Updated on 12th May 2020 to reflect latest furlough scheme changes.
With all of this Coronavirus madness going on in the world, it can become quite difficult to cut through the noise and figure out what to do in business with all of the uncertainty. The UK Government have released a lot of support for businesses to increase survival rate and retain jobs. While this is all very helpful, it's not always easy to decipher!
We've written, with the help of our glorious accountant Emma Cooke, explanations of the support available for UK Businesses. This blog is all about furloughing and what it could mean for you.
The coronavirus Job Retention Scheme (Furloughing)
The UK government know how important it is for people to still have a solid income to be able to survive and provide for their families. The Job Retention Scheme or 'Furloughing' as most people will know it as, allows UK companies to give garden leave to it's employees while the government pay 80% (Up to £2,500pm) of their salary from March 1st until October 31st PLUS the National Insurance amount to match.
The scheme was recently extended from June to October with more flexibility to support the transition back to work in August and September. Further detail will follow from the government by the end of May regarding this extension.
Employers can choose to top up an employee’s salary with the additional 20% but are not obliged to if this has been agreed with the furloughed employee (as above). If in doubt, seek legal advice.
Furlough is from 1 March so you can backdate to when the employee was furloughed. This will be in place currently until the end of October. You may only backdate if employees were NOT working in that time period.
As we say during the PopUp course, we are not legal professionals. If you are unsure if you are eligible or have any specific concerns, ask for professional advice or consult the UK Government webpage for those who can and cannot claim.
How do you claim?
Before you claim, you need to know the following:
Why would you do this?
The main reasons you would do this in your company are:
To increase the financial runway of the business
At a time like this, a lot of businesses may struggle financially. A big cost in a company is employee's. At PopUp, it's our majority cost as we have no other major overheads. By furloughing employees, you are taking away a large cost to the business for that time period, therefore increasing the time that your money will be able to support the business.
To give your employee's security and certainty
Security and certainty are some of the biggest impacts this pandemic has brought with it. People are uncertain about their jobs, uncertain about their financial situation and do not feel secure. This leads to fear, which leads to panic, which leads to things we don't want. By furloughing employees, it gives them security and certainty for two reasons: That you are being active in finding solutions and that their job is safe. At least for this period of time.
Who can claim this allowance? (Must tick all boxes)
Who can they claim it for?
This can be claimed for furloughed and redundant employees (on any type of contract) who were on the payroll on 28th February 2020.
Employees hired after this date cannot be eligible for this scheme.
The effect on morale and having the conversation
Transparency = trust. If you don't have 100% trust with your employees, this is going to be a difficult time for you and the business. NOTE: trust goes both ways.
If you're thinking about this route for your business and your employees, we'd advise a team call or 1-2-1 communications with your team and get them involved in the decision. This will bring them closer, feel valued and also give them a chance to tell you their thoughts. The worst thing you can do is make this choice and tell them how it is. That will be difficult and painful. They will also bring up amazing points that you won't be thinking about, this will help you make a better choice for everyone involved.
Things you should talk about with your employees.
This will differ with every business, but here's a quick list from us. This mirrors exactly what we spoke about whilst making this decision at PopUp:
Once you've made your decision, you need to tell everyone this. Dependant on the size of your team, i would set up group calls and inform everyone at the same time UNLESS you are part-furloughing (see more below) then do this 1-2-1.
Group calls when announcing things that have a company-wide impact are key. This brings the team together and boosts the morale when hearing news, whether it's good or bad.
Follow these group calls up with everyone on a 1-2-1 basis and talk them through what happens next. Even if all of these calls are exactly the same, your team need to see you caring for them on an individual basis. This also gives you the opportunity to answer any questions they have that they wouldn't want to ask in a group scenario.
What should employers do?
Employers should discuss with their staff as soon as possible and make any changes to the employment contract by agreement (seek legal advice where necessary). Transparency is key.
Employers should write to their employee confirming that they have been furloughed and keep a record of this communication (again, seek legal advice on this where necessary).
How is the employee's wage calculated?
Can you part-furlough?
You are able to furlough some people and not others. You do not have to furlough the whole company. We've been looking at this as a time to get back in to Start-Up mode. If you're trying to kick it in to a high gear to be agile and fast moving, you'll struggle with a larger team... It's not like it once was when you started! You could, if you wanted to, down-size to essential people (Sales, Product development) and furlough the rest to save cash but not stunt growth. Just some food for thought...
Can directors of Limited Companies claim it?
Where a company director can no longer work through the business, they should be eligible to claim in the same way as for employees or even if they're the only employee. You can furlough the PAYE element of their income - ie, get 80% of salary up to £2,500pm. This isn't likely to be huge as it's likely more of your income is dividends (and there's no help there), but it's something...
Directors must not be able to do any work, including administration work, during this time. This is the most difficult part!
How can I get further business advice and support?