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Furlough – Where are we now, and what happens when Furlough ends?

As a response to the initial impact of coronavirus and ‘Lockdown’, HMG introduced the first iteration of the ‘Furlough Scheme’ on 19 March last year, in an attempt to retain jobs in viable businesses affected by adverse cashflow and cessation of business due to lockdown. It was intended to run until the end of August, 2020. The Government agreed to reimburse employers up to 80% of wages up to £2,500 per month (plus Employer’s NI and auto-enrol pension contribution). Barred from other paid work (other than under an extant contract with another employer), the offer was open to any employee/worker on a payroll and paid via PAYE, including part-time, agency, ZHC and flexible contracts. It was (is) also applicable to Directors, as long as they are also employees.

However, in the immortal words of Sam Goldwyn: ‘We’ve all passed a lot of water since then’.

Unfortunately, coronavirus failed to co-operate and the scheme was extended. From July ‘flexible furlough’ allowed employers to bring staff back for periods when work was available. From 1 August HMG no longer paid NICs and from 1 September pension contributions were no longer paid and employers contributed 10% of the 80% of wages, the Treasury picking up the remaining 70%, capped at £2,187.50. From 1 October the employer contribution rose to 20% and the total was capped at £1,875.

The scheme has now been extended to 30 April 2021. As stated above, the inspiration behind the scheme was to maintain viable jobs for a limited period. With the persistence of the virus, with new mutations leading to further uncertainty, notwithstanding an impressive scientific effort in producing vaccines in only a few months, the economic collapse concomitant upon extended lockdown has produced a situation far more serious than was initially expected. The question now is, how many of these roles will still exist after the cessation of the scheme? Many companies are finding that demand has not returned and they will be likely to make decisions quickly on whether or not to retain staff once the scheme ends.

Employers have three options:

– Bring staff back full time. If the expectation is for a rapid return to previous levels of demand and business, then they may bring back staff after Health and Safety assessments, and bearing in mind whatever guidance from HMG pertains at the time. It is likely that, if staff are retained for at least 3 months, the business will be eligible to receive £1,000 per employee, as was proposed at previously imagined closure dates.

– Bring back staff part-time. In this case, returns and hours will need to be negotiated with staff (and any Unions) if not already catered for in the employment contract – frankly a vanishingly unlikely possibility. In any event, if 20 or more employees are involved, formal consultation procedures will be triggered.

– Redundancies. The absence of work is the classic definition of a redundancy situation. It must be borne in mind that measures in response to coronavirus have not affected existing employment law and any redundancies must be carried out with regard to normal procedure, including statutory provisions regarding consultation and timing. Failures in redundancy procedure – particularly collective redundancies – can prove extremely expensive and time consuming. In addition to any Tribunal award for dismissal, any individual can bring a claim for failure to inform and consult for up to 90 days wages. Such awards are calculated on the basis of average earnings as measured before the start of lockdown. Attempts to short cut this procedure are also costly in terms of adverse publicity and reputation – as Arcadia rapidly discovered.

As always, before taking action, take advice. Employment lawyers are here to achieve the desired result at minimum cost.

Aidan Loy is our legal expert in Employment & HR law.

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