Our personal finances have changed a lot in the last few months so we’ve asked Laura Whateley, our Real Money Correspondent, to help us get to grips with what this really means for our money. Here she explains upcoming changes to furlough and what they mean for your rights.
Over nine million jobs are now furloughed, or in simpler terms, have been put on ice until it is hoped businesses can find ways to reopen and pay workers wages in full once again.
The government introduced us all to the word “furlough” in March, when it announced the Coronavirus Job Retention Scheme (CJRS) as a way of trying to avoid mass redundancies when everything from construction sites and nurseries to theatres, restaurants and yoga studios were forced to shut under lockdown.
The original scheme paid 80 per cent of furloughed workers wages up to a maximum of £2,500 a month. You could be furloughed for a minimum of three weeks, and during the time you were furloughed you were not allowed to do any work for your employer, though most people were free to try and find paid or voluntary work elsewhere.
As of July 1 the scheme becomes more flexible, and more complicated. So what is the situation for furloughed workers, or those who are unable to work, now? Here’s what you need to know:
Who can be furloughed?
Anyone who was on their employer’s payroll on March 19 2020 could be furloughed under the original scheme, which lasts until October. However, it’s now “closed” to new people, which means that you can’t now be furloughed for the first time if you haven’t been furloughed for at least three weeks already.
There is an exception for those who have been on maternity or parental leave, who are about to come back to work, as long as other people in the company had been furloughed before June 10 2020.
You can be put on furlough because there’s no job to do at the moment, or because you have childcare responsibilities, are pregnant, shielding or someone else in your household is shielding. You have to agree to it, as does your employer.
How much money will I get if I’m furloughed?
At the moment the government will pay 80 per cent of your wages up to a maximum of £2,500 a month as a grant, which means you don’t have to pay it back but the money you receive will be taxed.
Your employer can decide to top this up but, sadly, they don’t have to. It means if you’re on furlough you’re going to have to budget hard.
Chris, who is 38 and lives in a small village in Kent, was put on furlough at the start of the pandemic. In his Real Money Story, he told Zopa the first thing he did was go to his list of outgoings he set up when trying to tackle his debts. He looked first at the highest value outgoings due to come out of his account, including his mortgage and repayments for a loan. He decided to go on a mortgage holiday, speaking to his bank to ask for a break from full monthly repayments for a while – though these will be due eventually – and reducing his loan repayments by two thirds a month via an online form. You should always contact anybody you owe money to check if you can have a payment holiday. Don’t just stop paying as this will badly affect your credit file.
“I’ve learned to budget every month” says Chris, “look at what your future bills are going to be, what are important, what are not important. Can I spend that? Can I not spend that? Sometimes there are reasons to go outside of it. You need a new boiler or to repair a tyre puncture or some school clothes for your children but if that’s the case and you do need to borrow a loan make sure you can repay it. You might want to get that extra £1,000 on a loan, but if you cannot afford it, it isn’t worth it.”
How is the scheme changing?
The original job retention scheme stipulated you couldn’t work for your employer while also getting furlough pay, but as of July 1 you can now be brought back to work part time. Any hours where you work your employer pays your wages, and the government tops up to 80 per cent of the rest.
You can work any number of hours, and they can vary, a few here and there, more one week than another, and you should be paid normal wages for the hours you are working.
The amount that you get from the furlough scheme is slowly going to reduce, though, tapering down until October 31 when the scheme ends.
In August your employer will have to pay more. You still get 80 per cent of your salary, up to £2,500 a month, but they must cover national insurance and pension contributions (see more on pensions below).
In September the government will reduce their part of furlough pay down to 70 per cent of your salary up to £2,190 a month. Your employer will need to top up the additional 10 per cent, hopefully they might decide to top it up more.
In October the government pays 60 per cent of your salary if you’re furloughed, up to £1,875 a month. Your employer needs to supplement the remaining 20 per cent.
Your rights while you’re furloughed
If you are on furlough you don’t lose any employee rights. You’re still entitled to holiday but if you take time off while you’re furloughed your employer will have to make up the rest of the grant so you get the normal amount of holiday pay.
You are entitled to sick pay at the normal rate, too.
If you are on maternity or parental leave you can still be furloughed, this won’t affect your legal statutory parental leave pay, but it might mean that you get less from your employer if your employer usually offers more through contractual maternity pay. There lots of useful guidance if you are pregnant or on leave with a small baby at maternityaction.org.uk.
What about pensions?
If you have an employer you’ll have been automatically enrolled into a workplace pension. That means you contribute a percentage of your salary, as does your employer, into retirement savings. Under furlough the government will pay the amount that you’d normally expect to receive from your employer until August when your employer will start paying into it again instead.
Some employers top pensions up beyond the legal minimum they have to contribute, which they might continue to do, but others are deciding to reduce how much they put into company pensions to save money at the moment.
You might be tempted to come out of your company pension if money is tight, but I’d avoid this if at all possible. If you stop paying into a pension you’ll miss out on “free” money, as well as the benefit of tax relief and the power of long-term compounding savings.
What happens in October?
The Chancellor has made clear that this is the end of the scheme, at which point you’ll be expected to return to work as normal. In order to encourage businesses to hold on to staff, there is a new incentive – a £1,000 bonus for every furloughed worker brought back and kept in employment until at least January. Of course, we don’t yet have any idea how many businesses will still be struggling and whether you might find your job no longer exists, you’re facing redundancy or reduced pay and hours.
Laura Whateley is a freelance writer and author of Sunday Times bestselling book Money: a user’s guide. She has written for a wide variety of publications including The Times, The Guardian, Grazia, Refinery 29, Elle and Stylist Magazine. All views are her own.