End of furlough- what’s happening?

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The Job Retention Scheme, implemented to support employers with staff costs through the Covid-19 pandemic, is due to close at the end of September. This blog outlines what changes are coming into force and what this could mean for businesses and the local labour market.

What is the Job Retention Scheme and when will it end?

The Job Retention Scheme, also known as furlough, was created by Chancellor Rishi Sunak in March 2020 to prevent employers from having to make redundancies during the Covid-19 pandemic. It enabled employees to remain employed or engaged by a company despite not undertaking any work for them, or only working on a part-time basis. Although it was only expected to last for a few months, it has repeatedly been extended as the second and third waves of the virus arose. For many it has acted as a lifeline by both preserving employee incomes and enabling businesses to retain staff.  At the scheme’s peak in July 2020, more than 190,000 jobs were furloughed in the North East.

Originally, the Government paid 80% of the wages of people placed on the Job Retention Scheme, up to £2500 monthly. However, as the pandemic eases and businesses reopen, the Government has begun the process of winding down the scheme, with the aim to end it fully in September. In July 2021, employers were required to contribute 10% towards the wages of furloughed workers for hours their staff did not work. The Government continued to contribute 70%, keeping the employee’s pay at 80% of their normal wages.

Since the beginning of August 2021, employers have been required to pay 20% of a furloughed staff members’ wages, with the Government contributing 60%. This will continue to be the case until the 30th September.

After that date employers will no longer be able to place employees on furlough leave and will either need to bring employees back into work or begin redundancy processes.

More information can be found here.

What impact will the end of the Job Retention Scheme have on unemployment rates?

The impact that the end of the Scheme will have on unemployment is unclear. The most recent statistics show that 64,000 jobs are currently on furlough in the North East, with the region’s furlough take up rate at 6%, lower than the national average take up rate of 7%. The region’s slightly lower rates of furlough could mean the North East fares better than other areas, like London or the West Midlands which have a higher uptake of the Scheme.

However, the North East suffers from generally high rates of unemployment which could leave it more vulnerable to any national increase. Research conducted by the National Institute of Economic and Social Research has predicted that the close of the Scheme could raise the national unemployment rate from 4.8% to 5.4%.

It is likely that some sectors will be impacted by the end of the scheme more than others. The manufacturing sector has the largest number of employments on furlough in the North East. Manufacturers are also facing other pressures, including climbing inflation, continued challenges in the logistics sector and a shortage of materials which could dampen the sector’s post-lockdown recovery and ability to bring back employees.

Chamber reaction to employment statistics

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Commenting on today’s publication of labour market statistics for the region, North East England Chamber of Commerce Policy Adviser Niamh Corcoran said:

“The numbers released today offer hope that economic indicators are beginning to head in the right direction, with North East unemployment declining and employment rising. It is without a doubt that the Government’s Job Retention Scheme has had a key role to play in this, by protecting jobs and livelihoods during the two waves of the pandemic.

“Whilst the figures today offer early signs of a stabilising labour market, it’s important we do not become complacent. As lockdown eases, a number of sectors, such as culture and retail, are yet to bounce back. It will likely be a long process for those sectors to return to pre-pandemic levels of capacity and employment growth.

“Today’s national statistics also expose the disproportionate impact of the crisis on young and older workers. Long term unemployment is rising at its fastest rate since 2010, with unemployment for young people and the over 50s at the highest rate in five years.

“As the labour market begins to stabilise, it is vital that Government takes action and makes concerted efforts to bolster deeply impacted economic sectors and prevent young and older workers from falling into long-term unemployment”.

Rishi Sunak extends the Job Retention Scheme and self employment support

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With new national Coronavirus restrictions coming into force today, the Chancellor Rishi Sunak announced new measures today for greater levels of Government financial support for businesses and the self-employed.

Job Retention Scheme

The Job Retention Scheme, or furlough scheme, has been extended until the end of March. It was due to end on 1st November and be replaced with the Job Support Scheme, which has now been postponed.

The Scheme will cover 80% of pay up to £2500 per month, with employers required to cover National Insurance and employer pension contributions. The government will review the policy in January to establish whether the circumstances are right to ask employers to contribute more.

The Scheme will be able to be used flexibly, with employees working part time and furloughed part time.

The announcement today is essentially as return to how the scheme was working in August.

Employers can use the scheme for employees who were employed and on payroll by the 30th October 2020.

Employers will be able to claim from 8am on Wednesday 11 November 2020. Full guidance for the Job Retention Scheme extension and how employers can claim will be published on 10 November.

