Can you furlough employees during administration?

May 14, 2020 / FAQs

Government guidelines state that if a company has been taken under the management of an administrator, the administrator will be able to access the Job Retention Scheme. 

However, an administrator should only access the scheme if there is a reasonable likelihood of rehiring the workers. For example, as a result of an administration and pursuit of a sale of the business.

Because the administrator has the power to manage the company’s affairs, business and property so they can rescue the company as a going concern, they have the authority to employ and dismiss employees as they see fit and to reflect the overall good of the company.

Therefore, they may choose to furlough some or all employees to cover the costs of payroll, instead of relying on the assets of the company to pay wages.

If this is the preferred way to go, the administrator would need to adopt the contracts of employment and then agree a variation to provide for furlough within the 14 days moratorium period provided for in the Insolvency Act.

What does it mean to be furloughed?

Being furloughed means you are laid off or suspended temporarily from your job. Whilst it’s a phrase commonly used in the US, it’s a term that hasn’t really been used in the UK before COVID-19 which caused a little bit of confusion for UK workers and employers. Basically, someone who is furloughed is still employed but does not undertake any work.

The government introduced the furlough scheme to help businesses maintain their staff without having the financial burden associated. Rather than fire staff, companies can choose to furlough them and the government will pay up to 80% of people’s wages, up to a maximum of £2,500 per month. Employers can choose to make up the remaining 20% – but are under no legal obligation to do so.

Anyone working in a full time job (or on a PAYE basis) on March 19th can be furloughed, including people on zero hours contracts or those working flexibly.

Whilst furloughed, you are still paid by your employer and still pay taxes from your income. However, you would not be able to continue working for your employer for the duration of the furlough.

Chancellor Rishi Sunak is expected to make an announcement in the near future about the longevity of the scheme, which is paying for the wages of over 6 million people in the UK, as part of government plans to gradually end lockdown. It is thought it may be extended until at least September, albeit at a reduced rate of 60%.

Help from a licensed insolvency practitioner

If you’re the owner of a struggling company and would like some free initial advice on administration and other insolvency procedures, such as a Creditors’ Voluntary Liquidation (CVL) or a Company Voluntary Arrangement (CVA), we can help.

At Clarke Bell, we know what a tough and unpredictable time it is for business owners – with COVID-19 and lockdown measures putting an extra strain on finances. Many sectors have been affected and SMEs especially are having cashflow difficulties.

Contact us today for your free and confidential advice: 0161 907 4044 /