July furlough changes – what you need to know

A brief reminder of the changes to the structure of the Coronavirus Job Retention Scheme (furlough scheme) from 1st July 2021.

By designating employees as “furloughed”, organisations have been able to recover a portion of employee wage costs up to a £2,500 cap. As confirmed by the Government Budget delivered on 3rd March 2021, the scheme will continue to operate until the end of September 2021 with some adjustment to funding levels from July 2021.

Until the end of June 2021, the grant was 80% to a maximum of £2,500 per employee per month for hours unworked. Employees on full furlough (not working any hours at all), got 80% of their wages per month unless their employer decides to top it up to 100%. Where an employee is on flexible furlough (working only some hours), they were paid in full by their employer for the hours they work and the grant will cover 80% of pay for their unworked hours only, subject to a cap which will be less than £2500.

Now into July, for 1st July 2021, the Government’s grant will reduce to 70% of furloughed employees’ wage costs for their unworked hours at a cap of £2,187.50. Pay for furloughed employees must remain at a minimum of 80% at a cap of £2,500 which means that organisations must contribute 10% up to £312.50 from their own pocket. Further changes continue into August.

From 1st August 2021 until the scheme ends, the Government’s grant will reduce a final time to 60% of furloughed employees’ wages for their unworked hours at a cap of £1,875. With the 80% rule still intact, organisations will need to contribute 20% to staff wages up to £625. Therefore, from July through to the end of September, organisations will have to cover a portion of the employee’s actual wages, as well as the national insurance and pension contributions.

The furlough scheme has been somewhat of a saving grace for a lot of organisations whilst lockdown restrictions have been in place. As these restrictions are slowly eased, based on coronavirus data, organisations may find that they no longer need to make use of the scheme, or it may be that flexible furlough takes centre stage. Either way, organisations will need to consider how they can accommodate the upcoming changes with redundancy as a last resort.