A NUMBERS GAME
The scheme will leave employees better off if their hours are cut. However, firms will be landed with higher costs if they keep staff on. Let’s take the example of two pubs.
Before lockdown both employed three staff members on minimum wage who worked 40 hours each per week, totalling 120 hours. However, both pubs now only need 40 hours of work per week.
The first, The Dolphin, makes two employees redundant and keeps one to work a full 40-hour week. At minimum wage of £8.72, this costs the business £348.80 per week.
It also receives £1,000 from the jobs retention bonus for bringing one employee off furlough. In six months’ time, the pub has a net spend of £7,352 for 960 hours worked – an effective hourly rate of £7.66. The second pub, The King’s Arms, will use the new jobs support scheme and its three employees will work one-third of their contracted hours – in this case 13.3 hours each per week. This provides a total of 39.9 hours.
This costs the pub £557.49 per week, however. It pays out £347.92 in wages and another £69.94 to each employee for the hours they are no longer working, a total of £209.52. It receives £3,000 in jobs retention bonuses.
After six months, it has a net spend of £10,379 for 957.6 hours worked
– an effective hourly rate of £10.83. This is 40pc higher than if it only retained one employee and made two redundant. This also does not factor in the additional costs of staff such as national insurance, pensions and business insurance.
Economists at the Resolution Foundation note the JSS differs from the German short-time work scheme, which is often cited as a classic model of this type of support, because the German system only requires the employer to pay staff for work done, with the top-up provided entirely by the state. By contrast the British system splits the cost between the Government and the employer, reducing the incentive for bosses to sign up to the scheme, but lowering the cost for the Treasury.