week and is paid weekly. He has been employed since 2017 and has been furloughed since 10 June 2020.

The employer wants to flexi-furlough him from 1 July to 10 July 2020. He is due to work 10 hours in the week ending 5 July and 10 hours in the week ending 12 July. This claim covers two pay periods so the usual hours are now rounded up or down as appropriate mathematically (see example 2.1 of HMRC guidance).

Step 1: Week ending 5 July:  20 worked hours /7 x 5 calendar days in claim period 1 -5 July   = 14.29 rounded down to 14 hours

Step 2: Week ending 12 July: 20 worked hours /7 x 5 calendar days in claim period 6- 10 July = 14.29 rounded down to 14 hours.

Usual hours are 14 + 14 = 28. Actual hours are 20, so furloughed hours are 8.

Harry will have some furlough pay for 28 -30 June, included in the June 2020 CJRS claim, but this is based on his pay, not usual hours, as he wasn’t working at all.  

You may have thought that as Harry was working 20 hours over two weeks and is paid for 40 hours we could claim for 20 hours, but that is not how the HMRC logic operates.

Plan ahead

You must work out what you are going to be able to claim for, before deciding on the CJRS claim periods. The ability to round up for claims in line with whole pay periods may seem trivial, but it can make a difference when you have hundreds or thousands of employees in a claim.

What next?

HMRC have intimated that more updated CJRS guidance will be provided during the week ending 11 July 2020. I hope this is to add clarity rather than to make more fundamental changes.

Replies (15)

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By tom123
07th Jul 2020 10:25

Thanks Kate, - I am glad my case matches your case 1...

Thanks (0)
By pauljohnston
08th Jul 2020 09:51

Wow what a dogs dinner. For those on a fixed monthly salary returning 1 day out of 5 should mean an easy calculation 1/5 Full and 4/5 furloughed. I personally dont see why this is not acceptable to HMRC. The furlough claim for July and August will be higher that that for September using HMRC's calculation and hellishly more complex.

Come on HMRC think also about those as indicated above

Thanks (4)
Replying to pauljohnston:
By hmlask
08th Jul 2020 10:11

I agree.

Surely if we do the logical calculations, HMRC cannot complain.

Thanks (2)
By stevedpearce
08th Jul 2020 10:04

Just an extra twist ...in example 2 if furlough had begun in March you exclude the furloughed days to adjust the figure of 366 to work out usual hours......I believe

Thanks (0)
By Sally26
08th Jul 2020 10:07

Thanks so much Kate for your help and openness. Really pleased to see we are thinking the same sort of way

Thanks (0)
By rossetaz
08th Jul 2020 10:08

I agree with Paul, When I read it my heart sank. I really do not have the time to do this calculation for every employee in every employer who I deal with and to whom it applies and even more relevant I can just imagine what is happening with employers who are dealing with their own. This I believe is unnecessarily complicated when the rules have meant that there have been people who have done better than others due to "rules" such as when someone is on varied hours and using the same month last year has worked out quite a lot different than using the average for the year and that was acceptable.

Thanks (1)
By loraine99
08th Jul 2020 10:11

Great article Kate - thank you.
Is there any guidance yet or do you have any thoughts regarding the part-time furlough for directors. They have never been required to record their working hours and often work variable hours for a fixed fee.

Thanks (3)
By PandoraSleeps
08th Jul 2020 10:54

I think the HMRC guidance says you apply the cap first, i.e. you work out the reference salary as normal and then limit it to £2,500 (or whatever the appropriate pro rata is when the claim period is not a month) and THEN work out the amount to claim by dividing by usual hours and multiplying by furlough hours.

Thanks (0)
By Gone Sailing
08th Jul 2020 11:11

Re Example 1:
7.5 x 23 (Mon-Fri in July) = 172.5
HMRC say use 167
Lower denominator, higher claim.

Thanks (0)
By PaulK937
08th Jul 2020 11:24

Thanks for the article and thanks for doing a weekly example although I am a little confused as to why the second period is not 7 days as the pay period ends on 12 July, ok the furloughing was last on 10 July but surely you have to consider that whole week. The first week is split as it would otherwise straddle the month end and beginning so that is understandable but after that you have to consider full weeks at least that was my reading of the guidance.

Thanks (0)
nsa newquay
By adam kay
08th Jul 2020 14:14

Example 3 is a bit odd. Why is the claim period for the second week only 5 days even though it is a week? It seems odd that it is divided by 7 days in the week and then multiplied by 5 when there are 7 days in the week and earlier in the article it states that it's based on calendar days not days worked. Is this correct?

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Replying to adam kay:
By loraine99
09th Jul 2020 11:46

Completely agree! Employees are being seriously short changed on their furlough pay and will not be expecting this anomaly. Why isn't usual hours simply contracted hours? Is it some kind typo?

Thanks (0)
By Ian McTernan CTA
09th Jul 2020 11:34

Out here in the real world people will use whatever method works out easiest to do, then make a claim. It might not be 100% accurate but will be within a couple pounds of where it should be.

People will rely on software to do the calculations for them in most cases, rather than spend hours trying to work out whether it's 167 or 171 or 12.46546557, or will use simple methods to work it out as best they can.

The above article demonstrates perfectly how stupidly complex people can make things. Example 3 shows exactly where it will go wrong. HMRC's methods will be ignored and claims will be made based on 40 hours as that is the actual amount of hours he is contracted to work for, and he actually worked to 20, so people will claim 20 furloughed- because that is logical.

Can't wait to see how HMRC will sort out this massive mess of their own making.

Thanks (2)
By accountantccole
14th Sep 2020 14:34

Good grief - why change it again at this late stage?

Thanks (2)
Replying to accountantccole:
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By tom123
15th Sep 2020 11:45

I agree, especially as there is no 'trigger' for this change. People were expecting it from phase 1 to 2, but not now.

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