What Can I do if I am Unable to Pay My Staff when Furlough Ends?

The furlough scheme

The government made different initiatives available to save businesses from collapsing as a result of the coronavirus pandemic. Among the many measures introduced, the Coronavirus Job Retention Scheme (CJRS), which was introduced in March 2020, is one of the most successful and widely used schemes.

The CJRS allowed employers affected by a decline in trade due to business interruptions caused by coronavirus to furlough employees who for whom there isn’t an adequate job. About 80% of the employee’s salary – up to a monthly limit of £2,500 – was taken care of by the government.

If the employers wish, they can top it up to 100%. Starting from July, business owners had to contribute 10% of furloughed employee’s wages, and their contribution will increase to 20% in August and September.

What can I do if I can’t afford to pay my employees at the end of the furlough scheme?

One of the key elements to run a business is to ensure that your employees are paid on time. Failure to do this can cause serious financial problems for your company.

The scale of interruption is large as many businesses are being forced out of operations due to the pandemic. A lot of companies have exhausted their cash reserves, causing severe cash flow problems. Rectifying this problem will take time since the primary source of income is derived from sales, both to new and existing customers.

If you can’t afford to pay your employees once the scheme ends you have some options available to you depending on your circumstances. You may be able to borrow extra money if you think there is a chance of recovery, you may have to make redundancies if you need to save money, or you may need to close the company down if its prospects are bleak. We cover these in more detail below.

Think about funding to boost your business cash flow

You can improve cash flow by taking short-term funding if you are certain that your business will bounce back to its usual operations before the pandemic. Doing this can instantly reduce the financial pressure on your business, making it possible to pay your employees as you direct focus on increasing sales.

For sure, you will definitely pay this money back; thus, it is important that you only take this option if you are confident that your business/company will be able to bounce back.

If you plan to obtain emergency funding for your business, you can seek assistance from a professional to secure the most suitable, cost-effective funding option.

Can I make staff redundant after the furlough ends?

Business activities/operations may never be the same or return to normal after the COVID pandemic. For instance, practicing social distancing may affect the number of customers a business can accommodate. You may be compelled to release some of your staff to accommodate this decrease in customer levels.

If you have in mind to make redundancies at the end of the furlough scheme, then ensure you adhere to all government guidelines to keep yourself safe from the risk of unfair dismissal claims that may come up in the future. Ensure the selection process for redundancy is fair and carried out correctly. You can find out more on the ACAS website.

How does the furlough scheme affect holiday pay?

Furloughed staff are still entitled to holiday payment during this period. If an employee was placed on furlough when the scheme started in April 2020, after a year, it is sensible to assume entitlement to annual leave. This could lead to financial and logistical problems for the employer when staff return to work.

If your staff did not opt to use their holiday entitlement during the period of furlough, they will return to work with an inflated annual leave amount, which will be taken over another 2 years.

This means that your business will be under-staffed during the period you need all hands on deck to facilitate the process of business recovery.

You can restrict annual leave entitlements provided you have a valid reason for this decision. And with the new regulation, business owners can now roll over annual leave into the next 2 years in order to increase flexibility as they manage business operations and workforce during this period.

Even though this may not be a problem for your business, you still need to consider paying for annual leave since your employees are entitled to it. You should seek help and advice from a professional if you feel you cannot keep up with holiday pay for your employees after furlough.

It is important to note that employees are still entitled to all holiday pay accrued (but not taken) even after they are made redundant. Normally, this is paid as a lump sum payment in the final payment of the redundant staff. Accumulated holiday pay during the furloughed period will be added to the cost of making any employee redundant at the end of this scheme.

Closing the company down when furlough ends

If the furlough scheme coming to an end looks likely to have a devastating effect on you company then it may be time to consider closing it, this may really be the best option if the business is not viable and needs to be closed to make sure no more debt is built up. The best way to do this when you have staff is to liquidate the company.

A Creditors Voluntary Liquidation (CVL) may be the best solution if your company is struggling with debt, cash flow problems, or suffering from creditor pressure. During a liquidation the assets and/or funds are sold to pay back creditors what they are owed.

If there aren’t enough assets then you may be able to make a redundancy claim from the Redundancy Payments Office which can be used to cover the cost of a liquidation. Redundancy claims can also be made by all the staff affected by the company closure.

Worried about what will happen to your business after the furlough scheme ends?

The furlough scheme will meet its end for good coming September 2021, with the narrowing of support from the government which started earlier in July. Unfortunately, some companies will discover that they cannot survive once cost returns and financial support are reduced.

Now is the time to seek professional help and advice if you believe your company will find it difficult to survive at the end of the furlough scheme.

We can provide suitable options that may benefit you and your company, such as going into formal negotiations with your creditors on your behalf via Company Voluntary Arrangement (CVA), company restructuring through the process of Administration, or liquidation if we discover that it will be difficult for your company to recover from its financial pressures.

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