Budget 2021: Understanding the furlough extension

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As a Board Director for MKBLP, Simon deMaid offers the group guidance on legal and governance. A member of the Employment Lawyers Association, and Partner at Howes Percival, Simon is well placed to offer his thoughts on the extension to the furlough scheme, as announced in this week’s budget:

Furlough has been extended a number of times already, and will now be extended for a further five months, until 30 September 2021.

Employees will continue to receive up to 80% of their salary (up to a maximum of £2,500) for hours not worked, and employers are currently liable for National Insurance contributions and pension costs and this will continue to be the case until 30 June 2021.

As we saw last summer, employers will bear more of the costs for unworked hours as the scheme winds down, 10% in July and 20% in August and September.

The extension of the scheme past the key date of 21 June 2021, should allow businesses to get back up and running.

As the economy reopens, businesses may start to see a return to usual market demand before having to take on full wage costs.

Increased contributions for employees’ furloughed hours will only kick in from July, rising again in August until the scheme ends.

Employers will face increased wage contributions to 10% from July for furloughed hours, with another increase to 20% for August and September.

The extension of the scheme may not alleviate all job losses and will largely be dependent on how quickly demand returns to impacted businesses, but will be welcome for many businesses who are still experiencing the effects of lockdown and reduced demand.

As the planned reopening of the economy starts from 12 April, we could see a return to ‘normality’ from 21 June 2021, and the extension of furlough should assist businesses getting back on their feet.