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What is furloughing employees and what does it mean for businesses?

The Coronavirus Job Retention Scheme was announced by the Government to help businesses pay the wages of staff who would otherwise have been laid off as a result of COVID-19. This article summarises what we know and the key unanswered questions.

What is furloughing?

Furloughing involves keeping workers on the payroll instead of dismissing them as redundant or putting them on unpaid lay-off. HMRC has stated that it will reimburse 80% of furloughed workers’ wage costs, up to a cap of £2,500 per worker per month (the equivalent of £30,000 per year). This is gross pay.

How does it work?

  • The scheme is available to all UK employers, of any size and in any sector.
  • It involves keeping those workers on the payroll instead of dismissing them as  redundant or putting them on unpaid lay-off.
  • The employer can top-up the 80% HMRC payment but does not have to do so. 
  • From Wednesday 1 July 2020, the Government announced that businesses can bring furloughed employees back to work on a part time basis and they have the flexibility to decide the hours and shift patterns of their employees. The Government is continuing to pay 80% of salaries for the hours they do not work.
  • The system is managed by HMRC through an online portal.
  • Self-employed independent contractors (who are not PAYE) aren’t able to benefit from the scheme. The Government has issued a separate package of support for self-employed people involving the relaxation of rules around universal credit and the minimum income floor.
  • The scheme initially backdated to 1 March 2020 and ran for three months. It was then extended until the end of April 2021 and has since been extended until September 2021. The percentage amount that the Government can contribute changes from July 2021. For more information, visit the Gov.uk website here.

What's next

The furlough scheme continues to benefit many businesses who are struggling to cope with the Coronavirus crisis. Employers need to ensure that they're keeping up to date with the scheme and are following it correctly. 

This article was first published on the Close Brothers Coronavirus Resource Hub.