Around 660,000 jobs will likely still need furlough when the scheme ends in September with thousands being pushed into unemployment if the government doesn’t extend it past the deadline
The analysis from the New Economics Foundation (NEF) found that the additional 20% employer contributions towards furlough wages at the start of August will not be cost-effective for nearly 250,000, jobs.
The thinktank detailed that once furlough is no longer an option, workers could be at risk of becoming redundant or seeing a reduction in hours or pay.
The New Economics Foundation states that the government’s September deadline is premature as certain industries will not be able to trade at full capacity when furlough ends.
An example of this is the aviation industry which at the end of June had one third of workers still on furlough and international travel will not return to normal come the deadline and there is possibility of a permanent shift occurring.
Alex Chapman, senior researcher at the New Economics Foundation, said: ‘The current end date for the furlough scheme is arbitrary and can cause unnecessary harm to thousands of workers across the UK, by risking unemployment or facing a reduction in pay. Our analysis highlights that demand will remain suppressed because of voluntary measures that the public will take in response to the uncertainty around the delta variant.
‘The furlough scheme has been a necessary lifeline for millions of workers, and we strongly urge the Chancellor to retain it beyond September.
‘Over time, similar to some of our European neighbours, a more permanent furlough scheme should be introduced that can help the British workforce build resiliency against future economic shocks such as climate disruption, trade realignment, and other public health emergencies.’
The analysis also highlights that self-isolation is still a requirement for those in close contact with a Covid-19 infected person and even with the requirements for isolating easing from 16 August for those who are double-vaccinated, at the current rate around 10m adults will have not received both jabs by this date.
In order to avoid a surge in unemployment at the end of furlough New Economics Foundation recommends that the government rolls back the increase of employer contributions and extends the furlough scheme until a realistic point where voluntary social distancing is likely to end.
It also calls for the government to allow furloughed workers to use their subsidised non-working hours on training, with a priority for industries that may never recover to pre-pandemic levels of output.
This would make furloughed workers more attractive for their employers to bring back and would increase both productivity and the government’s tax return.
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.
Until end of June 2021, the grant is 80% to a maximum of £2500 per employee per month for hours unworked. Employees on full furlough (not working any hours at all), will get 80% of their wages per month unless their employer decides to top it up to 100%. Where an employee is on flexible furlough (working only some hours), they will be paid in full by their employer for the hours they work and the grant will cover 80% of pay for their unworked hours only, subject to a cap which will be less than £2500.
Changes from 1 July 2021
As we move to 1 July 2021, the Government’s grant will reduce to 70% of furloughed employees’ wage costs for their unworked hours at a cap of £2187.50. Pay for furloughed employees must remain at a minimum of 80% at a cap of £2500 which means that employers must contribute 10% up to £312.50 from their own pocket. Further changes continue into August.
From 1 August 2021 until the scheme ends, the Government’s grant will reduce 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 will have to cover a portion of the employee’s actual wages, as well as the National Insurance and pension contributions.
Not every employer will be able to 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, 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 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.
Over 3,000 UK businesses have voluntarily repaid over £760m in furlough grants to HMRC that they did not need.
According to the national accountancy group, furlough grant money that many businesses in the UK claimed at the beginning of the pandemic has been paid back to HMRC by 3,777 companies. The money, estimated at around £760m, was claimed but not actually needed as businesses later realised, they were not impacted as badly as first anticipated.
The furlough scheme was intended to support business that have been impacted by the pandemic and were unable to maintain their workforce. Many of these businesses claimed the furlough grant as a precaution in case of financial difficulties in the future.
‘Many businesses are beginning to realise they acted hastily when claiming furlough money and are doing the right thing by handing it back to HMRC.’
HMRC is now shifting the focus onto businesses who have incorrectly claimed the support money, as it was announced in the March 2021 Budget that £100m would be allocated towards the new HMRC Covid fraud taskforce. This team was set up specifically to investigate fraudulent claims under multiple Covid-19 support schemes.
