The furlough scheme is tapering off this month

Starting this month, the Coronavirus Job Retention Scheme, or the furlough scheme as it’s more commonly known, is gradually being wound down.

It won’t affect employees’ incomes until the end of October, but it means big financial challenges for some firms.

Up to now, the government paid 80% of PAYE salaries, including employer National Insurance Contributions (ER NICS) and pension contributions, up to £2,500 a month. Employers could top up salaries to 100%, but they’re under no obligation to.

From 1 August, businesses will have to start paying ER NICS and pension contributions for the hours their employees are on furlough.

In theory this is around 5% of the salary, although of course in practice, the sums are not negligible when your business doesn’t have any income.

The amount businesses contribute toward furloughed workers’ pay gradually creeps up in September and October – to 10% and then 20% respectively. And then there’s ER NICS and pension contributions to pay on top of that.

From November, it’s crunch time. Businesses will have to decide whether to bring back their staff on full pay, or look into alternatives, including redundancy.

Bigger firms started the process last month, and as I explained at the beginning of July, this was due to the consultation period.

Firms making between 20 to 99 people redundant must enter into a 30-day consultation period before dismissal, and this increases to 45 days when 100 or more people are affected.

If a business is making fewer than 20 people redundant, the government says “there are no rules about how they should carry out the consultation”, which is obviously worrying if you work for a smaller firm.

What it means for you…

My recommendation is largely the same – be prepared. That means having some sort of back up plan, and certainly an emergency fund.

Remember, even if your employer is terminating your employment, they are required to give you a notice period or pay you in lieu of notice if they expect you to stop working straight away.

This is at least a week’s notice if you’ve been there between one month and two years, one week’s notice for each year if you’ve been employed between two and 12 years, or 12 weeks’ notice if you’ve worked for your employer for 12 years or more.

Your redundancy pay varies depending on how old you are and how long you’ve been working for your employer so check what you’re owed.

A new law also means your employers have to pay out based on your normal pay, rather than your salary when you were furloughed.

Unfortunately though, if you’ve been working for your employer for less than two years, you won’t be entitled to any statutory redundancy pay.

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