More of Britain’s biggest firms revealed plans yesterday to suspend tens of thousands of staff in a move which could cost the taxpayer up to £60billion over the next six months.
In a vivid illustration of the impact of coronavirus on the economy, British Airways, Nissan, Topshop owner Arcadia and energy firm Ovo all announced plans to furlough workers as they try to cut costs.
They join a growing list of household names, from Greggs to Costa, McDonald’s and Primark, which have already sent home 400,000 staff.
All plan to reclaim wages from the Government’s job retention scheme, which covers 80 per cent of salaries up to £2,500 a month.
Experts at the Centre for Economics and Business Research think-tank last night predicted that as many as 6.1million private sector employees could be furloughed.
That would cost the Government £30billion if they were off work for three months or £60billion if they were off work for six months, based on estimates by the Institute for Fiscal Studies (IFS). Once the self-employed are accounted for, the cost could hit £80billion.
The IFS conceded the totals were ‘uncertain’, but they underline the huge cost of the Covid-19 outbreak to the country.
The furlough scheme is not expected to be up and running until the end of the month, meaning many will have to get by for weeks.
And the number of those furloughed is set to spiral in the coming weeks. The British Chambers of Commerce estimates 44 per cent of firms expect to furlough at least half of their staff, and almost a third between three-quarters and all of their workforce over the next week.
There are now growing fears the Government may have underestimated the cost of subsidising the wages of Britain’s workforce, having already committed a £330billion rescue package for businesses.
The IFS’s Carl Emmerson said: ‘Large increases in borrowing are well advised to address this current crisis, but the consequences for the public finances will be felt long after the immediate public health emergency has hopefully passed.’
Yesterday British Airways confirmed plans to suspend more than 30,000 staff – roughly three-quarters of its workforce – until the end of May. Those furloughed include the vast majority of cabin crew, ground staff, engineers and those working at head office. Thousands of pilots have already been suspended with a 50 per cent pay cut.
Arcadia Group – the retail empire of disgraced billionaire Sir Philip Green which owns Topshop, Dorothy Perkins and Miss Selfridge – announced it would be suspending 14,500 of its 16,000 staff.
For shop workers, the furlough is effective from March 21 – when non-essential retailers were ordered to shut down stores – while most head office staff have been told they will be suspended from tomorrow.
Nissan also revealed the majority of the 6,000 workers at its Sunderland plant, which closed on March 17, will be furloughed for the remainder of this month, while energy firm Ovo will suspend 3,400 staff – more than a third of its workforce.
I’ve been furloughed: What does it mean, why are companies doing this and what happens next?
ByCamilla Canocchiand Jayna Rana For Thisismoney.co.uk
Until a fortnight ago, it’s unlikely many British workers had ever encountered the term ‘furloughed’, but now it is a concept that has been thrust into the spotlight by the coronavirus crisis.
Chancellor Rishi Sunak has unveiled a series of measures to cover the wages of millions of people suddenly left without work and prevent businesses going bankrupt due to the coronavirus crisis – and furloughing staff lays at the heart of it.
The so-called coronavirus job retention scheme enables businesses to continue paying part of their employees’ salary who would otherwise have been laid off because of the crisis.
Sunak said the Government will cover 80 per cent of salaries up to a ceiling of £2,500 a month – equivalent to the UK average wage of £30,000 a year.
Going home: easyJet just one among the many companies announcing a two-month furlough for its cabin crew who can’t work after the company grounded all of its flights
The scheme, open to all firms with employees, will be up and running by the end of April and backdated to March 1.
But in order to access it, businesses will have to ‘furlough’ their employees who they can no longer afford to pay.
This term, until now more or less unknown in the UK, is suddenly popping up everywhere, with easyJet just one among the many companies announcing a two-month furlough for its cabin crew who can’t work after the company grounded all of its flights.
Here we explain what furlough means and what it entails for workers and businesses.
What does it mean to be ‘furloughed’?
Essentially, if you’re being furloughed by your employer, it means you’re being sent home, but will still receive 80 per cent of your salary by the Government, up to a maximum of £2,500 a month.
This Government job retention scheme is only for employed people, it does not apply if you are self-employed.
However, you first need to agree to be put on furlough by your employer, who can then apply for the money to the Government. You cannot apply for it yourself.
Your employer can choose to pay the remaining 20 per cent of your wages, although it is not obliged to do so.
If you earn more than £2,500 a month, your employer can choose to ‘top up’ your salary, but again it is not forced to do so.
You will still continue to pay income tax and national insurance contributions while on furlough.
‘This has made me research my options and cut back on spending’
Amy Frankland-Hull is a Learning and Development Executive and has been furloughed, which has led to her having to take a mortgage holiday and cut back.
She said: ‘I was told last week that I had the option of furlough or redundancy.
‘I was told I was being placed on furlough until the Government ends the scheme, or the firm asks me to come back to work, or I leave.
