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The new Furlough – and the unknown consequences employers may face

09 November 2020 Employment Law Garry Sutherland

It seems a long time since employers were first introduced to the concept of the furlough scheme (or to give it its proper title, The Coronavirus Job Retention Scheme) back on 23rd March. It is almost taken for granted now that the government shall provide such considerable support to both employers and employees – but back when it was first announced it was unprecedented in modern times.

Initially it was due to last until the end of June, but was extended each time it was due to come to an end, in each instance giving plenty notice of that. As of August, after the second extension it became more flexible, but also more onerous for employers with them having to make an incremental contribution until its eventual end on the last day of October. Or so we were told.

The Chancellor was adamant that it should come to an end, that it would come to an end, and that Britain would be back in business by then.

The reality sadly is that the country is not making the progress that had been hoped – either in fighting the virus or in its economic recovery. First we were advised fairly late in the day that a much watered down new scheme would be coming in to replace furlough at the beginning of November, but the reception to that from businesses was lukewarm to say the least and many started planning for, and making, redundancies. That new scheme was then improved, making it more attractive but still much more costly and less flexible than furlough, and most businesses carried on with their redundancy consultations and implementation.

But all of a sudden there was a U-turn when it was announced that England was going back into lockdown. Furlough was to be extended until December, and back to its full original 80% level of government contribution. The Devolved Nations cried foul and only a few days later we have this latest announcement from the Chancellor on 5th November. Perhaps a new reason to “Remember, Remember”?

 

The new furlough

The significance of this extension of furlough is its duration – right through until the end of March 2021. Employees who have been on furlough since day one and who stay on it through to its new end will have had 80% of their wages paid (up to a maximum of £2,500) without working for over a year. By any measure that is remarkable. The devil however for employers is in the details of what the Chancellor said – and what he did not say.

  • Firstly this scheme will continue to operate broadly as before. Employees must meet similar criteria and must have been registered with HMRC as being employed as at 30th October.
  • Secondly, if they are new employees to the scheme they must have agreed to go on furlough and signed that agreement on an appropriately worded document – which the prudent employer will keep for the inevitable HMRC audit in years to come.
  • Thirdly, as before, the maximum that can be claimed per employee is £2,500 per month but unlike in its original form, the employer must pay their pension and NIC contributions.
  • Fourthly, we appear to be back to where we were in August with employers not having to make any contribution (other than pension and NIC). It is notable however that the Chancellor did not say this would be the case until March and very much implied that employer contributions would be reintroduced in January when the scheme shall be reviewed.
  • Fifthly, one of the most lauded elements of the revised scheme, the ability to have “part time” furlough remains – giving much more flexibility to employers to ensure that they can be reactive to their business needs rather than compelled to have employees stay at home when they might be needed.
  • Sixthly, the minimum furlough period is now only a week – again providing a great deal more flexibility to employers. Initially this was three weeks when the scheme was first introduced.

The small print

So far so good from an employer’s perspective?

1.       In all this generosity however, many have overlooked one significant consequence that the Chancellor announced. As an incentive to bring employees back from furlough, businesses had previously been promised a bonus of £1,000 per employee who was on furlough at one point and still in the employment of the business at the end of January 2021 – when the payment was due to be made. That has been scrapped  for the time being and with it goes in some instances a significant sum of money that many businesses had factored into their income and cashflow projections for the new year. Clarification after the initial announcement has suggested that an "appropriate" incentive will be announced at a later date, but how much that shall be and when it shall be payable is currently unknown and cannot be relied upon.

2.       Another potential headache for employers that the Chancellor announced (albeit for the most commendable of reasons) was that anyone who was made redundant by their employer on or after 23rd September 2020 (and had worked for them since 20th March 2020) can be taken back on by them and put on furlough. In the real world, how will that work? Most people in that position will have already spent some of their redundancy payment (if they were entitled to one). How will they pay that back to their employer? They will have been paid, and have paid tax, NIC and pension contributions on, any payment in lieu of notice. Can they afford to pay that, or a proportion of that back? How will the employer’s payroll process that? Do they get back all of the accrued but untaken annual leave they were paid in lieu of? Again, what if they have spent the money? What about a settlement agreement – is that undone? Will the solicitor who advised the employee on that give a refund on their fees? Unlikely.

All of these things will add a considerable administrative burden to businesses that are already creaking where they elect to do the decent thing by their former employees. And of course businesses can expect to be inundated with requests/demands from the newly redundant to do just that. Surely they don’t have an obligation to do so in law, but the Chancellor did provide for it and a great deal of negative publicity no doubt awaits the businesses who say no.

In conclusion, for many businesses this shall be a lifeline that if not needed right now in Scotland might very well be needed in due course if restrictions tighten or indeed another national lockdown is imposed. Given the amount of flexibility that this latest version of furlough has, it could be a boon to businesses who become creative with its use.  It comes however with a price – both a direct one in terms of payments that will now not be coming in January and a less obvious one in the guises of either the additional administration and disruption of reintegrating employees who have recently been made redundant, or the backlash of refusing to do so.

If you are an employer it is important that you take advice at an early stage, whether making redundancies or reintroducing the Furlough scheme to your staff.  Our employment team has vast experience working with businesses helping them implement the recent changes and adapt to the current situation.

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