Introduction
What has been announced?
What are the implications for employers?
Key questions for employers


Introduction

Chancellor of the Exchequer Rishi Sunak has announced in the Spring Budget 2021 an extension of the Coronavirus Job Retention Scheme (CJRS), better known as the 'furlough scheme', for all sectors until 30 September 2021, with employer contributions gradually increasing from 1 July 2021.(1) While an extension of the furlough scheme beyond its planned closure date of 30 April 2021 had been widely anticipated, many expected that it would close at the end of June 2021 – so the latest announcement is highly welcome news for many employers.

The extension means that the CJRS will remain in place for several months after the planned full reopening of the economy in England on 21 June 2021 and will have been in place for a total of 18 months by the time that it closes.

According to the latest government statistics, approximately 4.7 million employees are currently furloughed. Take-up is highest in the accommodation and food services sector, where approximately 1.15 million employees are furloughed. In the wholesale and retail sector, approximately 950,000 employees are furloughed, down from a peak in April 2020 when 1.85 million employees in that sector were included in the scheme.

What has been announced?

The furlough scheme will continue to pay up to 80% of employees' usual pay, capped at £2,500 per month. However, the level of support will taper down in the final stages of the CJRS as follows:

  • Until July 2021, the government will continue to pay the full 80%.
  • In July 2021, employers will contribute 10%, with the government contributing 70%.
  • In August 2021 and September 2021, employers will contribute 20%, with the government contributing 60%.
  • Employers will continue to pay all employers' national insurance and pension contributions.

The extended scheme is not going to be limited to any specific sectors, so will be open to any employer that needs to rely on it. The government will continue to publish the names of companies and limited liability partnerships which make claims under the scheme, together with an indication of the value of the claim (within a banded range).

Flexible furlough will continue as an option, meaning that employees can work part-time and receive a furlough grant for their unworked hours. This allows employers to bring employees back to work progressively as the economy reopens and businesses get back on their feet.

Employers can claim for new joiners who started between 31 October 2020 and 2 March 2021 but will need to wait until May 2021 before furloughing them. However, crucially, the guidance indicates that employers cannot claim for any new joiner who is recruited on or after 3 March 2021. This makes resourcing decisions trickier, since new starters cannot be furloughed if trading conditions suddenly deteriorate.

Furlough pay for most employees will still be based on usual pre-COVID-19 pay rates. Notably, there will have been two rises to national minimum wage rates during the lifetime of the furlough scheme (in April 2020 and April 2021). For some employees, this means a widening of the gap between furlough pay rates and rates for hours worked. On the other hand, some employees who have agreed cuts to pay or hours may find that the furlough pay rates will be more favourable than current arrangements.

The government has updated its guidance to reflect the extension of the scheme until September 2021, although some details (eg, calculating furlough pay for joiners between 31 October 2020 and 2 March 2021) are still to be clarified.

What are the implications for employers?

The extension is good news for businesses relying on the furlough scheme to keep their employees attached to the business and which do not expect a bounceback to normal trading in the short term.

However, employers will need to assess whether they can afford to make the minimum contribution levels. The government previously introduced a 10% employer contribution to the furlough scheme in September 2020, which correlated with a significant drop in claims under the scheme. A similar scenario is expected in July 2021 when the 10% contribution is reintroduced, with many employers reconsidering their resourcing options and looking at restructuring or redundancies.(2)

It is likely that the public scrutiny of which organisations are claiming under the furlough scheme will continue to increase, particularly for businesses that benefit from government grants or are perceived to have done well during the pandemic.

Key questions for employers

There is an ongoing question over whether the furlough scheme can or should be used to support individuals whose jobs exist only within the furlough scheme. The government has not clarified its guidance on this issue.

As lockdown restrictions ease, new debates are expected about how the furlough scheme interacts with arrangements for schools and the roll-out of workplace lateral flow testing and vaccination:

  • The government is currently encouraging eligible employers to take up the offer of workplace lateral flow testing. This raises questions about what happens to asymptomatic employees who test positive. Furloughing these employees is not endorsed by the current furlough guidance, which states that the furlough scheme should not be used for short-term illness or self-isolation. However, businesses may face scheduling challenges if staff cannot begin a shift or need to be sent home because of a negative test, and in these circumstances another employee on furlough may need to be called in to cover.
  • A key question is whether employers will be able to use the scheme to bring back vaccinated employees, keeping those who are unvaccinated on furlough.
  • Employers have faced many requests from working parents to be furloughed while schools are closed. With schools in England reopening from 8 March 2021, these requests are likely to reduce, but working parents will still face childcare issues (eg, if after-school clubs and wraparound care does not get back to normal or when children are off sick or self-isolating).

There appear to be no immediate plans to increase the rate of statutory sick pay or widen the group of individuals who are eligible for it. One immediate question for employers is whether they should review their own company sick pay policies.

Finally, the previously announced Job Retention Bonus and Job Support Scheme (which the government had intended to follow on from the furlough scheme) seem to have been postponed indefinitely and now look unlikely to be introduced.

For further information on this topic please contact Lucy Lewis or Richard Moore at Lewis Silkin by telephone (+44 20 7074 8000) or email ([email protected] or [email protected]). The Lewis Silkin website can be accessed at www.lewissilkin.com.

Endnotes

(1) For further information please see "Furloughing employees - FAQs for employers on the coronavirus job retention scheme".

(2) For further information please see "Resourcing for 2021 and beyond".