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Thousands could lose their job after furlough scheme changes

The changes to the furlough scheme are having a a huge impact on already struggling UK businesses.

As of Sunday (1 August) employers now have to contribute 20% instead of 10% towards the salaries of employees on furlough.

The British Chamber of Commerce (BCC) polled 250 businesses with employees still on furlough and one in five (18%) companies are planning on letting staff go as a result of the schemes top-up changes.

A quarter (25%) also said they would decrease working hours or move staff to part-time patterns.

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The BCC warned the latest reduction in furlough aid will lead to thousands of job losses and has called on ministers to ensure those impacted can retrain.

Keely Rushmore, employment partner at Keystone Law, said the news that a significant proportion of businesses are contemplating redundancies as the furlough scheme winds down is perhaps not a surprise. 

She told HR magazine: “To date, many employers have held off implementing restructures, with the safety net of the furlough scheme giving them an opportunity to assess the needs of their business as they move back to towards normality.

“Even those who are expecting their business to bounce back to pre-pandemic levels may well have incurred irrecoverable costs during the pandemic.

“This means that it is crucial they maximise profitability going forward. As part of this, employers are likely to consider whether they can cut their staffing costs.”

Rushmore said the increase of employer contributions to the furlough scheme could impact UK businesses that are already struggling.

She explained: "In addition to employers’ National Insurance and pension contributions, employers became obliged to contribute 10% of furloughed employees’ pay from 1 July 2021, and this increased to 20% (i.e., a maximum of £625 a month) from 1 August 2021. 

"This is a substantial amount to pay employees who are not actively working, especially if multiplied across numerous employees.  Considering some organisations may not have reached levels of business anywhere near the pre-pandemic levels, this has taken a heavy toll." 

As such, Rushmore said for those businesses which have been under a financial strain already, this increased contribution could prove to be the last straw, unless swift action is taken to cut costs and liabilities and/or increase profitability.

Rushmore said the role of HR has been more crucial than ever during the pandemic, and it is likely that this will continue as they assist their organisations to navigate out of the operational, financial and legal difficulties caused by it. 

"She said: "HR will need to work closely with their finance department and managers in order to understand the company’s financial situation and what savings may need to be made, and where those savings will come from. 

"If restructures and redundancies are necessary, HR will need to advise managers on putting together sensible business cases, as well as implementing the restructure and redundancy process."

Budgeting for savings to be made as a result of a restructure may work, but Rushmore said if the process is flawed and legal action from employees follows, those savings could potentially be wiped out, putting the business at risk again.