Last reviewed 2 August 2021
Researcher and employment law writer at Croner-i, Opeyemi Ogundeji, explores the upcoming changes to the furlough scheme.
The Coronavirus Job Retention Scheme (furlough scheme) was put in place to support employers who are not able to operate as normal due to the pandemic. By designating employees as “furloughed”, employers have been able to recover a portion of employee wage costs, up to a £2500 cap. As confirmed by the Government Budget delivered on 3 March 2021, the scheme will continue to operate until the end of September 2021 with some adjustment to funding levels from July 2021.
The situation up to July
Until end of June 2021, the grant was 80% to a maximum of £2500 per employee per month for hours unworked. Employees on full furlough (not working any hours at all), received 80% of their wages per month unless their employer decided to top it up to 100%. Where an employee was on flexible furlough (working only some hours), they were paid in full by their employer for the hours they worked and the grant covered 80% of pay for their unworked hours only, subject to a cap of the applicable portion of £2500.
Changes in July
From 1 July 2021, the Government’s grant reduced to 70% of furloughed employees’ wage costs for their unworked hours at a cap of £2187.50. Pay for furloughed employees remained at a minimum of 80% at a cap of £2500 which meant that employers had to contribute 10% (up to £312.50) from their own pocket.
Changes from 1 August 2021
From 1 August 2021 until the scheme ends on 30 September 2021, the Government’s grant reduced a final time to 60% of furloughed employees’ wages for their unworked hours at a cap of £1875. With the 80% rule still intact, employers will need to contribute 20% to staff wages (up to £625). Therefore, from July through to the end of September, employers have had and will continue to have to cover a portion of the employee’s actual wages, as well as the National Insurance and pension contributions.
Not every employer can afford to contribute towards furloughed staff wages. Employers who have been topping up their staff wages by 20%, so that they receive all of their pay instead of just 80% of it, may be able to accommodate the contributions. However, many may not be able to, particularly smaller employers.
It may be that employees have to be brought back to work on a part-time basis (flexible furlough) to avoid making redundancies. However, this will depend on how much work is available.
It is important to note, as mental health awareness carries on making headlines, that employees may be struggling during this period. It is advisable to offer them support in the form of an employee assistance programme (EAP) or equivalent.
Protecting your business interests
Employers will need to consider how they can protect their business interests. This could, again, take the shape of bringing staff back into work or allowing them to work from home, if possible, and if work is available.
However, employers will also need to consider the following.
Keep track of furlough contributions and payments to ensure staff are being paid correctly and that the business is not over/underclaiming (to avoid furlough fraud).
Reduction in staff hours — employers may want to make structural changes to their workforce if possible, such as reducing the number of hours that their employees work and bringing them back on a part-time basis. Employees need to agree to this change as it will impact on the terms and conditions of their current contracts. Most importantly, employees cannot be forced to reduce their hours, but communicating with them about its necessity, if the company is under financial strain, may persuade them into forming an agreement.
Lay-offs and short-time work — otherwise known as ‘”LOST”, these are usually considered as an alternative to compulsory redundancies, usually when there is a temporary downturn in workload or the finance necessary to fund full-time employment. Employees may be placed on unpaid LOST where there is a contractual term entitling employers to do so. In the absence of such as contractual clause, employers will need to agree this with staff, otherwise it will breach the employees’ contracts of employment.
Redundancy — employers should consider whether there are alternative measures that could be utilised to reduce the need for redundancies as this should be a last resort option.
The furlough scheme has been somewhat of a saving grace for a lot of employers while coronavirus lockdown restrictions have been in place. As these restrictions are slowly eased, based on coronavirus data, employers may find that they no longer need to make use of the scheme, or it may be that flexible furlough takes centre stage. Either way, employers will need to consider how they can accommodate the upcoming changes and support staff during this time.