As the furlough scheme begins to taper in the UK, the government have introduced a new incentive that aims to persuade employers to retain staff past October.
Though the furlough scheme will end in October, Rishi Sunak has stated that a one-off £1,000 payment reward will be offered for each worker that is retained for the three months of Nov – Jan.
What does the scheme entail and which employees are covered?
The government has introduced this bonus to help reduce redundancies and keep greater numbers in work during the UK’s recovery from the coronavirus crisis once furlough support ends.
Though it is difficult to predict how this scheme will play out with regards to long-term job retention, it is expected that some employers will take advantage of this scheme and work harder to retain staff until the end of January 2021.
To qualify, employees must be earning above the lower earnings limit of £520 per month between the end of October 2020 and the end of January 2021. Payments to businesses will be made from February 2021, and further details regarding this retention scheme will be made by the government at the end of July.
Changes from August
Though the government will continue to pay 80% of employee wages throughout August, 70% throughout September, and 60% until the end of October, employers will be required to contribute national insurance and pension contributions from August. Find out more in this blog.
It’s worth noting that businesses facing cash flow issues will be reimbursed promptly and without arduous administration. The government have stated that they will not seek to recoup funds later should there be minor or inadvertent errors in applying the rules.
What are some concerns regarding the £1000 Furloughed Employee Bonus?
Though the scheme itself sounds like a positive step forward to retain employees, in practice, the scheme may not prove effective. With numerous businesses facing financial uncertainty, there were always concerns that firms would lay off workers as soon as the furlough scheme ended. And a £1000 bonus is unlikely to cover the costs of an individual employee’s wages for three months anyway.
Though this would be the worst-case scenario for the employees in question, there is significant doubt that this scheme will be successful for retaining jobs past January. With millions of jobs hanging in the balance across UK employment sectors, it may have been more pertinent to focus on training, opportunity and apprenticeships for young people that will be most at risk.
While the scheme shows that the Government is thinking about job retention, with businesses struggling to stay afloat, the bonus likely will not prove enough of an incentive to risk incurring additional costs in the long run. Indeed, with almost 70% of firms running low on cash and witnessing decreased demand according to the Confederation of British Industry, more needs to be done to grant businesses relief in a time of unprecedented uncertainty.
And while most businesses fully support the retention of jobs, they question whether this scheme will work smoothly enough to prove beneficial. Should the bonus not be easy to access or be delayed in any way, vital support will be scuppered and any potential financial gain for businesses will be lost.
How much will the scheme cost?
If an extremely rough estimate is applied, the scheme is set to come to £9bn should every single furloughed worker be retained. However, with the added cost of national insurance, 5% of wage coverage and pension contributions added, the bonus begins to appear like a significant loss to most businesses.
Though much of the success of this bonus relies on general demand for goods and services, in such a difficult economic climate, businesses may be unable to accurately predict whether this bonus will be of use to them. Though businesses have been aware for some time that the flexible furlough scheme would lead to increased costs, many will likely choose to cut jobs instead of retaining employees. As many businesses are questioning the value for money that the scheme offers, there’s a high chance that it will simply not prove useful for employees or employers.
Where will the money go?
However, the cost is not the only concern that comes from this scheme. It’s entirely possible that payments may go to companies under the scheme for millions of jobs that were never at risk. As the scheme applies to every furloughed employee who remains in work until the end of January 2021, it will be impossible to assess which jobs were in genuine jeopardy. Though many businesses will pocket the cash for those that were set to remain employed, workers deemed at risk may simply lose their jobs regardless of the bonus due to the increased pressure on businesses to pay towards furlough.
With many stating that the bonus should have been targeted at at-risk jobs only, applying the scheme across the entire country may prove to be a short-sighted idea.
In addition, with a large proportion of the British public displeased that support remains non-existent for other workers (such as those that are self-employed or have simply fallen through the cracks of every government scheme), there is certainly a lot to answer for when considering the ‘dead weight’ of this particular bonus scheme.
What should small businesses do?
As this bonus may not be enough for small businesses to retain staff, it is crucial that they diversify now to prepare for the future.
Though this is an extremely trying time for small businesses, being prepared for the future is the only way to tackle the pandemic in a way that will allow business to thrive in a post-COVID world.