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With recent announcements on the gradual phasing out of the furlough scheme and no confirmed date for hotels, holiday parks and restaurants to re-open, should we be prepared for job losses in the tourism and leisure sector?   

The Job Retention Scheme and the tourism and leisure sector

I would not go as far as saying that the Job Retention Scheme (furlough) has been an unmitigated success. The problems have been widely publicised, but it has kept a quarter of UK employees notionally employed and receiving an income. When the history of this time is written, I have little doubt that the furlough scheme will be seen as the defining support mechanism of lockdown.

The scheme is relatively simple. If you qualify, the employer can pay you up to 80% wages (capped at £2,500 per month). The employer pays the reduced wages and then reclaims that sum from the government; including Employer’s National Insurance and basic pension contributions. In immediate cash terms there is no cost – and no downside – for the employer to furlough an employee. With the economy on lockdown, and no customers, this no cost option was pretty much irresistible to the tourism and leisure sector

However, there were other problems in the background, which some of our clients are now having to face.

Withdrawal of government funding

On 29 May the Chancellor announced changes to the Job Retention Scheme over the coming months. It was widely expected and the changes are gradual. They are designed on the assumption that, as businesses gradually re-open, they will need less support.

The key changes are as follows:

  • From 1 July it will be possible to partially furlough staff. They can be brought back part-time and furlough funding will be available for the hours not worked.
  • 1 August: the funding will no longer include pensions and national insurance (about 5% of the average claim)
  • 1 September: 10% of the wage element will also fall to the employer (with the August changes that is about 14% of the average claim)
  • October: the employer contribution rises to 20% (23% of average claim)
  • Then in November the scheme is gone.

In just four months, businesses will need to be weaned off this source of funding. Meanwhile, leisure and tourism businesses will be incurring costs that may be hard to sustain if they are not able to open to full capacity. 

Shrinking of the customer base

Will 2020 be a lost season for the UK’s tourism and leisure sector? It remains to be seen.

Although some travel within the UK is now permitted, there are still restrictions in place to ensure social distancing. With overnight stays not yet allowed and people being asked to stay a minimum of two metres apart from those outside their own household, this limits the types of venue that can open.

If a business is unable to re-open then even a relatively moderate increase in costs (such as the contribution towards paying for staff on furlough, which are due in July) could be incredibly hard to fund. It should not be forgotten that many tourism and leisure businesses are seasonal and the Covid-19 crisis hit at the exact point when reserves were at their lowest.

Accrued holiday pay

All the time that staff are furloughed they are still building up holiday pay.

This point is still not widely appreciated but all staff on furlough are entitled to their annual leave allowance. If this is not taken during furlough then it will need to be taken afterwards. At that point, it might not only mean fewer staff available just when things are hopefully picking up for leisure and tourism businesses, but it also adds another cost to the employer.

It is possible to require staff, even those on furlough, to take holiday and if this is a concern you should take advice accordingly.

Redundancy and notice entitlement 

Some tourism and leisure businesses are now having to make difficult decisions. If an employee is to be made redundant then they have entitlement to redundancy and notice pay. This is unaffected by furlough and the entitlements increase with length of service.

Furlough will not help with the redundancy element of this but could help cover the cost of the notice pay. However, as the furlough scheme is unwound then the amount of help available will also reduce. Someone made redundant today could have up to 80% of their notice pay covered by the furlough scheme but by 1 November that drops to nothing. 

What does it all mean?

While these are challenging times, hopefully it does not mean that redundancies are inevitable. In my experience, business people, especially in the tourism sector, are resourceful and imaginative. They will be exploring ways to re-open, even if that means partial or flexible opening or requiring staff to be moved to different roles. Indeed, one tourism and leisure trade body is reporting that its members are recruiting new housekeeping staff to cope with the anticipated extra workload.

In summary, be flexible, be imaginative, and above all, be safe.