The British Chamber of Commerce (BCC) has warned that many firms will ‘furlough’ at least half of their workers over the next week, as coronavirus continues to bite industries around the country.
The organisation estimates that around 44% of businesses will temporarily lay off around 50% of their staff as firms face a two month wait for a cash injection during the outbreak.
It comes as retail analysis have warned that around 20,000 stores will never open again after the lockdown period as many are crippled into bankruptcy.
The BCC says 18% of firms in the UK have less than one month’s cash in their reserves, while 44% have enough cash to cover their outgoings and overheads for three months.
Just 6% have enough to cover a full year.
As a result, many workers have chosen to put their staff on ‘furlough’ – a term that, until now, has been relatively unheard of.
It’s essentially paid or unpaid leave, and right now the Government is offering to cover 80% of people’s wages (with the employer covering 20%), up to the value of £2,500 a month.
The measures have been put in place to help firms stay afloat during the coronavirus lockdown period.
What does ‘furlough’ mean?
To furlough a worker, means to lay off or temporarily suspend them, usually without pay. Right now, it means paid leave.
The Government has said that from March 1 and running for at least three months, employers can furlough employees rather than fire them.
Anyone employed in a full time job on February 28, 2020, can be furloughed.
How long can I be furloughed for?
The minimum time that an employee can be furloughed for is three weeks.
For many, given the lockdown situation, it means paid leave until at least June.
Interestingly, you cannot be furloughed while in self-isolation (instead, you get statutory sick pay) – it can only be applied once you return to work.
If you are working from home because of coronavirus, you can be put on furlough.
“This is not a recognised term in UK employment law, but it means if your work is affected by Covid-19 you will remain employed and placed on temporary leave,” Slater and Gordon employment lawyer, Danielle Parsons explains.
“To make this possible your employer can receive financial support through the new government ‘Coronavirus Job Retention Scheme’.”
This is a temporary scheme which will last for three months or more. Under the scheme, employers will be able to apply to HMRC to be reimbursed for 80% of furloughed staff wage costs.
This is up to a maximum of £2,500 per month – equivalent to the UK average wage of £30,000 a year.
“Employers can also decide to pay their employees the other 20% to ensure they receive full wages. This scheme is designed to support employers whose operations have been severely affected by Covid-19. It is expected to be available through an online portal at the end of April.
“If you are placed on furlough it will be for a minimum period of three weeks. During this time you cannot perform any work for your employer. You should agree any period of furlough with your employer in writing and this should cover things like duration, how to keep in touch during the furlough and when it will be reviewed.”
Can I be made redundant while on furlough?
“The scheme is intended to keep people in employment,” Danielle explains.
“However there is nothing in current government guidance preventing employers from making staff redundant during any period of furlough. Employers should be aware HMRC can audit their claims.”
However, it won’t affect your redundancy pay rights.
“If you are made redundant while on furlough then your rights to redundancy pay should remain unaffected.
“Your employer should still inform and consult with you about any redundancy of your role and should carry out a fair redundancy process.
“If you are an employee with over two complete continuous years of service then you may have a claim for unfair dismissal if your employment is terminated unfairly for an unfair reason and/or with no fair procedure. If this happens you must take action within three months.”
Employment partner at FisherBroyles, Peter Finding adds: “It is possible that employers will conclude during the furlough period that they do need to make redundancies for the long-term survival of the business.
“An employer is not prevented from making an employee redundant, simply because that person is on furlough leave. However, the normal redundancy rules apply: those employees with at least two years’ service with their employer are entitled to be consulted on the redundancy, and to receive a statutory redundancy payment.
“Where the employer proposes making 20+ employees redundant within a 90-day period, there should also be a period of collective consultation, in addition to consultation with each individual employee.”
Will furlough affect my working tax credits?
Working Tax Credits will increase by £20, up to £86.67 a week for one year from April 6 because of the coronavirus outbreak.
But what does this mean for those who have been placed on furlough?
Jennie Brown, Tax Partner at Streets Chartered Accountants, explains: “If you are furloughed through the Coronavirus Job Retention Scheme your employer will be entitled to a grant to cover up to 80% of your salary up to a maximum of £2,500.
“Due to the current Coronavirus crisis, HM Revenue & Customs has confirmed they will treat you as continuing to work your normal hours, meaning those before you were furloughed, for at least 8 weeks.
“There will, therefore, be no change to your working tax credit entitlement during that period and we are waiting for further guidance to understand what would happen after 8 weeks.”