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Is furloughing your best option?

By Florence Brocklesby, founder of litigation and employment law boutique Bellevue Law  

The tech industry, like many others, has been severely affected by the COVID-19 pandemic.  We are witnessing unprecedented amounts of money being pumped into markets and businesses the world over, but job security for many is still proving to be a problem.

Businesses of all shapes and sizes were eager to know what the Government meant when they urged employers to retain staff and promised to “do everything necessary” to keep them afloat.  The UK has put in place a number of measures designed to minimise redundancies due to the crisis and ease the strain on businesses which would otherwise go under.

Chancellor Rishi Sunak and his team have made billions available through grants, tax deferrals and loans, including the Coronavirus Job Retention Scheme (CJRS) which was launched on 20 March.  

Due to operate for three months starting on 1March, the CJRS is designed to support businesses whose operations have been affected by Coronavirus and is open to all UK employers. Simply put, it allows employers to furlough staff, i.e. put them on temporary leave.  Through the scheme an employer can claim a grant from HMRC which covers 80% of those employees’ wage costs up to a maximum of £2500 per month and the associated National Insurance and minimum pension contributions for that wage.

A company can ‘top up’ the package to an employee’s usual level, or look to agree a temporary pay cut during the furloughed period. In return the employee cannot work for the employer at this time but may volunteer for other activities or training.

Now that the scale of the financial package for businesses has been revealed, some employers may want to rethink redundancy plans or re-hire staff to place them on furlough.  This can be done as long as they were on the payroll on 28 February 2020, their jobs were lost or at risk due to COVID-19, and — if they have already left – they were terminated on or after 1 March 2020.  

Take caution

A note of caution: in due course, HMRC will audit furlough grants and may seek to recoup those it feels were not properly claimed. At the time of writing no draft legislation has been published, but government guidance indicates that it applies where potential job losses are due to Covid-19.

Employers should therefore exercise caution and take advice, where they are considering furloughing employees in place of redundancies which would have been due to unrelated factors, such as an unprofitable business line prior to the pandemic.

Worth noting is that not all employees may want to return.  For example, highly paid tech industry staff who have generous employment packages (and, maybe, generous severance deals) may not find the prospect of being furloughed on a significantly reduced salary attractive, even if the alternative may be redundancy.  

Salary disparity

The prospect of a furlough period will, in many cases, come as a welcome relief for junior and mid-level employees who will retain both regular income and employment in these uncertain times.  Some higher paid earners, meanwhile, may prefer a different course.

The £2500 government guarantee income will represent a substantial cut in salary for the latter, and if the business is unable or unwilling to top it up, highly skilled and experienced individuals will, no doubt, be reluctant to accept such terms, despite market uncertainty. 

Where a business offers a relatively generous redundancy package, perhaps including payment in lieu of a lengthy notice period or garden leave, going on furlough would see these short-term gains being forfeited. If they have already left the company, and now find themselves re-hired, that severance package will need to be repaid. Market uncertainty, as evidenced by the aftermath of the 2007-8 financial crisis, means that such generous exit terms not be available if the business finds itself in more serious financial trouble in the future, and the option of redundancy, despite uncertain market conditions, may not be entirely unattractive. 

A business cannot exist without its staff. While each business must decide what works best for them, what is done now to empathise with and respect the workforce during this crisis may well yield fruit when the good times return.


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