Furlough – Let’s Get Flexible

It was with much relief this week that both employers and employees welcomed Chancellor Rishi Sunak’s announcement that the Government's Coronavirus Job Retention Scheme (CJRS) would be extended until October.

The scheme will continue in its current form until the end of July and the chancellor insists he will avoid a ‘cliff-edge’.

The sad reality is that many organisations were and are poised to make redundancies once the scheme ends in its current form. Over the past couple of weeks here at Loates HQ we have seen a spike in employers considering plans for implementing either restructuring or redundancies post the furlough period.

There are a couple of key dates which employers are especially alive to. These are based around the requirement to consult with the workforce and its representatives for a minimum period before making redundancies. Where 100 or more redundancies are proposed within a 90 day period, consultation must begin at least 45 days before the first dismissal takes effect. For fewer than 100 redundancies but more than 20, within a 90 day period the minimum period which must elapse is 30 days.

This means in effect if the CJRS ended in its current form at the end of July 2020 consultation would commence on 16 June 2020, for organisations proposing to dismiss 100 or more employees and by the 1 July 2020 for 20-99 employees.  There are no minimum consultation periods where an employer proposes to dismiss 19 or less employees, as long as the consultation is in ‘good time’ and ‘meaningful’.

The fact that so many employees will lose their jobs is very sad, and this got me thinking about what the furlough glide path would need to look like in order to mitigate this. I am a realist and I know it cannot be totally avoided, for some sectors such as aviation but how can the furlough scheme be flexed to save the maximum number of jobs? What approaches have other countries taken and what could we learn from them?

Furlough and other country approaches

In Germany since the early 1900s they have had ”Kurzarbeit” a short-time working scheme, which literally means “short-work”. The short-time work allowance has been a long-standing policy in Germany compensating workers for taking a cut in hours. Kurzarbeit follows a similar principle to furlough, where temporarily laid-off workers receive “short-work money” from the Federal Labour Office.

It was used extensively during the recession that followed the 2008 banking crash and credited with Germany achieving a stronger bounce back and lower unemployment rates at the end of the recession. The OECD estimates that in 2009 more than 200,000 jobs may have been saved in Germany as a result of the scheme.

Likewise in France there is the Chomage Partial scheme, which literally means "partial unemployment" which provides 70% of the gross salary for salaries up to 6,927 euros gross per month. Employees on minimum wage receive 100% compensation.

There are however some key differences, fundamentally that both schemes are much more flexible and allow employees to work part-time, in contrast to the UK approach of undertaking no work during the furlough period. in addition in Germany the scheme is phased out more quickly than other similar schemes in subsequent recovery phases i.e. it is not a long-term fix.

Flexible furlough some suggestions

I believe that now more than ever the UK all or nothing approach in terms of furloughing workers needs to become super flexible. To allow employers to gradually ease employees back to work whilst businesses re-build their order books and pipelines. But also crucially because now more than ever UK Plc needs to retain its skilled workforce, so we don’t see an epic talent drain of the labour market by making mass redundancies.

The furlough scheme needs to be multi-dimensional and become 'furlough flexible' on several fronts:

  • Individuals
  • Company size
  • Sector

Individual

Furloughed workers should return to work part-time, which the employer pays. The CJRS makes up the difference to the 80%

This may be in the too hard to do pile to administer, but the government and HMRC have already demonstrated they can move and implement arrangements at speed. There will also be an element of distrust that some more unscrupulous employers will set their workforce back to work for longer than the part-time hours, but now is not the time to penalise the many for the actions of the few by adopting a rigid scheme.

Making the scheme more flexible would also potentially reduce the cost to the public finances. Many workers who might be able to work reduced hours paid for by their employer and would require a lower level of wage subsidy. We can also avoid a mass spike in Universal Job Credit claims as companies seek to make redundancies potentially at the same time.

Finally, I am beginning to see evidence of ‘furlough guilt’; this is where some employees are feeling guilty that their colleagues are busting a gut, whilst they sit at home being paid to do no work. There is an element of frustration that some employees want to contribute to getting businesses back up and running, and sitting at home is not good for the sake of the mental health of UK Plc.  I recognise there is a dynamic in terms of schools re-opening and childcare but being furlough flexible could also help employees juggle their child-care  and other caring commitments.

Company size

Introduction of a 'micro-furlough' i.e. furlough employees for less than 3 weeks

For micro-businesses (less than 10 employees) and SMEs it is especially hard to manage your workforce during the pandemic due to the size of the business. As a business owner with a team of 7 employees there is a balance to strike between providing a service for your clients; looking after the health, both physical and mental of your workforce and preserving jobs for when the 'new normal' arrives.

As businesses get back up and running they need the flexibility to furlough and unfurlough workers for shorter time frames to meet what may be a fluctuating demand for their services or products. I would like to see for micro and SME businesses that they can furlough employees for less than the 3 week minimum if required during the phased furlough period, between August and October.

In addition I think this approach would be of particular benefit for those employees who have yet to be furloughed and have continued working during the lockdown period. Many micro-businesses and SMEs have been reliant on a handful of key employees. These employees have been under more pressure due to increased workload and inability to take annual leave as their colleagues are furloughed, they to need a break and to rest.  I believe there also needs to be an element of equity and fairness with their furloughed work colleagues.

One could argue that they are simply ‘rotated’ but in many micro-businesses and SMEs the people that are not furloughed are because they are best placed and skilled to see the business through this period. As other employees were furloughed as they were disproportionally impacted due to their personal circumstances e.g child-care, or caring for elderly parents

Sector

Sector specific ends to existing furlough arrangements

I would also like to see an extension of the furlough scheme in its current form for sectors which will return to business later than others. Just as the lock-down is eased for different sectors, the end of the furlough scheme in its current form should be extended for specific sectors that will be the last to get back up and running. For example, hospitability, leisure and some non-essential high street retailers. This would reflect the unique challenges they will face as they return last and also to a business where social distancing will see their income generation cut due to capacity issues and maintaining the two metre rule.

As a Board Trustee for the Quad based in Derby, cinemas and theatres will be some of the last organisations to get back up and running and have seen their income decimated since the early annoucement pre-lockdown to cease operations.  Extending the furlough scheme for the hospitatily sector could make a big difference for these businesses.

So in summary Chancellor time to get Furlough Flexible….......

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