Preparing for the end of furlough
At a time of national crisis, the government’s furlough scheme has kept many businesses afloat. However, it has to go sometime, and that time is coming soon. With furlough winding down in July, and ending in September, many businesses will need to get prepared.
It is, of course, too early to discount another extension. However, this deadline could be a critical point for many businesses. For more than a year, the government has picked up much of the payroll. The removal of that support could be a shock to the system, especially if the business is a little slow to pick up.
The coming months, therefore, will need some careful planning.
Winding down furlough
The first challenge is to understand the coming changes.
The current version allows employers to claim 80% of an employee’s usual salary for hours not worked up to a maximum of £2,500 per month. Employers still have to pay national insurance and pensions costs. Employees can work for a part of that time with furlough making up the remainder.
From July 1st, though, the government will start to scale back its support. The level of grant employers can claim will be reduced to 70%. This will not impact the level of income the employee should receive – employers will just have to pay more of it. A month later on August 1st the amount goes down to 60% up to a limit of £1,875.
As an employer you will have to make up the difference, so your employee receives 80% of their salary up to a limit of £2,500 per month.
Finally, in September, furlough comes to an end completely. All employees will be back 100% on payroll.
This could be a big moment for businesses. As much as furlough has helped during the pandemic, it has still been a struggle for many. There is no guarantee finances will have recovered or that work will have picked up sufficiently to enable businesses to take on the additional costs.
Equally, furlough has been in place for so long that it has a significant impact on financial planning. Firms have become accustomed to having the government pick up a substantial part of their wage bill. Having to suddenly take on the full wage bill can be a shock to the system. This could be a critical moment for many smaller businesses. Even those who see business returning could experience shorter term cash flow problems.
Redundancies and layoffs
If your business is not yet back to its pre pandemic position, you have several options.
- Short term layoffs or shorter working patterns: This is a lighter touch for those businesses which have seen a shortfall in the amount they are working but expect things to return to normal. You can negotiate short term layoffs for staff or shorter working patterns with a view to returning to normal once business and cash flow resumes.
- Redundancies: This is the option most businesses will be most reluctant to take. Aside from the human cost of redundancies, cutting staff could limit your business’ ability to bounce back. Even so, if there isn’t enough work and you don’t anticipate there to be for some time, it could be unavoidable.
If you do choose redundancies, you must fulfill your obligations as a business. First, there must be a genuine redundancy situation – namely that there is no need for the role in the current situation.
You will have to follow a detailed procedure in which you assess the roles at risk from redundancy, look for alternatives such as reduced hours or reassigning people to other roles and invite those employees at risk from redundancy to consultancy meetings. At the end of this process, employees should be told if their roles have been selected for redundancy and given an opportunity to appeal the decision.
In some cases, there may be another role in the company which could be appropriate. If so, you must offer this to employees if they are suitable for it.
Managing the return
If possible, though, most businesses will want to avoid redundancies. Redundancies can have a serious impact on staff morale, which in turn can impact productivity. At times like this, some businesses resort to the mantra of ‘doing more with less’. However, this seldom happens in reality.
Redundancies signal your business is heading in the wrong direction. Fewer people will inevitably produce less value making it more difficult for your business to recover as the economy picks up speed.
As a business, it pays to keep your staff if you can. To do so you need a plan and to keep control of your finances. Having a clear idea of your current financial situation, cashflow and projected income will be crucial in managing the transition.
This can help you decide at what point to bring staff back to the office. You will need to inform them of when they are expected to return to work, and at what point. You should give staff as much notice about their return to work as possible and carefully manage the transition.
For many people, this could be a challenging time. Some will have been away from work – either full or part time – for more than a year. Getting back into the office could be a bit of a culture shock.
In many cases, you may consider a phased return to work between now and the end of furlough. By gradually increasing working hours, you can get your business back up and running, and soften the financial shock. In this case you’ll need a clear understanding both of how the furlough scheme is changing as the process of opening up progresses, and your obligations as working hours increase.
This is a delicate process. The end of furlough will place pressure on business finances. Although many businesses are returning to work, expenses are likely to rise sharply, while income is slow to catch up. Firms will need to establish a clear, workable, plan to ensure they bring employees back to work in an affordable and sustainable way.