The Value of Furlough for Business

We thought furlough was challenging but flexible furlough is proving even more so!

As a payroll bureau working with businesses employing between 2 and 50 staff, furlough has been important for many of our clients during lockdown.  It has been interesting to see how the number of staff furloughed each month has reduced as businesses have found a way to keep trading.  Some business owners changed their business model whilst others couldn't because they were at the mercy of suppliers who couldn't supply materials.  It must have been frustrating for business owners who wanted to trade but couldn't because their supplier had furloughed their staff.  

As a payroll bureau we have been able to see how businesses have used the furlough scheme and how their staff very quickly came off furlough once they were able to start trading again.

Initially over 60% of the employees we process payroll for were furloughed as employers worked out how to manage their business and their trading.  By the end of month 3 it was down to 37% of employees and whilst I don't yet have a percentage for July we already know that many employers have the majority, if not all, of their staff back at work.  And less than 0.01% have been made redundant so far.

This is a good indication of the resilience of small businesses and their ability to adapt to a changing environment.

Of course there will always be redundancies in business; it is not unusual when working in payroll to have redundancies from time to time.  This period of time has enabled businesses to review their business model, their processes and their staffing, so it is inevitable that over-staffing will have been identified.

We are now in the middle of working on flexible furlough for July and whilst we thought every business would be taking the opportunity to claim for staff they don't need over what is frequently a quiet summer period for most, we have been surprised how many businesses have not used this scheme.  We are very grateful to them!

The calculations for flexible furlough in July are very complex because they involve calculating pay, Employers NI and Employers Pension proportionately based on hours worked.  It also involves topping up pay proportionately for those that are being paid 100% whilst on furlough or whilst on holiday.  In addition we have to ensure that employees have furlough pay calculated at their February pay rate and their worked hours at their current rate which will differ from February for all those employees who had a pay rise in April due to the minimum wage or their employment contract.  

So many things to remember to check and calculate!   The calculations have to be done manually because the payroll software just can't do these complexities.  The HMRC calculator is valuable to check a calculation but is far too time consuming to use when you need to do 40 of them!

Furlough has been so valuable to businesses who have not been able to trade for several months and have no income but have still had to pay rent, utilities and insurances.  Business loans have not been viable for many small businesses because there still has to be a way to pay them back once the business begins trading again and if there are other loans and other commitments it puts too much strain on the business.

Flexible furlough will continue to be of use to those businesses who do not have the trading income they did before but want to retain staff for when business gets back to normal.  

So payroll will continue to be challenging for a few months longer.  When we get to November, payroll will be done in a fraction of the time and we will be wondering what we have forgotten to calculate!

Good luck to all those payroll administrators who are applying the new flexible furlough rules this month!