‘This has made me research my options and cut back on unnecessary spending, such as buying new clothes. Fortunately, with the furlough cap being 80 per cent coverage of salary up to £2,500 a month, my company is covering the 80 per cent of what I earn above £2,500, so I am on 80 per cent of my full pay.
‘I have applied – and been accepted – for a mortgage holiday and I have also cancelled subscriptions to BT Sport and Sky Sports while there is no live sport on TV. I have also been doing online courses for personal development and have applied to do some volunteering work for the NHS.’
Can I be furloughed if I’m on a zero-hour contract?
Yes. Also if you’re on a flexible contract or are employed by an agency.
If you are on a zero-hour contract, which means you don’t necessarily earn the same amount each month, your employer should give you the 80 per cent of your average monthly salary since you started working.
That also applies to workers who have been employed for less than a year.
If you’ve worked for your employer for a year or more, you should receive 80 per cent of your average monthly salary, or 80 per cent of what you earned in the same month during the previous year – whichever is highest.
If you started work only in February, your employer will pro-rata your earnings from that month. But if you’ve started working on 28 February or after, you are not eligible.
If you have been made redundant after February 28, or even if you left a job after that date, you could be reemployed under furlough if your employer is willing to do so. Otherwise you will have to claim unemployment.
Gatwick’s North Terminal has shut with the South Terminal operating from 2pm and 10pm to cut costs, meaning most of the airport’s 2,500 staff will be furloughed this week
Can I be furloughed if I’m sick?
If you’re fallen ill and in the meantime your employer has had to shut down, you should first get statutory sick pay first, but can be furloughed after this.
Those who are self-isolating because of coronavirus can also be placed on furlough.
People who are ‘shielding’ and are vulnerable to potential severe illness caused by the coronavirus, can also be placed on furlough.
At the moment, employees can be furloughed from a minimum of three weeks up to three months, although the Government may look to extend that if needed.
‘I won’t be able to save any money for the next few months’
James Mooney is a medical claims assessor at a medical insurance company based in Surrey. He was furloughed this week which means he’s had to put a hold on saving to buy his first home.
He said: ‘I was furloughed on Monday but we were told last week some changes were going to be made in response to the coronavirus situation so it wasn’t that much of a surprise.
‘Essentially half the team has been furloughed while the other half, who have been employed the longest, will continue working from home.
‘I currently rent a flat with my girlfriend while we save up to buy our own place. Fortunately she is still working full time but with my 20 per cent pay cut, we can just about pay for the rent, bills and food.
‘We’re going to have to hold off buying new furniture and I won’t be able to save any money for the next few months. I haven’t done all the maths but looking at it quickly I think we should be fine.’
Which businesses can apply?
Any company with employees can apply, including charities, recruitment agencies and public authorities.
However, the Government does not expect many public sector organisations to apply, as ‘the majority of public sector employees are continuing to provide essential public services or contribute to the response to the coronavirus outbreak’.
Organisations who are receiving public funding specifically to provide services necessary to respond to the coronavirus outbreak are not expected to furlough staff.
Employers can furlough staff for a minimum of three weeks and are not allowed to rotate employees on furlough.
In order to access the scheme, businesses need to change the status of their employees to furlough workers and submit the information to HMRC.
HMRC are currently working to set up a system for reimbursing companies.
‘I’d like to think I will go back eventually’
Primary school teaching assistant Dawn Harrison from Hertfordshire was furloughed on 30 March, ten days after Boris Johnson announced schools would be closing in response to the coronavirus pandemic.
She said: ‘I’d never heard the term furlough before but after everything that’s happened and then with schools closing for everyone but the children of key workers, I knew it was coming for me.
‘I received an email on the morning of 30 March telling all staff at the primary school that furloughing was the next step and those who would be sent home would be called.
‘I received the call later that day. The headmaster was very compassionate and reassuring and I know it wouldn’t have been a nice call to have to make.
‘I’m ok with the situation for the time being and am trying to remain positive but that may change if we’re in the same situation in June.
‘I am fortunate that this hasn’t had much of a financial impact yet but I am concerned about what may happen to my husband, who works in the airline industry.
‘I’d like to think I will return as the schools will have to eventually go back. If being furloughed will save the school and my job, then it’ll be worth it.’
I have been furloughed, can I go and find a temporary job to earn extra money elsewhere?
You can do other work to earn extra money while furloughed but you should check with your employer first.
There may be something in your contract that says you cannot do this, or that you have to officially ask if you can and they could say no. If you are struggling financially, make sure that you mention this in your request.
The official Government line is that if your existing employment contract allows then you are free to seek another job while on furlough and your 80 per cent furlough pay will not be affected.
Obviously, if your employer is topping up your furlough pay, then asking if you can do work elsewhere to earn extra money is a tricky issue.