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By Steve Watmore, Product Manager HR/Payroll, Sage

Introduced in April, the Job Retention Scheme (JRS) has helped many businesses square up to the damaging financial situation caused by the pandemic. HMRC figures show that the furlough scheme claims have reached a massive £34.7 billion as of 9 August.

However, the reservoir must run dry at some point; the government has announced that the 31st October will mark the end of the scheme. August is where the scheme begins to taper ahead of this date – employers will have to cover pension as well as National Insurance contributions for their employees. Moreover, the tapering will press on through September and October – with government wage contributions getting smaller as time marches on.

With Sage’s guide, we want to help your business plan for the changes that are coming up and organise finances and HR, whichever sector you may be in, so that you can survive and thrive through these tricky times.

  1. Learn from HMRC about changes the scheme

The latest HMRC release details the changes for August through to October that will affect businesses across the UK.

Employers need to plan for cost increases of around £300 per employee from 1st August onwards since the government will no longer cover national insurance and minimum auto-enrolment pension scheme contributions. In September and October, the employer will have to increase their contributions as the government gradually removes support.

Hypothetically, with cumulative costs shown in brackets, an employer with a furloughed employee on maximum contributions of £2,500 will need to first start paying the employee National Insurance costs in August (c. £300), then account for 10% reduction on government wage contributions in September (c. £600), as well as a further 10% reduction in October (c. £900). The employer will then need to take a view after the scheme dissipates to see whether keeping employees on the payroll is sustainable.

With these changes in mind, we advise that your first step is to reassess financial and internal communication plans, using government insight as a springboard. Direction can first be taken from HMRC which will help delineate the differences between August, September and October payroll.

  1. Keep your employees in the loop with plans to bounce back

The ONS create a weekly report pulling out stats on Coronavirus and its social impacts. Data from 22 to 26 July shows that 54% of working adults reported they have travelled to work in the previous week. So, as businesses look to open their doors returning to some sort of “normal”, and welcome employees back to the office, this is a chance for employees to play a role in reimagining the business going forward.

In order to get employees to participate in recovery, leaders can initiate new business drives or restrategising sessions and shepherd departmental involvement. Sage has researched into the advisory value that different skills and roles can offer – the fourth annual ‘Practice of Now’ report published in 2020 found that 79% of survey respondents are confident about providing business management and advisory services like cash flow management. In addition, 75% are confident about providing industry specific advice for clients, such as standard profit margins 73% are confident about providing technology implementation recommendations like AI and automation. While this demonstrates accountancy can add value to services provided to clients, it also shows that it’s important to use some of that keen insight for internal processes.

Employees who have close knowledge of cash flow can help restructure businesses in the coming months and years; encouraging the involvement of employees to advisory roles outside their normal work will help businesses mould themselves to fit the changed contours of the business landscape.

  1. Leverage technology to counteract future uncertainty

Accounting software from a good partner or software supplier helps avoid costly and damaging errors. Awareness of the HMRC guides and rules will be key, coupled with salient use of technology to find the right figures from your payroll and help initiate processes like payment in lieu.

In order to make the right calculations and adjust payments and payroll accordingly, technology can help provide precise accounting. Payroll software can automatically adjust to the changing reclaim values, compensating for the government removing NIC contributions in August, then the reduction of the September government contribution to wages to 70% of normal gross, then finally with October government wage contributions going down to 60%.

Our third piece of advice would be to invest in the right technology for your organisation; it can help improve the efficiency and productivity – especially important in today’s society. Great tech can help to reduce errors within your business and understand your data more to enable you to respond and react better to demands.

Preparation is key and with these growing costs, businesses need to also assess whether they’ll be generating revenue to accommodate shortfall or have enough work for the employees. Payroll and accounting technology can help provide data and estimations on when companies will be back in the black.

  1. Don’t forget to manage people with HR due diligence
    Steve Watmore

    Steve Watmore

The key to a successful transition involves mastering the behind the scenes of payroll, knowing the letter of the law and ensuring there is a clear channel of communication between employees, managers, and the accounting department.

Employees need to be aware of the JRS claim periods, alterations to employment contracts, where they stand if they are a freelancer following the end of the scheme, how things like holiday pay is calculated and how the tapering of the scheme will affect them.

For many business fixed costs have not gone away. Rent, rates utilities will all have been accrued costs through this time. For some supply chain issues or increased costs after full lockdown can also have significant impact on operating margins. It is likely that new contingency plans around maintaining the workforce need to be considered, which unfortunately does include redundancy.

Employees will need clear communication and guidance during this time in order to help them understand how their payroll and payslips may change, and what steps they may need to take. With the weighty impact of the furlough scheme, companies need to be more cognisant of changes to shift patterns, salaries and probation periods; business leaders need to keep a tight control on finances and internal communication now more than ever.

Lastly, but certainly not least, supporting your employees through these tough and uncertain times is critical. Offer guidance and care to those that have been affected negatively – establishing wellbeing and support systems that will help deal with difficult transition that are to come as the furlough scheme ends.

Key points to remember

The negative effects of lockdown have been mitigated by the government’s action in setting up the Job Retention Scheme. Now businesses need to unfreeze their operations and kickstart growth plans. The four crucial steps we outlined to safeguard your businesses profits, people and success are:

  • Learn from HMRC about what plans to change the scheme – you can find out all the information you need by visiting the HMRC website
  • Keep your employees in the loop with plans to bounce back – distributing a companywide note with separate plans for rallying departmental teams will be key
  • Leverage technology to counteract future uncertainty – using accounting and payroll technology will provide great overview of financial stability
  • Don’t forget to manage people with HR due diligence – taking care of employee wellbeing during these tough times is a must.
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