What happens when the furlough scheme ends?
Posted on 4th August 2021 at 15:43
In May this year more than a million employees who have been furloughed returned to work. The remaining 2.4 million people relying on furlough payments is the lowest figure since the start of the scheme, according to HM Revenues and Customs (HMRC) figures.
The Coronavirus Job Retention Scheme (CJRS) that supports furloughed employees will be phased out by the end of September, although some sectors that continue to be affected by the pandemic restrictions are calling for it to be extended.
To date, £66billion has been spent on the CJRS to support 11.6 million jobs since March 2020.
The current situation for businesses with furloughed employees
Over the next three months, employers will cover more of the costs of employees who remain on furlough as government support is reduced. Members of staff will continue to receive 80% of their wages, but employers will pay part of that amount for the first time as restrictions are eased.
The scheme has helped to prevent a spike in unemployment rates, which have remained below 5% despite economic impact of the pandemic.
Employers have benefitted because they have retained qualified and experienced employees. They have been able to reopen quickly when the circumstances have changed between lockdowns and can plan for the future.
What happens next?
Depending on how quickly sectors like entertainment, hospitality and travel recover, there could be redundancies this autumn. For other businesses where employees have been furloughed for a long time, some staff members have already found alternative employment.
About half of the people who remain on furlough are over 45, according to the Resolution Foundation. Concerns have been raised that these employees are at a higher risk of redundancy when the scheme ends.
The British Chambers of Commerce predicts record growth in the country’s gross domestic product (GDP) at the end of this year, supported by increased consumer spending. However, the recovery is expected to be uneven with manufacturing returning to pre-pandemic performance by the end of this year while hospitality and catering could continue to face challenges for the next year to 18 months.
How will the end of furlough affect small businesses?
As the furlough scheme comes to an end, employers have already had to fund the equivalent of an additional tenth of the wages of their furloughed staff to pay 80% of their salary. The government reduces its support by a further 10% this month.
Other support measures for businesses are also coming to an end, including the business rates holiday for eligible businesses, which is now at 66% until March 2022.
If you are worried about your business finances then redundancies might seem to be unavoidable to reduce your costs, however, you will need to think about:
the redundancy process
loss of skills
costs of recruitment in the future.
Alternatives you could consider include:
moving employees to other areas of your business where there is more demand
reduced hours outside the furlough scheme
agreeing temporary or permanent pay cuts to avoid redundancies.
You will need your employees’ written consent unless their existing contract allows you to make these changes. You should take the advice of an HR professional because this could still amount to redundancy if the changes continue for more than a few weeks.
If you would like to review the financial position of your business, please get in touch.
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