With the UK’s furlough scheme scheduled to wind down, employers and employees should prepare for the transition back to work.

The UK’s Coronavirus Job Retention Scheme - also known as the furlough scheme - was introduced in March 2020 to mitigate rising unemployment as a result of lockdown measures. In March 2021, the furlough scheme was extended but is now scheduled to come to an end on 30 September 2021.

How does the furlough scheme work?

In order to prevent mass layoffs, the furlough scheme offered a wage subsidy for businesses that were financially damaged by pandemic restrictions. The furlough scheme initially paid up to 80% (to a limit of £2,500) of the monthly wages of employees whose employers who could not afford to pay them, or employees who could not work as a result of the lockdown. The scheme included grants for self-employed workers.

The scheme was subsequently scaled back, making it increasingly expensive for employers to retain workers on furlough. In July 2021, the government reduced its wage support to 70%, with employers required to pay the remaining 10%. From August to September 2021, the subsidy fell to 60%, with employers required to pay the remaining 20%. The furlough scheme required employers to continue to pay relevant pension and National Insurance contributions for employees throughout.

The UK government reports that, since its introduction, the furlough scheme has supported 11.6 million jobs, at a cost of around £66 billion. In August 2021, the Office for National Statistics estimated that up to 2 million UK employees were furloughed.

How is the furlough scheme changing?

The UK furlough scheme will end on 30 September 2021 meaning that the government will no longer subsidize employee wages. As the scheme comes to an end, UK employers must either transition to paying their employees their full wage entitlement, or make those employees redundant.

Redundancy: If an employer chooses to make an employee (or employees) redundant, they must comply with the relevant rules and regulations for doing so:

  • Businesses with 20 employees or more must implement a consultation period when planning to make redundancies.
  • Employees that are being made redundant must receive a notice period before the end of their job.
  • Employers must make a statutory redundancy payment to employees that are being made redundant and that have worked at the business for at least 2 years.
  • Statutory redundancy payments vary by employee age and must be paid at the employee’s full wage entitlement.

Under statutory redundancy payment rules, employees should receive:

  • One half week’s pay for every full year of service during which they were under 22 years of age.
  • One week’s pay for every full year of service during which they were aged between 22 and 41.
  • One and a half week’s pay for every full year of service during which they were aged over 41.

Given that the furlough scheme is scheduled to end on 30 September, employers that intend to make employees redundant by that date should already have started the redundancy process.

Taking employees back from furlough: Employers that intend to take their employees off furlough and back into their full or part-time roles may do so under normal employment rules and regulations. Although employers are not legally required to give employees notice that their furlough is coming to an end, it is advisable to do so.

What happens after furlough ends?

Employers should be prepared for the logistical and financial cost of taking employees off furlough and back into work. The broader economic effects of the pandemic are still being felt and the Bank of England has predicted that there may be a small rise in unemployment after the end of the furlough scheme. With that in mind, employers may find that their financial circumstances have changed and that they subsequently have to make employees redundant following their return to work.

Employees that have been made redundant should be aware of their statutory rights and the financial resources available to them, including the Jobseeker’s Allowance, as they seek new employment.

Learn more about Covid-19 support for employers and employees on our latest news page, or browse UK tax and payroll information on our UK Global Insight Page.

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