Furlough schemes extended to June

On 11 May 2020 the government, employers and unions agreed to extend the force-majeure furlough schemes (ERTE) to 30 June. The deal included social security relief for companies bringing their workers back gradually. It was the first agreement to extend a mechanism that, in a few weeks, had become the main instrument for protecting jobs.

The extension came when de-escalation had only just begun and nobody knew for certain at what pace activity would recover. For thousands of companies, the question was no longer only how to survive the shutdown, but how to return to normal without loading the cash position with costs for which there was not yet enough income. The agreement gave a partial answer to that tension. An extension does not resolve uncertainty, but it allows difficult decisions to be postponed until more information is available.

What was agreed

The three parties, government, employers and unions, agreed to keep the force-majeure furlough schemes for longer. In addition, relief from social security contributions, that is, a reduction in what the company pays into the social security system, was offered to those bringing their workers back gradually. It was a way of encouraging a phased return to activity. For the company, the relief eases costs; for the worker, returning means recovering their job and full pay.

This kind of design is common in support measures: protection is maintained while the difficulty lasts, but those who recover employment earlier are rewarded. The advantage is that the cost to the company falls when it brings staff back, which encourages doing so without waiting for demand to be fully restored. The condition is meeting the requirements, which are worth reading in detail. A mistake in meeting the conditions can mean losing the relief, so each requirement should be checked before bringing anyone back.

Time, but with decisions

For companies each extension bought time, but also demanded decisions: whom to bring back, when and at what cost. Bringing people back too early, without enough demand, could generate losses; doing it too late could mean losing advantages or customers. There is no single answer, and it depends on each business.

Some factors help to decide: the real trend in orders or bookings, the capacity limits allowed, the staffing needs of each job and compliance with the conditions of the relief. And there are human factors, such as each worker’s personal situation and the mood of the team, which should not be neglected at a time of tension for everyone. When the workforce perceives a fair and explained criterion, the return is usually smoother.

A plan for the workforce

The prudent course is to prepare a return plan by job and by phase, with a realistic activity forecast and the cost of each alternative. Discussing it with employees and with the employment adviser reduces mistakes and misunderstandings, and makes it possible to use the relief without breaching any condition. A phased timetable, with indicative dates, lets each worker know what to expect.

A good plan sets clear and understandable criteria, records decisions in writing and anticipates what will be done if activity changes course. That way the company gains the ability to react without improvising with people who depend on its decisions. And if there are doubts about any legal condition, it is better to resolve them beforehand than to correct a breach afterwards. And since regulatory frameworks can change, it is useful to check periodically that decisions are still valid.

Employment decisions taken with a plan are the ones that best withstand the next surprise.

This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.