Furlough: what does it mean and how does it affect me?

The coronavirus outbreak has put the future of many businesses, both big and small, at risk. To help, and to avoid permanent job losses, the government has said it will cover 80% of “furloughed” employees’ wages under the Coronavirus Job Retention Scheme. But what does being “furloughed” mean?

What is furlough?

Being furloughed is essentially a leave of absence, similar to being laid off. But it differs from being laid off in that you will continue to be paid. The government will cover most of your salary to help employers hang on to staff if they are forced to shut their business temporarily.

So I still get paid if I am furloughed?

Yes. Under the Government’s Coronavirus Job Retention Scheme, all UK employers can access financial support to continue paying part of workers’ salaries. Employers can claim up to 80% of workers’ wages, up to a cap of £2,500 per employee per month.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

But will my pay get cut?

Employers can choose to fund the differences between the government’s contribution and a worker’s usual salary, but they don’t have to. So, yes, your pay could get cut.

Do I still have to work during furloughed leave?

No. It’s important that you do not undertake work for your company in order for you to qualify for the Coronavirus Job Retention Scheme.

How do I apply for the scheme and claim my money?

You don’t – your employer must apply for you. Once an employer applies for the scheme, it will inform furloughed employees of this change. Employers then submit furloughed employees’ wages through an online portal created specifically for the Coronavirus Job Retention Scheme. Your employer will inform you of any pay cuts, but money should still come in as normal, as your employer will have 80% of your wage reimbursed by HMRC.

How long does this scheme run for?

The Department for Business, Energy and Industrial Strategy said: “We intend for the Coronavirus Job Retention Scheme to run for at least three months from 1 March 2020, but will extend if necessary.”

What happens afterwards? Will I be kept on?

Unfortunately, we can’t answer that one. The point of the scheme is to avoid redundancies and staff cuts, so ideally yes. However it’s unclear how much longer this will go on for and the state companies will be in after.