What will happen to the furlough scheme in July?

·Writer, Yahoo Finance UK
·4-min read
Britain's Chancellor of the Exchequer Rishi Sunak attends a virtual press conference inside 10 Downing Street in central London on March 3, 2021, following his earlier Budget. - Britain on Wednesday sharply cut the growth forecast of its coronavirus-ravaged economy, warning the pandemic was still causing
Britain's Chancellor of the Exchequer Rishi Sunak. Photo: Tolga Akmen / POOL / AFP via Getty Images

The furlough scheme has helped pay the wages of millions of people who may have faced redundancy during the coronavirus pandemic. Although the furlough scheme will be extended until the end of September, some changes are being made over the summer.

According to Office for National Statistics (ONS) data, around 11.2 million jobs have been supported by the scheme since March 2020. About 4.7 million people are currently on furlough and four out often employers are using the scheme.

However, employers across the UK will be asked to increase their furlough contributions from July, as businesses fully reopen. So what do businesses need to know if they are keeping their staff on furlough for the next few months?

“The Coronavirus Job Retention Scheme - furlough scheme - was put in place to support employers who are not able to operate as normal due to the pandemic,” says Kate Palmer, HR Advice Director at Peninsula.

“By designating employees as ‘furloughed’, employers have been able to recover a portion of employee wage costs up to a £2,500 ($2,547) cap. As confirmed by the government Budget delivered on 3 March 2021, the scheme will continue to operate until the end of September 2021, with some adjustment to funding levels from July 2021.”

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Until the end of June, the grant is 80% to a maximum of £2,500 per employee per month for hours unworked. Employees on full furlough - those not working any hours at all - will get 80% of their wages per month unless their employer decides to top it up to 100%.

Where an employee is on flexible furlough - working only some hours - they will be paid in full by their employer for the hours they work, and the grant will cover 80% of pay for their unworked hours only, subject to a cap which will be less than £2,500.

“As we move into 1 July 2021, the government’s grant will reduce to 70% of furloughed employees’ wage costs for their unworked hours at a cap of £2,187.50,” Palmer explains.

“Pay for furloughed employees must remain at a minimum of 80% at a cap of £2,500, which means that employers must contribute 10% up to £312.50 from their own pocket. Further changes will continue into August.”

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From 1 August until the scheme ends, the government’s grant will reduce a final time to 60% of furloughed employees’ wages for their unworked hours at a cap of £1,875. Employers will need to contribute 20% to staff wages up to £625. Therefore, from July through to the end of September, employers will have to cover a portion of the employee’s actual wages and the national insurance and pension contributions.

“The furlough scheme has been somewhat of a saving grace for many employers whilst lockdown restrictions have been in place,” says Palmer. “As these restrictions are slowly eased, based on coronavirus data, employers may find that they no longer need to make use of the scheme, or it may be that flexible furlough takes centre stage. Either way, employers will need to consider how they can accommodate the upcoming changes.”

For those who are self-employed, the self-employment income support scheme (SEISS) will continue over the summer months. The deadline for the fourth grant is 4th June and it offers 80 percent of three months’ average trading profits, capped at a total of £7,500 made as a single payment – so up to £2,500 a month.

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In order to claim the fourth grant, you must reasonably believe that you suffered a significant reduction in trading profits, due to reduced business activity, capacity, demand or inability to trade due to COVID-19 between 1 February 2021 and 30 April 2021. The grant is worked out via your average trading profits using up to four years’ of submitted tax returns.

Details on how to apply for the fifth grant have not yet been released, but it is understood that it will only offer the full 80 percent to those whose turnover has fallen by 30 percent or more.

Being on furlough can be difficult. Not only can it mean reduced pay, being furloughed can have a negative impact on wellbeing too - particularly if you are worried about the future of your company. Some may also worry that being furloughed is delaying redundancy, which can cause stress and anxiety.

Research published in the Journal of Career Development in 2018 found that being furloughed during the 2013 US federal government shutdown was associated with perceived personal resource loss. In turn, this led to decreased life satisfaction, as well as emotional burnout. If you’re struggling while on furlough, it’s important to stick to a routine and stay in contact with your employer, to make sure you’re kept in the loop with any developments.

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