The new reality for UK employers - Part 1: Planning for the end of furlough

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White & Case LLPAs the end of the Coronavirus Job Retention Scheme (the "Scheme") approaches, employers should start to consider their plans in relation to any employees currently furloughed. In this alert, we have set out below some key considerations for employers in this position.

The current status of the Scheme

Since 1 July 2020, it has been possible for employees to work part time and be on furlough for the remainder. Employers are expected to pay employees for the hours or days worked (at the normal rate), and claim under the Scheme for the period that they are on furlough. The Scheme will run to 31 October 2020 on the following terms:

  • August 2020: 80% of salary for the time spent on furlough is funded by the government up to a cap of £2,500. National insurance contributions ("NICs"), pension contributions and any part-time hours worked is funded by the employer.
  • September 2020: 70% of salary for the time spent on furlough will be funded by the government up to a cap of £2,187.50. NICs, pension contributions and any part-time hours worked are to be funded by the employer. The employer must also top up salary by 10% up to £312.50 (to make up 80% in total up to the £2,500 cap).
  • October 2020: 60% of salary for the time spent on furlough will be funded by the government up to a cap of £1,875. NICs, pension contributions and any part-time hours worked are to be funded by the employer. The employer must also top up salary by 20% up to £625 (to make up 80% in total up to the £2,500 cap.)

Practical considerations when bringing an employee back from furlough

When bringing employees back from furlough, employers should:

  • consider whether there is sufficient work for employees and whether they are able to sustain their workforce in the same way as they did pre-furlough. If not, they should explore all possible alternatives, including those set out below. Employers should bear in mind that they will be entitled to a one-off bonus payment (of £1,000) for every employee that had been on furlough but remains in employment (and is not serving their notice) until February 2021, subject to certain other criteria being fulfilled.
  • check the terms of the furlough letter/agreement sent to employees:
    • was an end-date to furlough included or is there a requirement to provide express confirmation that an employee is to come off furlough;
    • were any terms and conditions amended by the furlough letter/agreement, such that a further letter/agreement may be needed to revert back to the pre-furlough position;
  • consider if employees will be returning to the workplace on different contractual terms, and if amendments to their terms and conditions are required;
  • consider if all employees should be taken off furlough at once. The decision as to who to take off furlough should not be based on discriminatory factors such as gender, race, age, or other protected characteristics, or on the personal preferences of managers. Employers should also be careful to ensure that their decision does not have a disparate impact on certain employee populations, e.g., caregivers or those with childcare responsibilities;
  • ensure that payroll is correctly set up for the return of furloughed employees and that they will receive the correct pay from day one of their return;
  • consider if employees will need any training or refresher-training; and
  • decide where the returning employees will be required to work and, in making such a decision, consider whether the employees are set-up to work from home or if the workplace is COVID-secure to enable a return to the workplace.

What options do employers have if they cannot afford to bring their employees back or do not have sufficient work for them?

Reduced pay

  • If employees have been on reduced pay during furlough, employers may want to consider continuing to remunerate them at the reduced rate to save costs. Employees may be willing to accept a reduction if this is the alternative to them being made redundant, especially if they are able to save costs elsewhere, e.g., if they are working from home and not having to commute.

Re-structure payment arrangements

  • Employers could consider replacing elements of fixed pay with variable pay in the form of bonuses or share awards, which is dependent on company and individual results. It may be possible for an employer to award shares that attract favourable tax treatment.
  • Replacing fixed pay with variable pay reduces costs for employers and also incentivises employees.
  • Such arrangements will generally require the employee's consent, but this depends how furlough was originally implemented.

Providing opportunities to study and train

  • Employers could consider offering to pay for employees to attend training courses or to study for a period of time instead of paying salaries.
  • In circumstances where there is not enough work for employees, or if the business cannot support all returning employees, providing opportunities to study or train could be a cost-effective way of retaining employees and may lead to increased productivity and innovation in the long-run.

Holiday

  • Employers could consider asking their employees to take all or part of their annual leave; provided that their employment contracts do not prohibit this.
  • Employers must generally give employees at least twice as many days' notice as the number of days' annual leave they are being required to take (e.g. ten days' notice for five days' annual leave). This should be in writing and, where possible, specify the relevant dates.

Redeployment

  • An employer may want to consider redeploying employees to other parts of the business, if suitable, to avoid redundancies or having to reduce hours or working days. If an employer chooses to do this, it should check the employment contracts as consent may be required.

Short-time working

  • Employers may reduce an employee's contractual hours and corresponding pay ("Short-time Working"), but only if this is permitted in their employment contract or a trade union agreement, or if they receive the employee's consent.
  • During a Short-time Working period, employees should receive full pay unless their employment contracts provide for unpaid Short-time Working or "Contractual Guarantee Pay" of a different amount. If the Short-time Working arrangement is unpaid, employers may have to pay "Statutory Lay-off Pay" in relation to the days on which no hours are worked.
  • If a Short-time Working period continues for four consecutive weeks or six weeks within a period of 13 weeks (of which no more than three are consecutive), employees may be entitled to claim statutory redundancy pay if certain conditions are met (including two years' continuous service).

Temporary lay-off

  • An employer could consider requiring employees to cease work with or without pay for a temporary period (a "Lay-off"). A Lay-off without pay is permitted only if provided for in an employment contract or a trade union agreement, or if an employer receives the employee's consent.
  • If provided for in employment contracts, employees may be entitled to receive Contractual Guarantee Pay during a Lay-off period. If the Lay-off is unpaid, employers may have to pay Statutory Lay-off.
  • Lay-off Pay of £29 per day if certain criteria are met (including the employee needing to have one month's continuous employment) for up to five days in any three-month period.
  • If a Lay-off period continues for four consecutive weeks or six weeks within a period of 13 weeks (of which no more than three are consecutive), employees may be entitled to claim statutory redundancy pay if certain conditions are met (including two years' continuous service).

Redundancy

  • Employers may decide that they have no choice but to make employees redundant where, for example, there is a reduced need for a particular kind of work, or where a business is shut down.
  • Employers must follow a fair redundancy procedure, which will involve informing/consulting with employees or, in collective redundancies of certain sizes, consulting with employee representatives over 30 or 45 days (depending on the number of employees facing redundancy).
  • If an employer wishes to make redundancies as soon as the Scheme ends, the length of the required consultation period should be considered in order to create a time-line for consultation. Consultation may need to begin as early as the middle of September.
  • If more than 20 redundancies are proposed, employers must file an HR1 form with the Secretary of State.
  • Employers should consider voluntary redundancy and ensure that they provide adequate notice or payment in lieu of notice where applicable.
  • Employees will be entitled to statutory redundancy pay where they have more than two years' service. Employers should also check whether employees are entitled to enhanced redundancy pay.

There are a number of practical considerations and options for employers to consider as the end of the Scheme draws nearer. Employers should take the opportunity to consider what changes they can make in order to retain their workforce even if that means reducing pay or changing the structure of pay. Employers will need to ensure that they are compliant with employment law, particularly where it comes to changes to employees' terms and conditions, otherwise they could face claims from employees.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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