Furlough scheme explained (information valid as at 5th April 2020 in the United Kingdom)

The British version of furlough

British government has rolled out a furlough scheme in order to safeguard at least some of the private sector jobs currently being cut left and right, and through that salvage at least part of the economy. What is it?

Furlough in the UK is a temporary leave of absence granted to employees or members of an organisation, on reduced pay. Unlike the US, where furlough is in effect a layoff with no pay, in the UK it involves employees receiving part of their salary. The reasons for placing somebody on furlough vary. In current context we will talk about economically driven furlough – that is when a company is not currently making enough money to pay wages but expects to be able to resume business soon and wants to retain the employee. Due to the widespread impact of Covid-19 measures, a significant number of businesses in the UK are in a situation where there isn’t enough work to go around in order to keep themselves afloat and their employees paid.

The specific details of the furlough available to employees, including zero hours and variable hours contracts

  • Your employer will be required to apply to the scheme and then offer it to you. Unless you are self-employed, you will not be able to bypass your employer to get the furlough payments from the Government directly
  • The payment available during furlough is capped at 80% of employee’s salary or wages, or £2,500 per month, whichever is lower. This means that your normal annual income from the job would equate to £37,500 and above in order to receive £2,500 per month in furlough payment. If it is lower, your furlough would be calculated at the rate of 80% of your annual income from the job
  • The payment of up to £2,500 is subject to standard deductions such as income tax and NI which your employer will handle before paying the money out to you
  • In order for your employer, and by proxy you, to receive furlough payments, there are three specific conditions that need to be met. The first one is that the furloughed employee remains absent for at least 3 weeks. The second one is that the employee does not engage in any work for the employer during furlough – this includes checking work email, attending meetings etc. In short, if you have been furloughed you cannot work at a threat of breaching the scheme conditions and missing out on the payment. The third one is that while the employee does not work for their employer, they also do not engage for work with another employer – in short you can’t get a new job while furloughed
  • For employees on variable or 0 hours contracts, the payment will be calculated on one of the three bases, whichever is higher:
    • Income the same month last year
    • Average monthly earnings since you joining current employer or
    • Average monthly earnings for tax year 2019/2020

In order for you to be put on furlough, you and your employer will need to agree to such solution. However, if you are offered furlough and opt not to take it, your employer will be within their right to consider your role subject to redundancy consultation.

As much as redundancy per se sounds scary, for a small number of individuals it might make more sense in the interim – this is in particular the case for senior staff on high salaries.

Speaking honestly as a Londoner, if I were to be put on furlough, it would land me right on the edge of meeting my mortgage and utility bills and approximately ½ of my current food budget. It would not stretch far and it’s not supposed to – it is an emergency scheme rather than do no work and get rich scheme. On the positive, some of my junior colleagues who have been put on the furlough and swiftly moved back in with mum and dad are probably feeling like ballers right now – and I am so happy for them and everybody else who can benefit from this scheme. For a number of families and businesses it will be a lifeline.

What about the self-employed?

The Government has indicated that it is planning to roll out the furlough scheme to self-employed individuals, however at the time of writing this has not yet been done. Currently anybody self-employed can apply for Universal Credit.

The indicative guidance for self-employed is expected to be along the lines of:

  • Self-employed individuals (this includes freelancers) who have filed taxes for 2018/2019 should be able to apply for a taxable grant. The grant will be capped at 80% of their profits or £2,500 per month, whichever is lower.
  • In order to qualify, at least half of the income of the self-employed person must be from their self-employment activity

The timings

  • Furlough will start being paid out this month (April) and can be backdated to March 1st
  • At present, there is an expectation from businesses that the scheme could extend into May, but it is yet to be confirmed by the British Government

Useful sources of information:

Always start with Gov.UK.

Second best will be the BBC.

Next, the Financial Times.

And finally, any other reputable national or industry news outlet of your choice (maybe except Fox news, just saying).

Stay safe!

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