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How is furlough changing – and will unemployment rise when it ends?

·Writer, Yahoo Finance UK
·4-min read
A restaurant owner working on his accounts
Those working in the hospitality sector are among those more likely to have been put on furlough. Photo: Getty

The UK is now in the final weeks of the coronavirus job retention (furlough) scheme, which will come to an end on 30 September.

The scheme, introduced in March 2020, was put in place to support employers in paying their employees during the Covid-19 pandemic. Originally, it was due to last for three months, but was extended as the cases continued to rise.

According to official figures, almost three million people have moved off furlough since March 2021. Figures published at the end of July show the fewest number of people on furlough since the scheme launched in March 2020, down from a peak of nearly 9m at the height of the pandemic in May last year.

So what will happen over the next few weeks – and will those who are still furloughed be at risk of redundancy once the scheme draws to a close?

The government initially paid 80% of the wages of people who couldn't work, or whose employers could no longer afford to pay them, up to a monthly limit of £2,500.

In July 2021, employers were required to pay 10% of salaries, with the government's contribution falling to 70%. In August and September, the government's contribution was reduced again to 60%, with employers paying 20%. Employers also have to pay staff pension and national insurance contributions.

Claims for furlough days in August 2021 have to be made by 14 September 2021. Additionally, claims for furlough days in September 2021 must be made by 14 October 2021 and any amendments must be made by 28 October 2021.

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While many people have found themselves struggling during the pandemic, some groups have been more likely to be furloughed than others. Those aged under 25 or over 65, Londoners, women, and workers in the cultural, accommodation or hospitality sectors are more likely to have been put on the scheme.

And while the number of people furloughed will carry on falling as the economy continues to reopen, it is likely that many will still be affected by the scheme ending.

“Job losses are probably inevitable once the furlough scheme ends,” says Alan Price, CEO at BrightHR. “The closure of the scheme means that there is no more funding available to help employers keep staff where there is still insufficient work. Employers are then stuck with a decision over what happens to their staff when there is not enough work but no help with their wages.

“Redundancy may seem like the obvious option, and it is highly likely we will see an increase in redundancies in the autumn. This may be because of the simple reason that, despite the best efforts of the employer, there is not enough work for all staff. It may also be that the employer has adapted its business model during the pandemic to suit the evolving needs of consumers and that streamlining process means that fewer employees are needed.

“If no consultation has started yet, start it as soon as possible. There will also be notice periods that need to be served or paid in lieu of so employers need to consider that cost. Garden leave may be needed where notice is to be served but there is no work for the employee to do,” he says.

“Employers who have employees in their redundancy notice period are reminded that they cannot claim from the job retention scheme for wages during a notice period. A fair selection process is also needed if some staff will be kept on and others won’t.”

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Crucially, employers shouldn’t just automatically make those who are on furlough redundant, Price explains, as doing this could risk claims of discrimination at tribunal – for example, on grounds of disability or age discrimination – because it may be that those identified as "vulnerable" by the government were kept on furlough.

Ultimately, extending the furlough scheme could be the answer to job security in the long run, but the high cost makes this unlikely.

“A permanent furlough scheme could be the answer to job security in the long run when the country experiences any kind of similar lack of work in the future,” says Price. “A lot of employers have layoff clauses in their contracts meaning they already have a way of dealing with a temporary shortage of work, but a permanent furlough scheme would be better for employees because it would guarantee a much higher level of income.

“Lots of questions on this would need to be answered, not least how it would be funded because the job retention scheme has already cost billions, so who will pay for it? In the absence of it, employers may want to introduce something on a company basis to offer more than what can already be done under the layoff scheme.”

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