I cannot afford to pay my staff when furlough ends – what can I do?

Many business owners are worrying that ‘they cannot afford to pay staff when furlough ends’ and they are wondering what solutions are available to help.

Due to the Coronavirus, the government created the Coronavirus Job Retention Scheme, or the Furlough Scheme, which covered 80% of staff wages up to £2,500 per month.

The Coronavirus Job Retention Scheme helped many businesses retain their staff and continue trading, despite cash flow problems.

Full-time workers, part-time workers and agency workers, were all eligible to be placed on furlough.

Now that the Coronavirus Job Retention Scheme scheme has come to an end, many companies are concerned that they won’t be able to fund their staff wages out of their own pocket.

Keep reading to find out what options you have to help you pay your previously furloughed employees.

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

If you cannot afford to pay your staff wages, once the Coronavirus Job Retention Scheme has ended, there are a few options you can take.

For example, you could consider taking out a business rescue loan, make redundancies, or even close your company down.

Being unable to pay your staff after furlough pay has ended can cause your business serious financial difficulties.

The pandemic caused many companies to cease their trading, which has significantly reduced their cash flow and their cash reserves.

Without company funds, operating a business can be difficult and you might struggle to pay essential company expenses.

Take out commercial funding

If you need to increase your cash flow after the furlough period has come to a close, you could consider taking out a business loan.

A commercial loan is only a good idea if you know that your company can bounce back from any shortfalls in its capital.

Taking out a business loan can ease financial pressure, as you will be able to pay employees’ wages and make any redundancy cashouts.

Remember that any loan you take out will need to be paid back eventually. Never take out a commercial loan that you know you won’t be able to pay back, as this will only add to money worries.

Always speak with a professional debt or financial advisor before taking out any commercial loan.

There are many debt charities that can offer free confidential advice to your business and help you find a suitable solution for your unique situation.

Make staff redundant

Your business may not be able to operate in its usual way due to the aftermath of COVID-19.

For example, many establishments have had to reduce the number of workers and customers due to social distancing.

Due to limited customer intake, you may also feel the need to reduce your workforce, to meet the lowered consumer activity.

The Furlough scheme didn’t mean you had to place all your employees on furlough. You may have only retained your most essential workers.

Redundancy for furlough employees

Once furlough has drawn to close, you may not be able to retain the employees who had been placed on furlough, as you might not be able to afford the national minimum wage for them all.

You are permitted to make staff redundant after the end of the furlough scheme. However, you need to make sure you do in accordance with government guidelines.

Furloughed employees can file unfair dismissal claims against your business if they feel you have laid them off without just cause.

So, it is crucial that if you need to make staff redundant, you do so ethically and fairly.

Close your company down

If the end of the furlough scheme is going to send your company into a downward spiral towards debt, then it may be wise to consider shutting up shop.

The furlough agreement allowed companies to maintain their staff, however, if your company cannot manage without the furlough scheme, then it is unlikely you should continue trading.

The most efficient way of closing your company, if you hold many employees, is through liquidation.

Creditors Voluntary Liquidation (CVL)

Through a Creditors Voluntary Liquidation (CVL) your company’s assets can be sold to pay back the funds owed to creditors.

A CVL tends to be initiated by the company directors of an insolvent business. when there is little to no hope of any form of business rescue.

If the cost of your assets doesn’t cover your redundancy costs, you can make a redundancy payment claim.

All redundant furlough employees can make a redundancy claim within the claim period.

Take a look at the best CVL companies in the UK.

How to ensure your redundancy process follows government guidelines

Since the Coronavirus Job Retention Scheme ended, there have been strict guidelines put in place to ensure redundancies are fair and legal.

You may not be able to keep every employee on furlough since the scheme has ended, but you need to be very careful with how you go about dismissing your staff.

As company directors or employers, you have the following legal requirements:

• A fair selection process– You must consider and abide by the rights of the employee by keeping in accordance with the employment contract.
• A consultation with the employee – You need to make your staff aware that there is a potential for them to be made redundant. The aim of this consultation is to let your staff discuss the matter with you and ask any questions they might have.
• A notice period – An employer legally has to provide their redundant staff with a redundancy notice period, which is based on the length of time they have been at the business.
• Redundancy payments – Employees are entitled to statutory redundancy payments provided they have been at the business for two years or more.
• Alternative employment opportunities – The company should assess other sectors of their business and see if the eligible employees at risk of redundancy could be transferred to another department.
• Time to find new employment – The employer needs to allow for temporary leave for job interviews within the redundancy period.

Learn more about the redundancy process and guidelines.

How does the furlough scheme affect holiday pay?

Within a flexible furlough agreement, your employee’s statutory sick pay and statutory holiday entitlements remain the same.

If the furloughed employees might not take their holidays, due to the Coronavirus restrictions making travel or socialising much harder, this may mean employees can accrue statutory holiday entitlements.

Accruing holidays can cause problems for a company once the furlough scheme has been terminated, as staff members may be entitled to more days off, resulting in increased holiday pay settlements and potential understaffing.

Overdue holiday pay can cause many problems for your business, however, you cannot choose to disregard holiday pay, as your employees were still entitled to holiday whilst they were on the flexible furlough scheme.

Employees who have been placed on furlough and then made redundant will be entitled to receive redundancy pay based on their furloughed hours and any holidays they have accrued.

Do I have to pay for bank holidays?

Holiday pay varies but it always includes bank holidays.

If you cannot afford to make payments for any bank holiday claim periods or any other holiday entitlement payments, then you need to contact a financial advisor as soon as possible.

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

Within your staff’s employment contract, there are stipulations for statutory notice pay, statutory maternity pay, family related statutory leave, pension contributions, national insurance contributions and sick pay.

If, after the furlough scheme has drawn to a close, you will be under severe financial pressure to make any of these legal payments, then you need to consider what options you have.

Seek free confidential advice from a registered insolvency practitioner, or debt charity, if you don’t think you can afford your employee’s normal wages or any commercial contributions that fall under employment law.