Self Employment Income Support Scheme (SEISS)

The Self Employment Income Support Scheme has been extended to support to self-employed people in the form of two further grants. These grants are available for three month periods covering November 2020 to January 2021 and February 2021 to April 2021.

To be eligible for the grant extension, self employed individuals must have been previously eligible for the SEISS first and second grant.

The Government are providing the same level of support the self-employed as is being provided for employees through the Job Retention Scheme.

The third grant will cover a three month period from 1 November 2020 until 31 January 2021. The Government will offer a grant at 80% of 3 months average monthly profits, paid in a single instalment and capped at £7500. This is an increase from the previously announced amount of 55%.

Applications for the third grant will open on the 30th November 2020. HMRC will release further details about claiming soon.

Further detail on the fourth grant will also be published soon.

If you have any concerns or queries, please email [email protected].

Coronavirus Job Retention Scheme – the employment law perspective

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Endeavour Partnership explain what you need to know about employment law and the grants to cover 80% of salary for furloughed employees announced at the end of last week.

You will be aware that the Government announced a series of measures to assist employers and employees on Friday and in particular the Coronavirus Job Retention Scheme (“Scheme”) which will contribute to protect employees’ pay if they are not required to work as a result of business disruption caused by the coronavirus outbreak.

At the moment very little detail is available so please bear with us as we are awaiting more detailed guidance.This is expected later this week.

How does the Coronavirus Job Retention Scheme work?

1) The Scheme allows all UK employers (including PLCs, limited companies, LLPs, sole traders, etc.) to designate affected employees as “furloughed (pronounced “fur-lowed”) workers”; essentially meaning that they can be sent home to do nothing whilst still receiving most of their pay.The hope is that employers will choose to furlough its workers rather than making them redundant. The Scheme will last initially for three months from 1 March 2020, but will be extended if necessary.

2) The Scheme applies to employees only; it does not cover “workers” or self-employed people.

3) The Scheme will protect employees by enabling employers to keep them on the payroll during this uncertain period. To mitigate the costs burden on the employer, the Government will reimburse 80% of a furloughed worker’s wage costs. “Wage costs” includes not just salary but also employers’ pension and National Insurance contributions.

4) Claims for reimbursement under the Scheme may be backdated to include wage costs incurred since 1 March 2020.

5) The reimbursement of 80% of the furloughed worker’s wage costs is subject to a maximum of £2,500 per month per worker.

6) At the moment we don’t know for certain what will happen in relation to holidays, but it is likely that furloughed workers will continue to accrue paid holiday.

7) The portal through which employers can make claims to HMRC and receive reimbursement is not yet operational but it is expected to be up and running imminently.

8) An employer may choose to continue to pay a furloughed worker his full salary, funding the additional 20% itself. Alternatively, it may ask the worker to agree to a pay reduction of 20%, meaning that all the worker’s wage costs will be covered by the Scheme.

9) The employment relationship continues during any period during which the employee is furloughed; and continuous employment will continue to accrue.

10) It is important to note that a furloughed worker is not permitted to undertake any work for the employer.The Scheme does not therefore assist employers who wish to keep their employees at work but for reduced hours and/or on reduced pay.

How do you designate an employee as a furloughed worker?

1) You can insist on designating an employee as a furloughed worker only if their contract of employment has a clause which allows lay-off or short-time working.

2) If you don’t have this right in the contract, and most do not, then the employee needs to agree to be designated a furloughed worker. The employee would also need to agree to any proposed pay reduction.Given that in most cases the alternative is likely to be compulsory redundancy – and possibly the insolvency of the employer – most employees are likely to agree.

3) Every furloughed worker should sign and return a contract variation letter detailing their agreement to being furloughed, the reduction to their salary and how long the furlough period will last.

4) An employee cannot insist on being furloughed. It is the employer who will decide who is ‘designated’ as furloughed.

5) When deciding which employees are to be designated as furloughed you should apply fair and objective criteria in order to avoid potential complaints of discrimination or constructive unfair dismissal.

We expect there will be stringent measures in place to ensure businesses do not abuse the system.

As you would expect, the Scheme is brand new and some details may change before it becomes fully operational.The above advice represents our interpretation and understanding as of today (23 March 2020), but it may well go out of date very quickly.You should always check with us before taking any steps in reliance on it.

Our employment law experts are on hand if you have any questions or need further assistance. Please do not hesitate to contact the team at the Endeavour Partnership on 01642 610300 or email us at [email protected]

Further updates will follow once announced.

[Advice included in this content was up to date as of 23rd March 2020].