The End Of Furlough – What’s Next?
It’s official, furlough payments are ending soon. What does this mean for your business? And how can you make sure you keep your business’ cash flow healthy as the UK comes out of lockdown? If you’re wondering what happens at the end of the furlough scheme, read on to find out the best way to prepare your business for the changes ahead.
The coronavirus pandemic has sent shockwaves across the world, and the UK Government has responded by offering a number of schemes designed to support businesses struggling with cash flow problems and to bolster the economy. Support has included loans such as the Coronavirus Business Interruption Loan Scheme (CBILS), the Bounce Back Loan Scheme (BBLS) and the Coronavirus Job Retention Scheme – also known as the furlough scheme.
At this complex time, many businesses have turned to cash flow forecasting to help navigate their way through the pandemic.
What is the furlough scheme?
The Coronavirus Job Retention Scheme saw businesses across the UK putting their employees on furlough, where 80% of their wages were covered by the government. It’s estimated over 1 million businesses and 9.3 million employees benefitted through the scheme which was designed to support them throughout the coronavirus pandemic and its accompanying lockdown measures. Through the scheme, businesses were able to claim 80% of their employees’ wages, plus National Insurance and pension contributions, from the government. This meant businesses could keep employees on the payroll without them working. Under the scheme employment law remained unchanged.
The scheme started in late March 2020, and now the UK Government has set out a timeline for the winding down of the furlough scheme. As the scheme draws to a close, a flexible extension has been introduced to support businesses severely affected by coronavirus during the recovery period.
What is flexible furlough?
From 1st of July, furloughed workers could be placed on ‘flexible furlough’, officially known as the Flexible Furlough Scheme (FFS). On flexible furlough employees can work a proportion of their usual hours and put on furlough for any hours they don’t work.
To be eligible for flexible furlough, an employee has to have been furloughed before 10 June 2020 and have already been furloughed for a minimum period of 3 weeks. There are some exceptions to these rules, including employees who have been on maternity, paternity or adoption leave and are returning to work. To move an employee to flexible furlough, both employer and employee must be in agreement and the new working pattern should be agreed in writing.
When does furlough end?
The UK government announced the furlough scheme will end in October 2020. From August the level of government support will start to be tapered, with employers contributing on an increasing basis to make sure their employees still receive 80% of their usual salary.
What is the Job Retention Bonus?
On 8th July, the government announced the Job Retention Bonus as part of its Plan for Jobs 2020 with a view to improve job retention and boost the economy following the easing of lockdowns across the UK. Under the new scheme, employers will receive a one-off payment of £1k for each employee they bring back from furlough and employ continuously until January 2012. It’s planned that businesses will receive payment of this bonus in February 2021.
What about industry-specific support?
In addition to the above, there are a number of industry-specific initiatives designed to help businesses emerge from lockdown.
- Construction Talent Retention Scheme – in a joint initiative between government and the construction industry, this scheme aims to redeploy staff who are at risk of redundancy. The scheme will also welcome workers from other sectors who are new to the construction industry. You can register your interest here
- VAT cut for hospitality sector – hospitality businesses such as restaurants, cinemas, tourist attractions and hotels will benefit from VAT being slashed from 20% to 5% until January 2021
- Office for Talent – the government also plans to help leading researchers and scientists work in the UK post-Brexit
- Public Sector Decarbonisation Scheme – schools and healthcare providers will be able to apply for grants for low carbon heat upgrades and support to become more energy efficient
- Green Jobs Challenge Fund – charities and non-profits can benefit from this £40m fund that’s been created to protect 5,000 jobs in England
- Automotive Transformation Fund – manufacturing businesses involved in automotive technologies can tap into the £10m fund the government has recently made available to support the industry
- Short-Term Home Building Fund extension – small and medium-sized construction businesses can access a pool of £450m additional funding, particularly home building companies which use ‘Modern Methods of Construction’
What does the end of furlough mean for my business?
If you’ve had your staff on furlough, you may be feeling understandably concerned about reopening and confused about the best way to bring employees back whilst balancing the books. It’s a delicate balance to strike, and having a good handle on your cash flow will empower you to move into this new phase with confidence.
Bringing staff back from furlough may be challenging. Some employees might not want to return due to childcare issues or health concerns, whilst others might prefer to return with only part-time hours. On the flip side, you may feel like your business no longer requires certain roles to be filled and it could be time to start considering making redundancies.
Sharon Brown from Magic Beans highlighted the concerns many of her clients are experiencing: “the main impact that I can see with furlough ending and the new Flexible Furlough Scheme (FFS) means the clients are looking at more ‘what if’ scenarios and they want to know exactly what their employment costs will be over the next few months. What if staff don’t come back until October? What if staff come back part-time? What if all staff come back and then sales are low? When will we run out of cash?”.
The guaranteed income from furlough payments ending means you will also have to plan for worst-case scenarios such as poor sales, low income and running out of cash.
“The reduction in the furlough payouts will impact all businesses,” Emma Fox from Fresh Financials added. “With July furlough staying the same I think most (redundancy) conversations will be happening late July or early August when they can see how sales are performing and the impact on cashflow.”
Scenario planning for the end of furlough
The key to adapting to the new reductions in furlough payments and preparing for furlough to end in October is in the planning. Businesses that will emerge from this crisis and thrive are those that have a clear view of their runway and use cash flow forecasting to guide their decision-making.
Using Float’s scenario planning feature you can prepare for a number of different potential scenarios and see how various decisions could impact your business.
Accountant Lauren Harvey told us about one of her creative agency clients who is using scenario planning to create a plan of action to get their business back on track. “At the moment they are sat on a lot of cash, and we want to make sure they can see what it’s going to look like once these projects are spent,” Lauren said. The accountant is also encouraging all her clients to use Float to keep track of their VAT, tax and PAYE liabilities, particularly those who have deferred.
At the best of times, scenario planning is a good way to stress-test the finances of your business. But at the moment, it’s an invaluable tool to help you preempt any pitfalls the decreasing support and the end of furlough payments could bring. Scenario planning can help you make tough decisions, like making layoffs, with a clear head to keep your business afloat.
As well as staff costs, your scenarios can also take into account changes in income and cash injections from government or bank loans. Planning further ahead, remember you’ll also have to plan to pay these loans back eventually.
The end of the furlough scheme may be a daunting time for businesses in the UK, but with careful cash flow forecasting, you can move your business into the next phase ready for recovery.