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Harriet Whitehead: Does furloughing work for charities?

08 Apr 2020 Voices

The government's Coronavirus Job Retention Scheme can only do so much to help charities with increased pressure on frontline services, Harriet Whitehead reports

During the Covid-19 pandemic charities are seeing significant income losses. One option is to use a new government scheme to place staff on leave for a period and claim a government grant to cover the cost of most of their wages.

Some charities are able to furlough staff on the government's Coronavirus Job Retention Scheme, but where there is also significant increase in demand for services, furloughing staff when they are needed most feels counterintuitive.

For example, Sue Ryder, which provides end-of-life care for 5,000 people each year, says that it faces a £12m financial black hole over the next three months and has warned that it is on “the brink of closure” as a result of the crisis. 

Who is eligible?

The retention scheme is open to all UK employers for at least three months starting from 1 March 2020. It is designed to support employers whose operations have been severely affected by coronavirus.

Employers can use a portal to claim for 80% of furloughed employees’ usual monthly wage costs, up to £2,500 a month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that wage. Employers can use this scheme anytime during this period.

Furloughing staff still needs to follow employment law. So, unless an employment contract has a clause that allows the charity to lay off staff, there will need to be a period and a process for consultation

Employers cannot reduce staff hours and treat the difference as furloughing. 

For frontline services where employers receive public funding for staff costs and that funding is continuing, the government expects employers to use that money to continue to pay staff and therefore not furlough them.

There are also potential cash flow risks due to the timescales involved so charities should plan ahead around the employment law aspects, whilst we await the detail.

Which charities are furloughing staff?

Certainly, it makes sense in some cases for charities to furlough employees during the pandemic. Most theatres, parks, and shops cannot operate because of social distancing guidelines and staff should be able to return to work following the pandemic.

The National Trust will furlough up to 80% of its staff as many of its usual sources of income are unavailable while the Trust cannot trade due to closure. This is arguably the best course of action during the pandemic.

Cancer Research UK (CRUK) has also said it will furlough up to 1,800 staff. It will be placing all of its retail staff on furlough as all of the charity’s 600 shops in the UK have been closed since 20 March.

But although the scheme has been adopted by some in the sector, it will not help charities who cannot furlough staff and need to keep them working safely to deliver much-needed services.

While the government has not yet produced an emergency package for the sector, multiple charities have said that they will be forced to use the furloughing scheme where it could still jeopardize the charity.

CRUK is currently reviewing other roles that could be placed on the scheme. It has also made cuts to its research funding by £44m, which it has said could set it back for years.

Significant loss in income has also forced other charities to furlough staff.  The sector is set to lose around £4bn in three months.

Barnardo's has said it will furlough 3,000 staff as a third of its income was “wiped away overnight’, and Oxfam is to furlough two-thirds of its UK staff.

Meanwhile, Alzheimer’s Society is placing 20% of staff on either furlough or reduced hours as it faces losing around £20m of fundraised income this year. Age UK has also furloughed approximately 70% of its staff.

'We’re worried about what the future holds for us'

Muscular Dystrophy UK has placed 60 percent of its employees on the scheme and employees who are not being furloughed have agreed to a 20 percent pay cut and reduction in hours from 13 April for an initial period of three months.

Catherine Woodhead, chief executive at Muscular Dystrophy UK, said: “Asking our staff to do this hasn’t been an easy decision. But we’re worried about what the future holds for us. Without financial help – whether that’s from the Government or through other means – we will struggle to survive.”

Gill Staunton, head of people operations at the British Heart Foundation, said its top priority has been protecting the health and wellbeing of its staff, volunteers and beneficiaries, it closed its shops and has cancelled many of its fundraising events.

Now the charity is considering using the government’s job retention scheme.

“Like many charities, the crisis is going to have a big impact on our income – the extent of which will only be known when we’re through it. However, we are reviewing the situation daily, and doing all we can to minimise its impact on our people, our research programme, and the vital support we give people with heart and circulatory disease,” Staunton said.

Furloughed employees volunteering for job swaps 

To be eligible for the subsidy when on furlough an employee can not undertake work for or on behalf of the organisation. 

A furloughed employee can, however, take part in volunteer work or training, as long as it does not provide services to, or generate revenue for, or on behalf of, one's own organisation.

One possible solution might be for furloughed employees to job swap in a volunteer capacity. 

Ostensibly this seems like a practical solution, but further clarification is necessary because HMRC has said it could carry out retrospective audits.

Peter Woodhouse, partner at Stone King LLP, cautioned against this until further clarification is given by the government. 
Woodhouse said: “If charities are using furloughed staff to provide services to their own organisation (via another charity) they may be in breach of the guidance. 
“Of course, this interpretation is subject to further clarification from the government in due course,” he added.

The Charity Commission was not able to offer any opinion about job swap schemes, stating that it is for government to make the rules clear, and for charities to follow them.

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