The end of the furlough scheme15/09/2020
The Coronavirus Job Retention Scheme, also known as the furlough scheme (the “Scheme”), which was introduced in March 2020 is due to close on 31 October 2020. This means that the funding available to support businesses will end; but what does this mean for employers and employees?
Using the most recent Government figures, 9.6 million people have been placed on furlough leave by their employer. This equates to claims of £35.4 billion which have been made to cover part of the wages of employees. Despite the high uptake of the Scheme, redundancies are at the highest levels since April 2013 and it is anticipated that these numbers will continue to increase as the Scheme is gradually reduced and eventually closed.
The current position
The Scheme has evolved with the covid-19 pandemic and government policies on economic strategy. Currently, businesses can receive a grant of 70% of wages up to a cap of £2,187.50 to assist to pay the salary of eligible employees. In addition, employees can be required to return to work on reduced hours and the furlough grant will only cover the hours the employee is on furlough leave. Employers are also required to now pay earnings related National Insurance Contributions and pension contributions and will be required to continue to top up employees’ wages to ensure they receive 80% of their wages up to a cap of £2,500, for time they are furloughed.
In October, the Scheme will change again, with the government paying 60% of wages up to a cap of £1,875 for the hours the employee is on furlough leave. Employers will continue to be required to pay earnings related National Insurance Contributions and pension contributions and continue to top up employees’ wages, to ensure they receive 80% of their wages up to a cap of £2,500, for time they are furloughed.
Closure of the Scheme and the future
The Scheme will officially end on 31 October 2020, meaning that from this date, there will be no financial assistance from the government for businesses who are unable to bring employees back to work. It is anticipated that the end of the Scheme will cause business restructures and redundancies, with businesses being unable to return all employees to work or to financially support the wage outgoings.
The Treasury Select Committee have warned that there are risks of mass long-term unemployment and without support, viable firms could go under. With countries such as Germany and Australia extending or launching new wage support schemes into next year, there have been calls for targeted extensions to provide specific assistance to struggling industries or geographical areas as and when necessary.
In an attempt to encourage businesses to protect jobs, the government have offered businesses a £1,000 bonus for every furloughed employee who remains in employment until 31 January 2021. There are questions as to whether the incentive is enough to assist struggling businesses retain staff for the three months following the closure of the Scheme.
How we can help
While it is hoped that the economy recovers quickly, it seems inevitable that some businesses will need to restructure in order to continue to trade and this sadly means redundancies.
Whether you find yourself contemplating the need to restructure your business or you have been informed that your job role is at risk of redundancy, we can assist in providing you with tailored legal advice. If you are affected by business restructures or redundancy decisions, please do not hesitate to contact Nick Smith, Head of Employment on 0191 281 6151 or email firstname.lastname@example.org for further assistance.