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How to prepare your business for the furlough scheme wind down

There’s no denying that, from a business owner point of view, the Coronavirus Job Retention Scheme has been invaluable, allowing employers to keep staff on the payroll while facing financial difficulties or temporary closures.

The scheme was created to try to avoid a huge surge in unemployment, and it is certainly being utilised – latest HMRC stats show that a total of 6.3 million jobs have been temporarily laid off by 800,000 companies.

However, while the scheme has proved a lifeline for a lot of businesses, it is causing a significant financial strain on the treasury, with claims amounting to £8bn as of 3 May.

After its initial extension from May to June, there is now talk that Rishi Sunak is preparing to wind down the furlough scheme from July onwards.

But what does that mean for small businesses? What are your options post-furlough, and how soon should you be thinking about them?

(Note, if you’re looking for advice on how to furlough an employee, we also have a guide on that here.)

What do we know about the government’s plans for the furlough scheme in the longer term?

Sunak has stated numerous times that he will not put a strict end to the scheme (to try to avoid mass-redundancies), but it is expected to start winding down.

A number of potential options have been discussed, including reducing the paid wage subsidy to 60% (and lowering the cap on monthly payments), or alternatively allowing furloughed staff to work but with a small state topup.

On Sunday, Boris Johnson is set to announce our lockdown exit strategy, so more detail should follow then.

For small business owners though, what’s crucial is not so much how and when the scheme will wind down (although of course that’s important), but the need to have a plan in place for once this does happen.

Furlough rotations

An interim measure that may be worth considering is furlough rotations. Employees can be furloughed multiple times (as long as it lasts a minimum of three consecutive weeks) so if your business is unable to sustain bringing people back from furlough permanently, you could look at flexing periods of work and furlough.

You can also rotate which members of your business or departments are on furlough depending on the current need of your company at any given time.

This might help alleviate financial stress, but also could help employees stay connected to the business. On the flip side, there are clearly administrative logistics to think of, and it may feel disconcerting for staff to come and go.

This is clearly not a long-term strategy, but could provide some short-term flexibility as we navigate this uncertain period of trying to reopen businesses and rebuild the economy.

Bringing furloughed staff back to work

For some companies, as soon as they are able to reopen they will automatically want to bring furloughed staff back to work.

However, this will not be a straightforward process, as remote working will most likely be encouraged for the foreseeable future (where possible).

It is expected that a return to work will be staggered by industry sector, so it’s important to keep abreast of government guidelines and advice. If you will be asking staff to return to work in an office or commercial environment, you will need to prepare coronavirus risk assessments and also expect concerns from employees, that will need to be handled with care.

It may also be true that you can only bring a skeleton staff back from furlough in the first instance, as trade may remain slow for a while, so it’s worth planning for a number of different phased return scenarios.

If you’re already operating remotely, and staff are furloughed for financial reasons (such as a reduction in revenue), it’s almost inevitable that this period of financial strain will continue for some time. In which case, can the business afford to bring staff back with its current cash position?

Adjusting working hours

One option to consider, if you’re unable to commit to bringing staff back fully, is to look at adjusting your employees’ hours. This will mean (in most cases) a renegotiating of contracts, so it’s more than just a simple conversation.

Think about what changes would need to happen to keep your business viable, and then consult with individuals on a case-by-case basis.

Be as upfront and honest with your staff as you can be. Whilst your team may not want to drop hours, if the alternative is redundancy (or worse the business closing), it could still provide a favourable option during this unprecedented period.

If you are able to agree changes that both parties are happy with, you will need to get it recorded formally, with the time period specified (it doesn’t have to be a permanent change), and then signed.

Preparing for redundancies

Of course, for some businesses the only option will be to prepare for redundancies, either for all staff on furlough or for a portion of them.

The government employee guidance says that “your employer can still make you redundant while you’re on furlough or afterwards” so you are able to start the process while staff remain furloughed.

This will obviously still be subject to the usual rules on redundancy. In some other European countries, certain restrictions have been placed on employers making redundancies but that isn’t the case in the UK at the moment.

If you do need to go down the redundancy route, it’s always going to be a tough process for everyone involved but unfortunately it may be the only way to keep your business afloat (and your remaining staff employed).

We have an expert guide on handling redundancies, but the key things to bear in mind are that you have good grounds for the decision, a selection criteria and a fair process.

Whatever option or options you decide to pursue, it’s crucial that you start thinking about it now. Try out different scenarios – and make sure you prepare not just for the immediate next few months but the longer term.

When the furlough scheme was first announced, it felt like after three months business may be returning to normal, but it’s evident now that this is just not the case. We are set for a very long road to recovery and while the government support packages are a huge help in some cases,  businesses need to prepare for sustainability beyond them.

Fluidly’s new modelling and scenario-planner tool allows you to compare a host of cost-saving options (including staff reduction) against your baseline forecast.  Join Fluidly Starter today and try Goal Planner for yourself.

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