IKEA is one of a number of employers that has announced it will pay back furlough money
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The coronavirus pandemic has uncovered all manner of issues for organisations beyond the practical challenges of working from home and ensuring employees’ physical and mental wellbeing is stable.
Few might have predicted how many decisions would place businesses in a moral grey area: should we put staff on furlough, who should we bring back to the office, how much support should we claim from the government when we can’t predict how business will go over the next few months?
The past week has seen a number of announcements from employers that they either plan to pay back money they claimed under the Coronavirus Job Retention Scheme, or will not take up the chancellor’s offer of a job retention bonus of £1,000 for each employee they bring back off furlough.
Online fashion retailer Asos joined Taylor Wimpey, Ikea and a number of other organisations in announcing last week it would pay £1.8m back in furlough. This weekend Rightmove and Compass were the latest to announce they would not accept the job retention bonus, following in the footsteps of companies such as Primark, whose recent decision will save the public purse £30m.
How to pay it back
Clearly, announcing an intention to pay back government support money will create a level of goodwill around an employer, but the mechanics of it at the moment are unclear.
A spokesperson for HMRC said: “Some businesses have stated publicly that they are in a position to repay their furlough grants and wish to do so. This is entirely a commercial decision for businesses but for those that do want to repay we will provide practical guidance on how to do so. This is in response to requests from the business community and does not mean that grants should be repaid by those who need that financial support.”
But Kirsty Churm, senior associate in the employment department at Kingsley Napley, says that there could be another reason why a number of companies might decide to pay back the furlough money.
The Finance Bill 2020, which had its second reading in the House of Lords on Friday (17 July), contains legislation that will enable HMRC to recoup money from employers that did not use the scheme properly. There will be an “amnesty” of 90 days (after the Bill receives Royal Assent, likely to be later this month) where employers can get in touch with HMRC about any miscalculations, and they won’t be subject to any financial penalty.
However, if not, HMRC can impose a tax charge equivalent of up to 100% of the grant to which any recipient was not entitled and was not repaid. “If you don’t take advantage of this amnesty, you could end up paying double,” says Churm. “There has been an element of deliberate furlough fraud but some businesses may have just made a mistake with their CJRS applications inadvertently. As things calm down, businesses may be looking at whether it’s worthwhile repaying any incorrectly claimed grant now before the Finance Bill comes in to avoid penalties.”
Good for business?
Anna Birtwhistle, employment partner at Farrer & Co, believes that – despite the positive headlines – the number of companies that will actually pay back the furlough money will be relatively low. With predictions from the Office for Budget Responsibility that 1.3 million will come straight off the scheme into unemployment, being able to repay the grant will likely be the exception rather than the rule.
“You can see there’s a pattern in some industries – [housebuilder] Redrow was soon followed by Barratt, for example – so there’s a reputational aspect where certain companies may keep an eye on what their competitors are doing,” she says. In publishing, The Telegraph and The Spectator announced their intentions to pay back the money within days of each other.
But for most, the uncertainty surrounding the remaining months of 2020 and beyond mean any decision to pay back the money is unlikely. “If companies rush to pay the money back, there’s a second spike and they need to make redundancies, that could be damaging for their reputation,” she adds.
Edwin Morgan, director of policy at the Institute of Directors, agrees: “Government support has rightly been provided to help companies and workers through these desperate times, and it will only be the rare business that is able to return funds.”
There could also be a knock-on effect for morale if circumstances change, says Ross from Crossland. “If you have a large workforce the furlough bill will be substantial. It won’t sit well with employees later down the line if you have a £2 million hole in your budget because you paid it back, and now you need to reorganise,” he says.
From a strictly legal perspective, however, there would unlikely be ramifications if an organisation needed to make redundancies after having paid back furlough money. Ross adds: “The court would look at your thought process at the time. Being able to pay it back at one point doesn’t mean the dismissals are unfair if there’s a second spike or slowdown. It’s just poor planning and lack of due diligence.”
Without doubt though, reputation is a consideration when deciding whether to pay back furlough or refuse the job retention bonus. Churm from Kingsley Napley adds: “Brand image is one of the issues, and there may be a risk of embarrassment they’re trying to avoid.
“Particularly if a company has done really well over the last few months, there may be a perception that it’s unfair to have used taxpayers’ funds or people might think you’re using it to increase profit.” She points to examples in the early days of the furlough scheme when employers such as Victoria Beckham faced a backlash for taking advantage of the support despite huge personal wealth.
The list of those refusing the retention bonus, in particular, is growing – although critics might argue that this is because the incentive makes little material difference to planned redundancies that would have to go ahead anyway.
With no real certainty as to what the shape of any economic recovery will look like, employers will simply have to keep making these decisions with the best information they have available. Though few will miss out on the opportunity for some positive PR if they do decide to reimburse the support they received, or manage without in the future.
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