Preparing your business for life after furlough

As the furlough scheme comes nearer to a close, it’s vital to ensure that your business is on strong financial foundations for life after furlough.

Preparing now both financially and for the return of your employees will be crucial to ensure a smooth transition for you and your team members.

Preparing now for an end to the scheme, with workers returning and the imminent impact on your payroll costs will help you to get ready for the scheme closure.

When does the furlough scheme end?

In the 2020 Budget, Rishi Sunak confirmed the furlough scheme would be extended to run until the end of September 2021.However, the support offered under the scheme will taper off over time.

What is the timeline on the wind down of the furlough scheme?

The future timeline is below and as a business owner, you should be planning now and considering your next steps to deal with an increase in payroll costs or assessing what your business staffing needs will be from September onwards.

The timeline for the wind down of the furlough scheme is as follows:

• From 1 September - the Government’s subsidy drops from 80 percent to 70 percent of salary, up to a maximum of £2,187.50 per month. Employers are already paying National Insurance and pension contributions.
• From 1 October - it will reduce to 60 percent, up to a maximum of £1,875 per month.
• On 31 October - the scheme is scheduled to close.

Will the furlough scheme be extended in 2021?

The furlough scheme has been extended several times since its introduction in March 2020, so it’s entirely conceivable that the Government could, if it decided it was necessary, extend it further. However, it looks likely that this would only happen if there was a further lockdown later in 2021.

Financial preparation for the end of furlough

There are several key financial areas of your business that you should consider preparing for the end of the furlough scheme.

Review your sales and revenue pipelines – you need to know what revenue will be coming into the business from October onwards. Look at your sales pipeline, revenue projections and a forecast of how much income will be generated post furlough and how this will affect your financial position to pay your increase in salaries.

Assess your cash flow and working capital positions – getting in control of your cash flow will be critical now and nearer the end of furlough as this financial support ends. Here at DNS, we can help with cash flow statements and forecasts and check that your business will have the required cash and working capital to cover your increased payroll costs.

Look for cost savings – if there’s likely to cash flow gaps come October, look now at the areas where you could potentially cut non-essential costs. Look at how you can free up cash, cut overheads and expenses.

Access to funding – assess if there is a way you could access additional finance to see you through the initial period of paying additional salaries again, so you have the money to keep people on.

Reviewing and forecasting the financial health of your business, balanced against your new requirements and plans will allow you to take the appropriate actions with a clear understanding of your business needs and deal with individuals needs with compassion.

Reviewing workforce requirements

The decisions you make on staffing will be crucial, so this will need plenty of thought and consideration. Reviewing what your production levels and customer sales are likely to be is essential to assess what people you will need to run your business post September.

Dealing with changes in business circumstances

Your business’ circumstances may have changed during the pandemic and you may have had to make difficult decisions around roles and responsibilities. But have you considered that some key team members may make personal decisions to not return, and you’re face with skill gaps because of lockdown? So, having initial conversations now with team members about their potential return work may help you to highlight areas of concern for both the business and your employees.

Reviewing your business needs

You should be regularly reviewing furlough agreements to see if employees still need to be on furlough or return to work.

Consider the following:

• What roles and skills are needed in the business?
• If all furloughed staff are needed back at the same time?
• If any employees are on furlough because theyre temporarily unable to work, for example if they’re caring for someone or are shielding and how long this must continue?

The pandemic has also offered new opportunities for business and their employees – for example, you may embrace demands for continuing remote working and take the opportunity to reduce office space and associated costs.

Planning return to work

If you have staff on furlough, now is also the time to plan their return to work. Remember that you can claim a grant of £1,000 per employee from the Government to support a return to work.

To end furlough, your employees must receive a notice in writing. Theres no minimum notice period for furlough, but you should talk to employees about any plans to end furlough as early as possible.

Allow your team members to have open conversations around return-to-work anxiety and options available to them. Consider if employees need to return to the business premises full time or part time? Are your premises safe and do your employees feel safe? Is remote working a viable option?

Potential redundancies

If cash flow is looking tight post September and none of the cost-cutting and funding options are working, then as a business owner you will be faced with some hard decisions regarding redundancies and losing staff.

Employees on furlough can be made redundant, but the process needs to be planned to avoid claims for unfair dismissal.

You need to be fully aware of new legislation ensuring that furloughed employees who are made redundant receive redundancy pay based on their normal earnings.

If you do need to reduce your workforce, don’t put off addressing the problem. Making redundancies is something that no business owner wants to do butnot tackling the issue in good time and in a structured way can often make it worse.

Addressing the issue as far in advance as possible means that an organisation can fully explore alternatives to redundancies first.

Alternative options to redundancy

Before considering redundancy, you should consider other alternatives for your employees and your business to work through what may be a difficult interim period.

For example:

Reducing working hours or changing place of work – Could you change an employee’s contract temporarily or permanently to amend their hours or place of work? All changes must be agreed with the employee.

Temporary lay-offs - You may be able to agree with some employees that they will not return to work immediately. This must be a short-term solution agreed by the employee and not a permanent change to agreed working hours.

Moving employees into other jobs - If your business needs have changed or you’ve restructured your business, you could move an employee into a different job role, with their agreement.

Remember, if you’re making any changes, you must make sure you’re updating their employment contracts accordingly and getting agreement from the employees.

Redundancy consultation process

If redundancies are needed, then it’s essential to plan for the consultation periods required. If employees are working from home, self-isolating or on furlough means that consulting with people may be a challenge. Consultations can take place over the phone or video conference if both parties agree to it.

Settlement agreements

A way of streamlining the redundancy process is through settlement agreements. This could help you and your employees through a very difficult time and is relevant if you are offering more than the statutory minimum redundancy entitlement. The agreement sets out the terms of the package for an individual, who waives their right to make any future claim arising out of their selection for redundancy.

What if your business has grown?

For some businesses, the last year has been a busy time. You may have adapted or diversified successfully, and your business has thrived.

Perhaps you don’t have any staff on furlough or just a handful. If this is the case, planning your financial future, goals and cash flow are still important.

Even if your business is thriving, it’s worth taking this time to consider the future growth of your business and indeed, it may be the right time to take on new employees as people are made redundant from other businesses.

The coming months may be a difficult for some companies with uncertainty, adapting and understanding the new normal. It’s essential to explore all available options, plan and take a structured approach to ensure a smooth transition for the business itself and your employees.

Here at DNS Accountants, we advise clients on how to prepare both financially and from a HR perspective for the end of the furlough scheme. Contact us now for help in planning your business needs post furlough.

About the author

Sumit Agarwal
Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants is a highly respected accountant with expertise in helping owner-managed businesses.