Cure or sticking plaster? The Hidden Consequences of Furlough

May 28, 2020

At the end of April 2020, the Coronavirus Job Retention Scheme (CJRS) portal went live and the number of claims has exceeded the government’s expectations. By early May, 6.3 million employees had been furloughed under the Scheme and since then the numbers have only increased. On 26 May, the Treasury published figures revealing that 8.4 million jobs have been furloughed and employers have made £15 billion worth of claims under the CJRS.

The CRJS has been a useful temporary measure to help employers with cash flow problems caused by the lockdown and the subsequent slowdown in the economy. For some employers it has given them some breathing room to consider their options, without having to rush into making redundancies, whilst knowing they could still retain and pay valuable members of staff. As a result of the scheme’s success in this respect, the Government has agreed to extend the CJRS until the end of October 2020.

Yet the CJRS has frequently raised more questions than it answered. For example, the discrepancy between a Treasury direction that employees must agree to be furloughed in writing and HMRC’s guidance which stated that a written agreement was not necessary. This change in approach caused confusion, leading employers to question whether HMRC would deny them a refund under the Scheme if they did not get written agreements before furloughing employees, or whether any money paid out could be clawed back in the future.

Issues have also arisen with the “all or nothing” approach to the CJRS. Currently, a furloughed employee cannot carry out any work for their employer, and this will have a number of unintended consequences such as a restricted ability to carry out some aspects of the business during the lockdown.

Alternatively, in order to meet business demands on a cost saving basis, employees who have not been furloughed may face increasing workloads, demands, and responsibilities, whilst they still continue to perform their normal work duties. Due to current financial constraints, these employees will probably take on extra work but will only be paid their normal salary with no promise of any additional pay. These overworked and potentially disgruntled employees may grow to resent their furloughed colleagues, who are being paid 80% of their salary and not working.

Employers may need to manage not only a potential fall out once their employees return to work, but also ensure those who are still working do not burn out from work-related stress. This could lead to sickness absence and a loss of productivity at a time when employers struggle to stay afloat. 

Employers will also need to invest both time and money in supporting furloughed employees who have not worked for months. These employees may need top-up training to regain their confidence, and therefore employers should be prepared for a lower level of productivity whilst they transition back into the workplace.

On 14 May, after much lobbying from the business community, the Government agreed to modify the CJRS. From the beginning of August 2020 employers using the CJRS will be allowed to bring furloughed employees back to work part-time while still receiving support under the scheme. However, the exact details of how this will work have not been published, and should be released by the end of May.   

It is uncertain whether businesses will be in a better position to pay their employees, who have no reason not to return to work once the CJRS comes to an end. Employers may be left with no choice but to make employees redundant, defeating the entire purpose of the scheme. Instead of saving businesses and preventing job losses, the scheme may have simply been a mere sticking plaster for the problem and not the cure.