Final Few Months of Furlough?

It seems a while since we last heard about furlough, a word that only came into usage this side of the Pond just over a year ago. However, further change is imminent (on 1 July) as the Coronavirus Job Retention Scheme begins to wind down in readiness for ending on 30 September 2021.

Furlough so far…

Since the furlough scheme came into existence on 20 March 2020, there have been numerous different iterations and twists and turns with the scheme.

Initially, employers could claim a grant from HMRC to cover 80% of the wages costs of employees who were furloughed (up to £2,500 per calendar month for each employee) until 31 July 2020. HMRC’s contribution tapered down between 1 August and 31 October 2020 (when the scheme was originally due to close) and employers were required to contribute.

With a further lockdown, the scheme was extended until 2 December 2020, HMRC’s contribution increased back up to 80% and it has stayed at that level ever since. The scheme was then extended again until 31 March 2021, then 30 April 2021 and then until 30 September 2021, so whether it will actually end on 30 September 2021 remains to be seen!

At first, furloughed employees were not permitted to work at all. However, since the introduction of “flexi furlough” on 1 July 2020, employers have been able to split employees’ time between furlough and work. We have seen many clients utilising this flexibility, for example, by rotating employees on furlough to ensure fairness across their workforce.

Furlough has been widely taken up by companies across most business sectors and, as of April 2021, around 3.4 million people were furloughed, with 35% of employers utilizing the scheme.

The Changes from 1 July 2021

From 1 July, HMRC’s contribution will begin to taper down, as before.  Employers will only be able to claim 70% of furloughed workers’ wages (up to £2,187.50) for hours not worked and will have to contribute 10% themselves (up to £312.50).

From 1 August (and until the scheme is due to end in September), HMRC’s contribution will reduce to 60% (up to £1,875) and employers will be required to contribute 20% (up to £625).

Commentary

We have seen companies using furlough in a range of different ways. Some elected not to use the scheme at all, often as a matter of principle and not wanting to take the HMRC funding when they could survive without it. Some large and stable organisations which used the scheme as “free money” were widely criticised and subsequently decided to repay the grant.

Others utilised the scheme over the initial lockdown(s) but have since focused on getting the majority (if not all) of their workforce back to work. Others (particularly those in the hardest hit sectors) have used the scheme heavily since March 2020 and continue to do so.

The latter is particularly predominant in the service industry, where some businesses have not yet reopened, and others have reopened under conditions which limit their ability to operate profitably. These businesses were hoping that the country would open up again on 21 June but now face further uncertainty with lockdown restrictions remaining in place until 19 July at the earliest.

Whilst Rishi Sunak has announced that he fully intends to stop the scheme at the end of September, as set out in this year’s budget, we are currently facing significant uncertainty with growing infection rates and virulent variants. Although the government’s messaging remains positive about restrictions easing on 19 July, we could easily see a late U-turn and a further extension to furlough. Michael Gove has already stated that he is “open-minded” about the prospect of extending furlough again.

If furlough does end on 30 September, we anticipate that many companies, who cannot sustain their full workforce, will have little or no option but to make redundancies. How many is uncertain and much will depend on the continued management of the pandemic, when things open back up, infection rates and potential further restrictions lockdowns. If further lockdowns take us back to square 1, will furlough continue or be resurrected?

What should you be doing now?

Given the current levels of uncertainty, it is important to plan for all eventualities, formulating a Plan A and B (and possibly C!). Take time now to carefully consider your plans as furlough winds down and ultimately ends, including:

• Are your pre-COVID-19 business and staffing structures still viable?
• Have any roles disappeared or are fewer needed?
• How are business and job roles impacted by new ways of working and technology?
• Where should/can costs be saved?
• As the government contribution reduces, might you want / need to:
  • bring back (some) furloughed staff part or full-time, for example, if their contribution to the business outweighs the wages grant you will be losing; or
  • make (some) furloughed staff redundant before you start incurring further costs in respect of them?

Depending on the answers to those questions, there are many different options available post-furlough including the below and you may use some or all of these:

• Bringing employees back to work on their previous terms and conditions (if that is viable).
• Keeping some employees “laid off” or on short-time working, if your contracts allow this - although these are not long-term solutions.
• Changing terms and conditions, with employees’ consent - but watch out for collective consultation obligations if you might dismiss and re-engage 20+ dissenting staff.
• Unpaid leave and sabbaticals are possible but not a long-term solution.
• Restructures and redundancies - again, watch out for collective consultation obligations if 20+ employees are affected.

If you are going to bring employees back to the workplace, you will need to carefully consider your health and safety obligations, reintegrating staff into the workplace etc. However, that is another article!

Navigating these times is really difficult for employers, so please feel free to call or email Sarah, Will or another member of our employment team who will be happy to help.

These notes have been prepared for the purpose of articles only. They should not be regarded as a substitute for taking legal advice.