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UK furlough scheme.

Added by Berlad Graham
January 25, 2021

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Furlough 1 – Where are we now, and what happens when Furlough ends?

As a response to the initial impact of coronavirus and ‘Lockdown’, HMG introduced the first iteration of the ‘Furlough Scheme’ on 19 March last year, in an attempt to retain jobs in viable businesses affected by adverse cashflow and cessation of business due to lockdown. It was intended to run until the end of August 2020. The Government agreed to reimburse employers up to 80% of wages up to £2,500 per month (plus Employer’s NI and auto-enrol pension contribution). Barred from other paid work (other than under an extant contract with another employer), the offer was open to any employee/worker on a payroll and paid via PAYE, including part-time, agency, ZHC and flexible contracts. It was (is) also applicable to Directors, as long as they are also employees.

However, in the immortal words of Sam Goldwyn: ‘We’ve all passed a lot of water since then’.

Unfortunately, coronavirus failed to co-operate, and the scheme was extended. From July ‘flexible furlough’ allowed employers to bring staff back for periods when work was available. From 1 August HMG no longer paid NICs and from 1 September pension contributions were no longer paid and employers contributed 10% of the 80% of wages, the Treasury picking up the remaining 70%, capped at £2,187.50. From 1 October the employer contribution rose to 20% and the total was capped at £1,875.

The scheme has now been extended to 30 April 2021.  As stated above, the inspiration behind the scheme was to maintain viable jobs for a limited period. With the persistence of the virus, with new mutations leading to further uncertainty, notwithstanding an impressive scientific effort in producing vaccines in only a few months, the economic collapse concomitant upon extended lockdown has produced a situation far more serious than was initially expected. The question now is, how many of these roles will still exist after the cessation of the scheme? Many companies are finding that demand has not returned, and they will be likely to make decisions quickly on whether or not to retain staff once the scheme ends.

Employers have three options:

  • Bring staff back full time. If the expectation is for a rapid return to previous levels of demand and business, then they may bring back staff after Health and Safety assessments and bearing in mind whatever guidance from HMG pertains at the time. It is likely that, if staff are retained for at least 3 months, the business will be eligible to receive £1,000 per employee, as was proposed at previously imagined closure dates.
  • Bring back staff part-time. In this case, returns and hours will need to be negotiated with staff (and any Unions) if not already catered for in the employment contract – frankly a vanishingly unlikely possibility. In any event, if 20 or more employees are involved, formal consultation procedures will be triggered.
  • Redundancies. The absence of work is the classic definition of a redundancy situation. It must be borne in mind that measures in response to coronavirus have not affected existing employment law and any redundancies must be carried out with regard to normal procedure, including statutory provisions regarding consultation and timing. Failures in redundancy procedure – particularly collective redundancies – can prove extremely expensive and time consuming. In addition to any Tribunal award for dismissal, any individual can bring a claim for failure to inform and consult for up to 90 days wages. Such awards are calculated on the basis of average earnings as measured before the start of lockdown. Attempts to short cut this procedure are also costly in terms of adverse publicity and reputation – as Arcadia rapidly discovered.

As always, before taking action, take advice. Employment lawyers are here to achieve the desired result at minimum cost.

Furlough 2 : Ground truth – what has been happening?

Covid-19 and its effects have impacted upon society (and societies globally) to an extent usually only seen in all-out conflict, or overwhelming natural disasters. As history has previously shown, in such times, governments can do extraordinary things, as long as (in democracies) they have the support of the governed. As a former civil servant, I can say that I have been pleasantly surprised by the response in the UK. Leaving aside any political considerations or views, the Treasury has responded in attempts to ameliorate this disaster and have continued to seek to attenuate harm. One may disagree with targets, spending levels and policy, but there is no doubt that spending taps have been turned on to an extent not seen since World War 2. There will need to be a reckoning in recoupment, but for now the emphasis is on expenditure in times of crisis. Unfortunately, history is also repeating itself in terms of the less attractive forms of human behaviour. There are reports of fraudulent furlough claims amounting up to £3.5 billion pounds. HMRC have received 8,000 calls reporting alleged fraud and have 27,000 cases pending investigation. At the inception of the scheme, HM Treasury estimated that between 5% – 10% claims would be fraudulent and, alas, it looks as though they may be right.

HMRC are keen to state that they will not pursue genuine errors and will seek to deal constructively with such cases. However, there is ample evidence of widespread fraud. Most commonly, this has taken the form of having furloughed employees continue working, or simply transferring funds directly to other purposes. There have also been cases of bogus companies employing ghost employees, a fraud traceable back to the padding of payrolls in the Roman Army to before the time of Christ.

What should an employee do if they suspect fraud? In some cases, behaviour has been so blatant as to remove any doubt. But if there is ambiguity? Employees should not cast aspersions widely and have a duty to their employer. However, in the first instance, the question should be put to the employer. The provisions of the Public Interest Disclosure Act – PIDA (‘Whistleblowing’) provide protection in such cases and, in the absence of a satisfactory response, allow disclosure to certain relevant individuals and authorities. However, the provisions and procedures of the PIDA are complex and to avail oneself of its protection one needs to rely upon expert advice. As always, take advice before taking action.

There are few certainties in commercial life at the moment. It is not even certain that the Furlough Scheme will end in April. Notwithstanding the emergency schemes introduced, the law as it was has not changed, and there are no short cuts to be had in Employment Law now (as ever), if one is to avoid the costs of litigation.

If you have any queries in respect of the issues raised in this article, please contact our Employment Consultant Solicitor, Aidan Loy.