The Government’s landmark offer on Friday 20th March 2020 to provide employers with 80% of salary costs capped at £2,500 per month to ‘furlough’ staff was of huge benefit and relief to the vast majority of our SME clients. Without this lifeline, not only could many businesses have gone under or been seriously impacted by the COVID-19 crisis, but crucially, the mental health of the business owners themselves was given some respite.
These business owners, who are so heavily relied upon in our society, run their micro, small and medium sized businesses in local communities, employing approximately 60% of the UK working population. Many of them were faced with a ‘cliff edge’ scenario for which the Job Retention Scheme became a much-needed safety belt.
However, this safety belt has been fastened tightly and is in fact too restrictive for many businesses. Whilst ‘the belt’ is holding things very firmly in place for furloughed employees, it does not appear to be providing the flexibility or slack that smaller companies could benefit from. For example, the ability to effectively function and adapt, beyond the constraints of the current job retention scheme.
Identifying the needs of British SMEs
At The HR Dept we work with approximately 7000 SME clients across the UK, and are continually hearing that they may require skeleton staff to carry out crucial work. For example, administration, finance, payroll and sales. Or operational work for new orders.
Not being able to ‘part furlough’ or offer a daily furlough equivalent rate for non-working days, is preventing potential new revenue, customers, and ultimately growth. This is happening at a time when SMEs need to grab whatever opportunities they can.
We are hearing stories about suppliers needing to charge their services at extortionate rates, to be able to offer a service. Or losing out on the furlough grant if they bring a furloughed employee back to work within the three-week period.
Not many businesses can operate an ‘all or nothing’ approach. This is particularly complex when considering specialist roles.
Looking at the scheme in practice
Business owners are facing a dilemma. Full time specialist employees may now be in lockdown and only needed for one or two days per week. If other colleagues have been furloughed for five days on 80% of their pay, the employer feels it is grossly unfair to expect some employees to work significantly reduced hours and take pay cuts for one or two days per week. With no extra ‘furlough’ type of pay; or even the ability to invoke short time working, a max of five days’ guarantee pay at £30 per day is not comparable.
What is happening in practice is that the ‘all or nothing’ furloughing criteria is causing employers to furlough more staff than they probably want or need to; the reduced work that could or should be done may not be carried out, or prices are hiked to compensate pulling out of the three-week furlough period and loss of grant.
In other cases, the business owner is attempting to do the work themselves, working ‘in’ and not ‘on’ their business at a critical time. This is negatively reinforcing a culture not to work, not to do the right thing and not to grow. Many of these businesses would happily pay for one to two-day salary costs to employees to work reduced hours, if the remainder of the week could be funded by the government, equivalent to the furlough rate. This would also reduce costs to the government for the Job Retention Scheme.
The introduction of a more flexible ‘part furlough’/enhanced short time working intervention would be a pragmatic, fair, equitable, and much-needed solution, that would be welcomed by SMEs. It would keep the wheels of commerce and industry going, subject to complying, at all times, with guidance from Public Health.
Complications and concerns
Another issue causing concern is that employees who were newly appointed after 28th February 2020, cannot qualify for the scheme if they were not on the new employer’s payroll by the revised date of 19th March 2020. Given that the vast majority of employers pay monthly and most would process their payroll towards the end of the month, this means that the new employer is generally unable to furlough the new employee.
The scheme suggests that a previous employer can take the individual back on the old payroll to furlough them. Whilst the reason given for this is to validate payroll and minimise the risk of fraud, it leads to unnecessary complexity and other risks.
It would involve the previous employer taking an employee (who chose to leave them but was on their PAYE on 28th Feb) ‘back on their books’, to be furloughed. But the person recruited on 2nd March to replace the person who left, who wasn’t processed on the payroll by 19th March, but had started working and was paid at the end of March, won’t have met the criteria to be furloughed.
What is being suggested is that an employer is able to furlough the person who chose to leave them, but not the person they appointed in replacement, who they desperately want to keep and furlough.
Finding a flexible way forward
A sensible solution would be to allow the new employee to be furloughed from their new, current employer. They have a unique NI number that could be checked against the previous payroll.
Let the individual benefit from furlough from the new employer to satisfy PAYE requirements, by doing an administrative check – not by moving employment terms back and forth between employers, with all the associated complexity, employment law risks and commercial administrative cost.
Help us to help you – We need your opinion
The HR Dept are running a snap shot survey to assess if the current Job Retention Scheme is reflective of the way SME businesses operate. If you have furloughed your employees, or have been unable to furlough your employees due to the eligibility criteria, please take a few minutes to complete our survey: Start survey
The results of this survey will be used to instruct and advise governing bodies which influence governmental change.