The sight of the Chancellor has become synonymous with furlough announcements and the Budget brought this to the fore once again.
What was announced?
With pressure mounting to extend furlough until the summer. The Chancellor has gone further and extended it until 30 September, meaning that employers can continue to furlough employees provided they pay employees at least 80% of their pay (or £2,500 per month if lower) on a flexible or full basis to help protect jobs and the recovery of businesses, following the easing of restrictions up until 21 June announced by the Prime Minister recently.
What does this mean?
In total, the furlough scheme (also known as CJRS) will have been in place for 19 months, with over £53bn of support provided and at its height, over 11m employees on furlough. As the statistics demonstrate it has become a staple and vital part of this strange Covid-19 world that none of us could have imagined at the Chancellor’s Budget last March.
Currently, around 5m workers remain on furlough and as restrictions ease, it is expected furlough use will reduce.
However, the current scheme will still come at a cost to businesses in that:
- Employers will have to pay the employer NIC and pension contribution due;
- The full amount of the CJRS support received from the Government must be paid to the employee;
- Government support will reduce to a maximum of 70% of pay (capped at £2,187.50 per month) from July 2021, but employers will still have to give the furloughed employee at least 80% (or £2,500);
- From August 2021, the employer support will reduce to 60% (capped at £1,875 per month), meaning the employer will have to fund at least an extra 20% (up to £2,500).
This tapering off of Government support from July is similar to what was in place between August 2020 - October 2020 and is intended to help employers gradually unwind their furlough arrangements without having to face a cliff-edge of additional costs.
Additionally, businesses have to continue to ensure they calculate furlough accurately to avoid potential HMRC fines and reviews in the future - this is complex to do given the number of variables. This is particularly important to be aware of given the announcement that a Taskforce of over 1,200 HMRC officers will be investigating compliance in relation to Government support packages like CJRS.
For some businesses and employees, furlough will remain a lifeline and has played a key role in preventing mass unemployment across the UK.
However, as the economy hopefully recovers over the next few months, furlough may not be the only option. Employers and employees could choose to enhance or embrace holiday buy arrangements by allowing employees to sacrifice pay for more annual leave.
This would help:
- The employer from depending on furlough and the compliance risks that brings.
- Protect employee pay in the short term as the holiday buy arrangement could be spread over a longer period and mean the employee receives more than 80% of their pay for the periods where they are taking extended holiday leave due to the impact of Covid-19.
- Give the employee greater assurance in their job security and enable better future planning.
- The employer manages and reduces employment costs, as well as begins considering how their reward strategy may need to change.
This may form part of a wider assessment of reward packages as employers look to ensure reward is fit for a post-Covid future. Therefore, businesses can look beyond furlough as they prepare for the economy and society to open up again.
For more detailed information, please visit our updated Furlough FAQs. If you would like to discuss furlough or any aspects to help consider pay and reward as you look to leave furlough behind, please do contact us using the form below.
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