UK’s New Wage Subsidy Scheme a Rival to Germany’s Kurzarbeit?


Wage Subsidy Scheme

October 30, 2020

The Job Retention Scheme so far has managed undoubtedly to save quite a few jobs and stop the economy from suddenly crashing with mass redundancies. With the furlough scheme gradually winding down the question that the government faced was what to do with the 2.2m employees who were still on furlough even as it was on its last legs. Thus, employers would face two options. Either take their employees back to full time working or let them go by making them redundant. The government has now provided a third option – the wage subsidy scheme.

How is the government set to cover around 22% of a worker’s pay for the next six months?

The Wage Subsidy Scheme is quite different from furlough. The most noticeable being the reduction in the cap amount. From £2500 where furlough originally started, we see a drop to £697.92 on a monthly basis. Of course, considering the amount of strain that the government has faced this year, this comes as no surprise. Employees need to be working at least at 33% of their usual hours. For the remaining hours not worked the employer as well as the government as to pay 1/3rd of the salary.

If you have not previously furloughed staff are you eligible?

It has been found that around 12m of people in the UK are unable to pay bills or loan re-payments on time; or that they find it difficult to do so. In this scenario, the Job Support Scheme that the government is providing becomes even more crucial. From the end of October, payment deferrals will lead to a negative effect on the credit score. Thus, it was a welcome relief to employees to find that even those employees who were not previously on furlough could make a claim under the wage subsidy scheme.

Are there any special eligibility parameters?

Furlough and being previously furloughed, as stated above, does not play a part. Employees for the initial 3 months need to be on at least 33% of their usual hours as far as work goes. Employers need to have a PAYE scheme already in place as well as a bank account. How claims are to be made and the like are still to be setup but possibly things should operate closely to the structure of the furlough scheme which was an undoubted success.

Decrease in demand should not equate to decrease in employees

The government sees the economy as gradually picking itself up from the financial repercussions of Covid 19. Considering this the government did not want the second wave of the pandemic to topple the already tottering economic sector. Thus, instead of keeping employees on furlough, it was decided instead that due to the drop in demand their hours could also be dropped. However, employees facing sudden cuts in pay would be left on the cold end and so the government as well as their employers are set to pay 1/3rd of the usual wages for those hours. It might not seem to be the best way out of the situation but considering the staggering economy, it has been a move made on time.

Basically, the wage subsidy scheme like its predecessor, the furlough scheme, still focuses on job retention as the government has identified the fact that large scale redundancies would lead to a far faster and harder recession than perhaps that which the current pandemic has led.

Do employees need to stay continuously on this scheme?

Bringing to mind the flexi-furlough element, the government has allowed that employees can “cycle on and off” this scheme. We need to consider here that the government has introduced this scheme keeping in mind a reviving economy. Due to this the government actually wants to encourage work but at the same time realizes that demand is on the short side and so it is possible workers might not be needed for the same amount of time that they were require for before. Thus, to prevent job loss working less hours has been advocated. However, a point to note here is that these short-time durations or rather arrangements need to be at least of a duration of seven days.

Doshi Accountants can assist you manage your accountancy related work during this dynamic period. Make things easier for yourself by getting someone to handle your payroll and VAT. Be it tax services or managing your personal tax account; having an accountant look into things for you would ease the burden off your shoulders. Unlike Germany which already had the kurzarbeit or the short time working system in place, these moves though welcome, are a big change for the UK. In Germany the scheme was primarily for a recession hit economy which unfortunately does appear to be the economic state we are facing in the wake of the pandemic.

Thus, in such times, it makes sense to have an expert’s advice on what schemes and facilities are open to your business so that you can get the most out of all the government support offered. Also, to have someone manage the books would at least give you more time to focus on the business end of things.

The winter economy plan

As bleak as it may sound, the backbone of this winter’s economy plan is having in place a proper “job support scheme” as the effects of the pandemic amid the second wave are predicted to last half a year more. Thus, though this may not be a year of much cheer, at least we know that there is a plan set in place in which most businesses do seem to believe in. Consideringly all the government support available it is important that you file the claim within time but also file it accurately. We could be of service here in these trying times.