What does the term “furlough” mean?
When a company doesn't have enough work or money coming in to keep the workforce as it is, they can put staff members on a temporary leave, called furlough. This is usually done as a short-term solution to cut costs during a temporary change of circumstance.
The government has introduced a plan to financially support businesses during the coronavirus pandemic that will help them keep as many employees as possible on payroll during this difficult time. Businesses can apply for a grant from the government to cover the wages of those employees they put on furlough for an agreed amount of time. Under this scheme companies can offer to furlough their staff for a minimum of three weeks.
How does it work?
Under the Coronavirus Job Retention Scheme , all employers across the UK have the option to furlough their staff instead of making them redundant or being laid off. This scheme allows the individual to still be employed by the company whilst receiving up to 80% of their pre-tax salary up to a maximum of £2,500 per month, for an agreed amount of time. If your employer plans to use the job retention scheme, you’ll keep your job – and all the rights that come with being employed - but you won’t be doing any work whilst you’re furloughed.
Am I eligible for furloughing?
If you were on the PAYE payroll of a company on or before 19 March 2020 your company has the option to offer you furlough rather than laying you off. This applies if you are:
- Full time
- Part time
- On a zero-hour contract
- An agency worker or on a flexible contract
- An apprentice – and you can still continue your training whilst on furlough
From 1 July, only employees that have already been placed on furlough for at least one three-week period between 1 March and 30 June 2020 will be eligible for more support under the scheme. The last date an employee could have started furlough for the first time to continue receiving grants until the scheme ends was 10 June 2020.
Anyone on the 39 weeks of Statutory Maternity Pay (SMP) will still be paid standard maternity cover by their employer. Also if you’re sick and still employed, you will still receive sick pay or benefit from Statutory Sick Pay (SSP) as outlined in your contract with your employer. However, you can be furloughed once you are able to return to work.
How much will I be paid if I am furloughed?
Your employer can claim a grant from Her Majesty’s Revenue and Customs (HMRC) that’ll pay you for 80% of your gross monthly salary up to a maximum of £2,500 per month up until the end of July. From 1 July 2020, employers can bring back furloughed employees to work a flexible shift pattern. An employee returning from furlough can work any number of hours and have any time they aren’t working topped up through the furlough scheme.
The amount contributed by the government will change after August, but employees will still receive the same amount – 80% up to £2,500. While employees will still get paid the same for the duration of the furlough, employers must start contributing from September if they wish to keep an employee on the scheme.
In September, the government will start paying 70% up to £2,187.50, with employers needing to pay the remaining 10% of the pre-tax salary up to £312.50. In October, the government will start paying 60% up to £1,875, with employers paying the remaining 20% up to £625. Employers must also start paying national insurance pension contributions starting in August.
If you’re put on furlough and will struggle with your reduced salary, you may be eligible for support through Universal Credit.
When does the furlough end?
The furlough scheme will end on 31 October 2020. This was announced on 12 June 2020, along with other changes to how the scheme will work, including employers having to contribute to a furloughed worker’s wages from September, and paying national insurance and pension contributions from August.
How will I find out if I’m being furloughed?
If your company chooses to furlough you, they will confirm in writing the change in salary, the length of the furlough and any other relevant details - if you accept the offer, you will be required to keep this correspondence for five years.
Can I still be made redundant if I am on furlough?
After your agreed furlough leave is up, your employer can decide to make redundancies. The hope is that by using the furlough facility it will not be necessary to make people redundant. However, if your company does decide to make you redundant, you will still have the same rights when it comes to notice periods and statutory redundancy rights.
Do I have to pay tax on furlough?
Yes – the HMRC grant will be paid to your company, who will then use this to pay 80% of your gross monthly salary up to £2,500 until the end of August, 70% up to £2,187.50 in September and 60% up to £1,875 in October the same way they’d usually pay you. Any tax or other monthly deductions from your paycheck will still be taken out as normal.
Can I work while on furlough?
The government states that a furloughed employee cannot do anything that:
- makes money for your business or any associated companies
- provides services for your company or any connected businesses
- puts you in breach of your contractual obligations inside your normal working hours as an employee of the company where you work.
Where can I get help?
If you are at risk of not meeting your financial commitments as a result of being furloughed, there are ways to help you manage your money; you can contact your credit provider directly to request an emergency payment freeze. The emergency payment freeze means you have agreed in advance to stop making repayments for an agreed length of time.
If you are approved for a freeze, the status of your account will be frozen at the point of the agreement. Your credit provider will then continue to report this repayment status to the CRA’s (credit reference agencies) for the duration of the payment freeze to minimise the impact on your credit score.
Other steps to consider during furlough leave could include rethinking your budgets. Our interactive budget planner can help you see where your money is going, and work out if there’s anything you can save on during this time.
By budgeting, you might be able to avoid a missed or late payment. But if your monthly income has been cut by being on furlough and you do think you’ll miss a payment, there are steps you could consider to help manage the impact, including contacting your lender upfront or asking for impartial debt advice from services such as StepChange.
This article was written on 15 June 2020; all information was correct at the time of writing.For up-to-date information, regularly check gov.uk
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