Job retention scheme & covid-19
On Friday 21st March 2020 the Government announced the ‘Job Retention Scheme’ for organisations affected by the COVID-19 crisis (most of us!) Transferring employees on to ‘furloughed’ status as an alternative to job loss could be the answer for some.
There has been some confusion around who is and isn’t eligible. More than ever, small businesses just need to know what to do. Here I provide clarity and guidance based on what we know so far.
As we all know, the current situation is dynamic and changing daily. I will keep you updated on anything that relates to employment law.
WHAT DOES FURLOUGHED REALLY MEAN?
It’s not a term that we come across very often, I’m not sure that I’ve even heard of it before and I’m a geek when it comes to employment law!
In basic terms ‘furloughed’ means that the business requires staff to take unpaid leave of absence. They won’t work, they won’t get paid, but they are still technically employed and will return to work when the business is ready and without losing any continuous service rights.
On Friday 21st March 2020, we heard how the Government will support PAYE employers with a grant of up to 80% of their salary bill (or £2500 maximum) per employee, per month. This is specifically focused on employees who would otherwise have been laid off during the crisis – there lie a few key words that will determine the future of so many small businesses.
True to my values, I am keeping this ‘jargon free’ like I do with all communications – my clients will vouch for that. It’s my job to understand the jargon; let’s keep it simple for everyone else.
I find that putting it in to a scenario that mirrors ‘real life’ is the easiest way for people to grasp the basics so let’s take a working example: Rachel’s Gym (got to laugh about something)
- Rachel’s Gym has been operating for 10 years and until recently business had been booming.
- Rachel employs five staff on payroll – PAYE
- Rachel leases her building from a landlord and has seen a sharp decline in her turnover in the last few weeks; she has been struggling to meet her basic overheads. She hasn’t slept in weeks and doesn’t know whether her once thriving business will return when this crisis is over
- Rachel has stopped taking her own salary from the business and is trying her best to pay her employees what she can – they have also agreed to take a cut in hours/pay as an alternative to losing their jobs entirely
- The Gym falls in to the ‘lower’ bracket with regards to business rates which means she should get £3900 from the small grant scheme – but this doesn’t even cover one month’s overheads. Hopefully she will get further clarity on that this week, with local authorities being left to action this part of the action plan.
- Last Friday Rachel was ordered to close the doors of her business. Clients have stopped paying their monthly fees, the landlord wants his money and the business has bills to pay with regards to financed equipment/assets etc.
- Rachel has been left with no alternative but to advise all employees that they are at risk of redundancy and will start to take them through a consultation process.
WILL THE SCHEME HELP RACHEL?
- YES – Rachel clearly has nowhere to go. Her revenue stream has stopped dead, and her debtors all want paying.
- Her staff are about to lose their job – at this point Rachel changes their employment status to ‘furloughed’ (this is a paper exercise)
- In basic terms ‘furloughed’ means that Rachel requires her staff to take unpaid leave of absence. They won’t work, they won’t get paid, but they are still technically employed and will return to work when the business is ready along with their continuous service rights.
- Rachel intends to obtain support from the Coronavirus Job Retention Scheme, which will enable her to claim up to 80% of an employee’s wage (capped at £2500) per employee, per month
- Rachel could choose whether to fund the remaining 20% or not, but wont as she can’t afford it.
HOW CAN RACHEL ACCESS THE FUNDS?
- Herein lies the issue. Rachel’s employees need to be paid now, or at least soon, but HMRC aren’t setup to make payments to employers.
- Once the scheme is setup, Rachel will be able to backdate her claim to when she stopped paying her employees. Claims can be backdated as far as 1st March 2020.
- The scheme will initially run for three months to the end of May. Government have said they will review it at the end of that period and extend if deemed necessary.
- HMRC state that this scheme should be up and running by the end of April – but what do her and the employees do until then?
WHAT SHOULD RACHEL DO UNTIL THEN?
- Rachel doesn’t have any cash to pay employees through to the end of April when the scheme will be up and running, she will need to borrow it from somewhere to bridge the gap
- Rachel should speak with her Accountant to understand what the best option is for her business
- Rachel’s bank may be able to offer her some short term financing through an overdraft facility or loan
- Rachel could also apply for another Government scheme called the ‘Coronavirus Small Business Interruption Loan’ (CSBIL) which has been launched on 23rd March 2020 and can be accessed via the British Business Bank
- Rachel is hoping that if she manages to secure a CSBIL (or alternative finance via her bank) in the short-term, this will pay her debtors and her employees; whilst she won’t be able to pay them 100% it’s better than the alternative which would mean job loss and possible insolvency.
- Once the retention scheme is up and running, she will be able to continue paying her employees under ‘furlough’ until the Gym can reopen. It’s important to note that staff under this arrangement will not be able to obtain paid work elsewhere whilst in receipt of the payment. If they find alternative employment they should resign as per their contract.
- Rachel can repay the loan once the crisis is over. Low interest coupled with long repayment periods mean that she will be able to make monthly payments without too much of an impact but only once her business starts to trade again.
Rachel anticipates that if she can ride the crisis out without going bankrupt, her employees will still be with her and her loyal clients will return.
I hope that this post helps to clarify the current situation for your business. I will see you on the other side of COVID-19
If you think you might need support, drop me an email firstname.lastname@example.org
I’m a HR Consultant providing outsourced solutions to the SME market on a retained, project or ad hoc basis across the UK