Furlough grants extended to employers were never intended as a support for business. It was and remains funding for workers who find themselves without any work; administered and distributed by their employers. It is a state benefit, delivered via employers, in the same way as many businesses act as tax collector on behalf of the Treasury (VAT for example).
It has also never been without cost to the employer (thus, by definition, the opposite of financial support). Even in its early days when it covered some pension and national insurance costs, it still left the employer with the thankless task of calculating it, administering it and funding the cash flow gap between payment and claim.
Furlough grants have come with considerable expense to the employer and that expense is about to get much worse
Since August last year, furlough grants have come with considerable expense to the employer and that expense is about to get much worse. Since August last year support for the pension and national insurance costs have been withdrawn. We also saw a reducing amount of furlough claim verses furlough pay in September and October 2020, before it was re-instated to 80% last November. But support has never been reintroduced for add-ons like employer pension and national insurance. There has never been support to cover additional apprenticeship levy (0.5% of payroll bill).
This is a desperate situation for businesses that are already suffering significant drop off in their top line. Some small tweaks to the furlough scheme made with little fanfare over the winter mean staff cannot be furloughed during notice periods. Holiday pay due on termination, notice pay and redundancy pay cannot form part of a furlough grant. Employers need to get their remaining furloughed employees back into work ASAP or face significant costs and more importantly, significantly higher costs to make these staff redundant than they would have faced had they made them redundant back in March last year.
By extending their employment for another 18 months, the employer has not only expended money in order to obtain the furlough grant (pension, employers NI, legal requirement to top up each time the furlough pay dropped away) but they have also increased their exposure to greater holiday pay, notice pay and redundancy pay.
At the end of May there were 2.4 million people still on furlough
At the end of May, there were 2.4 million people still on furlough and where they are in sectors directly impacted (e.g. nightclubs/event management/travel) one hopes the problem will be mitigated by a return to a viable job. But what we can see, from our own client base, is that a considerable number of people that are still on long-term furlough are in businesses that are back up and running albeit in a different or scaled-back form.
In other words, we have a number of clients furloughing employees where there is no prospect of the employee being able to return to a viable job. The government has – maybe inadvertently – encouraged employers to kick this particular can down the road so that, at the risk of metaphor overload, the chickens will come home to roost…
