Phase two for furlough – what does it mean?

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Chancellor Rishi Sunak is to extend the furlough scheme to pay wages of workers on leave until to October.

He said that the government had backed workers and companies going into the lockdown – and pledged to “stand by” them coming out.

But there is a change. While employees will continue to receive 80 per cent of their monthly wages up to £2,500, the government will ask companies to begin sharing the cost from August.

At the moment, 7.5 million workers are currently covered by the scheme, he told the  Commons and that businesses currently using the scheme would be able to bring furloughed employees back part-time.

In announcing the extension, he rejected suggestions some people might get addicted to furlough, adding: “Nobody who is on the furlough scheme wants to be on this scheme. People up and down this country believe in the dignity of their work, going to work, providing for their families, it’s not their fault their business has been asked to close or asked to stay at home.”

This type of intervention has been invaluable to many of the UK’s tech companies who have struggled with cash flow

Concerns had been rising over the cost of the scheme. It take-up has given it a price tag almost as much as the monthly bill for running the NHS. Almost a quarter of all workers in Britain were furloughed by their employers within the first two weeks of the scheme’s launch in mid-April.

Mike Jackson, Entrepreneur Success Director at Tech Nation said: “This type of intervention has been invaluable to many of the UK’s tech companies who have struggled with cash flow in the immediate term and needed to rely on this measure to retain staff.

“According to our most recent survey [of the technology sector], 38 per cent of companies have furloughed staff, with only six per cent having made staff redundant, which is significant. We believe this is the right move, to get the economy back on its feet. And we’re optimistic about the UK’s tech economy continuing to thrive.”

Over a third of SMEs have told us that the extension will be the single most important measure to help them get through the next few months

 Sabby Gill, UK Managing Director of the cloud accounting organisation Sage, said: “The JRS has been a highly effective form of support for the SME community and we welcome this extension, which should provide vital ‘breathing room’  for businesses.

“Over a third of SMEs have told us that the extension will be the single most important measure to help them get through the next few months, and almost half are already making use of it to pay their people. A large part of the UK private sector – and its employees – are leaning heavily on this system and it is right not to pull the rug from under their feet.

 “However, first and foremost SMEs are after flexibility. We are seeing a clear preference for an extension to the Scheme that allows them to return employees gradually, at reduced hours or after shorter furlough periods.

“Whilst the adjustment addresses that from August onwards, we expect many SMEs that are resuming a level of operations will be looking to bring back workers part time before August. Forty-four per cent still expect their business to make less than 50 per cent its normal level of sales in spite of the new government guidance on getting back to work.

This ‘topping up’ of wages ensures employers are incentivised to create a Covid-19 suitable working environment

“Therefore, some may struggle to pay full time salaries as we enter the next phase. The focus therefore must now turn to how we can stimulate demand enough to enable SMEs to pick up the baton again.”

Nigel Morris, employment tax partner at MHA MacIntyre Hudson, warns businesses to remain strictly compliant with government guidelines.

 “The chancellor’s announcement is generally good news for employers and means they can plan to re-open their doors and resume trading post lockdown, and through the recovery stage,” he said.

“However, as the scheme will be flexed between August and October to allow for part-time work, there will be a sharing of the cost with employers. This ‘topping up’ of wages ensures employers are incentivised to create a Covid-19 suitable working environment, and gradually bring staff back to work while remaining alert to social distancing rules.

“Businesses must take the time now to put the necessary operational and financial plans in place. As August approaches, employers will have to assess the productivity benefits of bringing back certain furloughed staff part-time, and whether these costs will likely be covered by increased sales.