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Back To Work: The Changes Ahead for the Furlough Scheme

The Job Retention Scheme seems to have been around forever, and something around eleven million workers have benefited from over the last few months.

Now, furlough isn't suddenly falling off a cliff (the scheme runs until September 2021), but it is about to change.

Here we've summarised how the initiative will start tapering off and what to plan for in the weeks ahead.

Furlough Scheme Claims From 1st July 2021

As of 1st July, employers working at reduced capacity can continue to claim contributions towards their workforce salaries.

However, they are going to need to start making additional payments towards that cost.

To date, the scheme has cost the treasury a whopping £66 billion, so it will begin to wind down from July until the initiative ends three months later.

Let's run through what's changing:

  • Until 30th June, the government pays up to 80% of the salaries for people who can't work or whose employer cannot otherwise retain their job, up to £2,500 per month.
  • From 1st July, that contribution drops to 70%, so businesses will need to make up a minimum of 10%. Many have paid the 20% difference between furlough payments and regular salaries to keep their staff on, so they would now need to pay 30% on the same basis.
  • The governmental contribution falls further to 60% during August and September, with a minimum employer payment of 20%.

The £2,500 per month cap remains the same - so theoretically, staff won't see a difference.

Those receiving 80% of their regular wages will still have a stable income, and it's only the balance made up by their employer that changes behind the scenes.

Employers, though, may face a challenge - they'll need to budget for 10% and then 20% of their salary costs, on top of National Insurance and pension contributions, even if they haven't yet been able to resume regular trading.

The Future of the Job Retention Scheme

There has been much speculation about whether the government would extend the furlough programme past September, and it's worth noting that this has already happened no less than four times!

Reasons include changes to the 'roadmap' out of lockdown and pressure to provide more support to give businesses enough time to get back to work after so many months of lockdown.

As things stand, it seems unlikely these current deadlines will change.

On 14th June, the Prime Minister said that the government 'don't think we'll need to change' based on data available at the time.

That said, Michael Gove has given a more vague response, saying he is open-minded about the potential to extend the scheme, so nothing is yet written in stone.

Business Planning Post-Furlough Scheme Support

Currently, we have another three months of tapering income relief for businesses, allowing a window of opportunity to try and kick-start trading.

The aim is that companies will be able to invite colleagues back to their regular positions, and therefore no longer require any income from the Job Retention Scheme.

Many businesses have been in a position to do so:

  • As of 30th April, around 3.4 million positions were supplemented with furlough support, reduced from 5.1 million in January.
  • Most retail claims have ceased, as shops are now able to open to the public.
  • Approximately 35% of employers were still reliant on furlough payments at the end of April.

There are worries that September will signal a steep increase in unemployment, as although most of the signs are positive, there are still millions of jobs that would have been lost and cannot yet resume.

Industries such as nightclubs and entertainment venues remain closed for the most part, with reopening dates further postponed to July.

SAS Accounting would recommend that any businesses concerned about redundancies or financial viability get in touch at their earliest opportunity to plan for strategies to cope with the end of the furlough scheme.

We'd also invite clients to visit our guide, published earlier this month, Help on the Small Business Road to Recovery. This publication lists several valuable resources, financial support schemes and grants, many outside of the scope of governmental pandemic programmes.