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Government furlough scheme: How it works

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The COVID-19 epidemic has brought with it challenging times for companies and individuals worldwide, forcing millions of employees in the UK to work from home or leaving them unable to work altogether.

There is no such thing as ‘business as usual’ in times like these, and to cope with this new reality, the government has introduced various safety nets to provide relief to those affected. One of these is the Coronavirus Job Retention Scheme, more commonly referred to as the ‘furlough scheme.’ Here we look at how this scheme works and how it can help your company.

What is the furlough scheme?

The government introduced the Coronavirus Job Retention Scheme in March 2020 to protect companies and their workers. It serves several purposes, including ensuring that employers left unable to work have a source of income and allowing financial relief to companies unable to operate with a full workforce.

Once furloughed, an employee is put on furlough leave, a period of granted absence from an individual’s regular employment. An employer may furlough an employee through choice to lower the company’s outgoings by cutting back the workforce or when the business is unable to operate.

Furlough. How it works

How does the furlough scheme work?

When an employer decides to furlough a staff member, their usual working responsibilities end on the date at which their term of furlough leave begins. The company must notify the individual before this date, and discussions must be held about how much of their usual salary they can expect to receive. The employer must give this notice in writing to be eligible for the scheme, and they must keep a record for five years.

  • A percentage of monthly wages covered by the government
    Companies must pay furloughed employees a percentage of their regular wage, up to a maximum of £2500 per month. A percentage of these employees’ wages can then be claimed back from HMRC and will be returned to the company via BACS. For the employee’s wage to be eligible for reclaim from the government, they must have been in employment with the company since before 28th February 2020.
The percentage of wages covered has changed in line with restrictions and is currently set to reduce from 80% to 70% from 1st July 2021. From then, the employer must contribute 10% of furloughed employees wages to the total 80% of which they are entitled.
  • Individuals remain employed during the furlough period
    Furloughing a member of staff is not the same as making them redundant. Furlough leave is intended as a temporary measure; the employer can review it at a later date. In this case, furloughing a staff member would mean that their working responsibilities are only put aside for the meantime, and the employer should review this position once things return to normal. Because the company still employs them, furloughed employees still have the same rights as they would in the workplace. These include protection from unfair dismissal, statutory sick pay, and redundancy payments.

What other help is available?

If your company is facing financial difficulty due to coronavirus-related issues and furloughing staff members isn’t a sufficient solution, other help is available.

If you require further information regarding government support available for your company during the pandemic, or you would like to explore alternative options, we can help. We have a team of licensed and regulated insolvency professionals with the tools and experience to guide your company through this difficult period. We can offer a free consultation with one of our experienced advisors to guide you through the steps that you can take.

It is crucial to act as quickly as possible once you recognise that your company needs help. Get in touch today to explore the options available.

Continue to trade

If your company has a viable, healthy business model, we can offer a number of services that can allow a company to continue trading while working towards a stronger financial situation. These include:

  • Raising finance
    If you feel as though a cash injection into your company would help to stabilise your situation during this period, you may wish to consider raising finance. With the help of a finance broker such as ourselves, capital can be raised to cover the expenses necessary to stand your company in a better position.
    More options for raising finance
  • Enter an affordable monthly repayment plan
    If your company is in a position where its business model is viable but unaffordable debt is leading to financial difficulties, a Company Voluntary Arrangement (CVA) may be an option. These affordable monthly repayment plans usually last five years, and if agreed with your creditors, could clear your company’s unsecured debts.
    More on company recovery

Close the company

If your company’s financial situation has declined past the point of realistic recovery, or you are struggling with unmanageable levels of debt, closing your company may be the right way forward.

  • Creditors Voluntary Liquidation (CVL)
    Entering a Creditors Voluntary Liquidation (CVL) allows directors to close their company before they are forced to by a winding-up petition. It provides creditors with a greater chance of a healthy return than if they forced the company into compulsory liquidation. Company assets are realised to cover as much of the outstanding debt as possible, the process of which is overseen by a licensed insolvency practitioner.
    More on company closure

In summary

The difficulties brought on by coronavirus have hit businesses globally. To combat these effects, the government has introduced support schemes to minimise the damage to companies. The Coronavirus Job Retention Scheme, or ‘furlough scheme’, allows companies to place staff on leave during the period while ensuring that they still have a source of income.

Companies are required to notify members of staff in writing before they are furloughed. Once on leave, the company is required to pay the individual no less than 80% of their monthly wage (capped at £2,500). This is due to change to 70% on 1st July 2021, with the employer contributing 10%.

While on furlough leave, individuals are still employed by the company, meaning they are still entitled to their usual rights, such as protection from unfair dismissal and redundancy pay. At the end of the furlough period, the company must review the employee’s position and decide to either restore that position or terminate their employment.

If your company is facing financial difficulty and requires additional help on top of the furloughing of staff, it is important to consider your options. Whether this is raising finance or exploring insolvency options through a licensed insolvency practitioner, it is crucial to act fast to secure the best possible outcome.

FAQs

When does furlough end?

The furlough scheme’s end date has seen several extensions as circumstances, infection levels and restrictions change. Currently, the scheme is expected to end in September 2021, with the government’s expected contributions decreasing from 80% to 70% in July 2021 and employers having to contribute 10% up to £312.50.

Is furlough available to self-employed sole traders?

The Coronavirus Job Support Scheme is designed for limited companies and their employees. Self-employed sole traders impacted by the pandemic can apply for a grant via the Self-Employment Income Support Scheme.

More on the Self-Employment Income Support Scheme

Can furloughed employees take annual leave?

Being furloughed isn’t simply additional leave. Furloughed employees can still book annual leave without affecting their furlough payments, although employer notice requirements may still apply.

You should check your employment contracts for specifics on holiday entitlement and seek legal advice if in doubt.
Beverley Horton

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