On Tuesday 26 May 2020, Chancellor of the Exchequer, Rishi Sunak, announced that the UK government will stop accepting new applications for its furlough scheme to mitigate the effects of the coronavirus lockdown.
In light of this news, this article discusses the aims of the UK furlough scheme and what prohibiting new applications could mean for your business and your employees.
What is the UK furlough scheme?
The UK furlough scheme was created to help protect UK employees whose jobs have been affected by the coronavirus.
Under the scheme, UK businesses can temporarily “furlough” an employee (rather than terminate them), and the UK government will subsidise 80% of the employee’s wages (up to a maximum of £2,500 per month). So far, around 8.4 million private-sector workers have filed for the scheme, totalling £15 billion in subsidies.
How is the UK furlough scheme going to change?
At the end of this week, Sunak will officially announce a date on which the UK government will stop accepting applications for the furlough scheme. Although it is not yet certain what the date will be, speculators anticipate that the cutoff date will be 1st August.
Sunak is also expected to announce that employers will be required to start contributing to the wage costs from 1st August, paying 20% of furloughed employees’ salaries (with the UK government paying the remaining 60%).
What does this mean for your business?
The economy is still far from making a full recovery. Although the scheme will not end until October, sharing the government’s wage payments would mean a sharp increase in operating costs for many businesses. Businesses with furloughed employees will not only be forced to start budgeting for the change – they’ll be forced to start making difficult decisions about whether and how these employees should return to work.
With that comes decisions about what the post-coronavirus work environment will look like – whether to gamble on previous setups becoming viable by October, or, to the extent possible, invest in what’s needed for long-term remote work and moving your business online.
What does this mean for furloughed employees?
The fate of furloughed employees will be determined by a number of factors, including the type of job they have and how well their employer has adapted to the conditions imposed by the coronavirus – but the true test will be whether things are truly “back to normal” by October.
Unfortunately, if this is not the case (and if the government doesn’t respond accordingly), we could be seeing a wave of redundancies being made. Furloughed employees will be facing difficult questions too, like the long-term stability of their role and what conditions they would need to be comfortable returning to work.
Although new applications for the UK furlough scheme will stop being accepted in the coming weeks, its benefits will still continue for a number of months – which means there’s still time to reorganise and regroup.
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