There is currently no specific requirement for a business to demonstrate that they have been financially impacted by Covid-19 in order to claim furlough grants but with the shift towards investigating cases of fraud, the hope is to encourage more to make voluntary repayments.
Regarding the taskforce ‘It’s expected that HMRC’s Covid fraud taskforce will take a much tougher approach to tackling what it sees as abuse of its schemes. It has taken a ‘softly, softly’ approach so far by issuing nudge letters to those it suspects may have claimed furlough money incorrectly, encouraging them to hand back money voluntarily if necessary. The next stage of its investigations will be much more aggressive.’
The penalties for businesses deliberately claiming furlough grants they aren’t entitled to or overclaimed more than they needed will be considered as a ‘deliberate and concealed’ activity, which can lead to a penalty of up to 100% of the grant.
The furlough grant scheme was a lifeline for many businesses across the UK to survive the Covid-19 pandemic and since its introduction in March 2020, £53.8bn has been claimed by employers and it has protected over 11 million employees. The scheme will continue to 30 September 2021 although the government contribution will be reduced.
On 5 November, Chancellor Rishi Sunak announced that as part of the new national lockdown the Coronavirus Job Retention Scheme (CJRS) has been extended until the end of March 2021. This announcement updates the Prime Minister’s previous announcement on 31 October that the CJRS would be extended for a month until December.
The scheme has also reverted to its original level of support. Furloughed employees will receive 80% of salary for hours not worked and businesses asked only to cover national insurance and employer pension contributions.
The CJRS was due to have ended on 31 October after being scaled back to cover 60% of salaries during that month.
Chancellor Rishi Sunak said that the scheme will retain the flexible element and furloughed employees will receive 80% of their current salary for hours not worked, up to a maximum of £2,500.
A statement from the Treasury also confirmed that the Job Support Scheme (JSS), which had been due to launch on 1 November has now been postponed, and will not start until the CJRS has closed.
Chancellor Rishi Sunak said:
‘I’ve always said I would do whatever it takes to protect jobs and livelihoods across the UK – and that has meant adapting our support as the path of the virus has changed.
‘It’s clear the economic effects are much longer lasting for businesses than the duration of any restrictions, which is why we have decided to go further with our support.
‘Extending furlough and increasing our support for the self-employed will protect millions of jobs and give people and businesses the certainty they need over what will be a difficult winter.’
On 1 July, changes to the Coronavirus Job Retention Scheme (CJRS) saw flexible furloughing introduced, so employees will no longer have to be furloughed for a minimum period of three weeks.
Following the change the CJRS has more flexibility to allow claims on a pro rata basis. Employers will be able to permit employees to work some of the week and be furloughed for the rest.
An employee needs to have been furloughed for at least three consecutive weeks between 1 March and 30 June to be eligible for furlough from 1 July. Additionally, after 1 July, employers may be subject to a cap on the number of employees that can be claimed for in a CJRS claim they are able to make.
The CJRS changes have effect from 1 July until the closure of the scheme on 31 October.
Parents returning from statutory maternity leave, paternity leave, adoption leave, shared parental leave and bereavement leave are broadly exempt from the CJRS furlough changes. So parents who are returning to work over the coming months will be eligible for the CJRS despite the scheme closing to new entrants on 30 June.
Additionally, from 1 August, the level of the grant will be reduced each month. From August the employer will need to pay employer national insurance and pension contributions for the time the employee is furloughed. For August, the government will continue to pay 80% of wages up to a maximum of £2,500 proportional to the hours the employee is furloughed. For September, the government will pay 70% of wages up to £2,187.50, and for October, the government will pay 60% of wages up to a maximum of £1,875. During these months employers will have to top up employees’ wages to ensure they receive 80% of their wages up to the £2,500 cap.
Internet link: GOV.UK publications