Lay-offs, holidays and furlough, short-time working and guarantee payments
If an employer is experiencing a temporary shortage of work for employees to do (caused, for example, by disruption at a supplier, severe weather or a number of other causes beyond the employer’s control such as the coronavirus outbreak), they may decide to lay employees off temporarily. A lay-off is where there is no work provided to the employees and, consequently, they are paid no salary or wages. An alternative to lay-off is short-time working, where employees’ working hours are reduced and, as a result, they are paid salary or wages that are reduced in proportion.
Parents returning to work after extended leave eligible for furlough Updated 10.06.2020
People on paternity and maternity leave who return to work in the coming months will be eligible for the Government’s furlough scheme, HM Treasury has announced.
What about the Coronavirus Job Retention Scheme? Updated 01.06.2020
The Chancellor announced on 20 March 2020 a new Coronavirus Job Retention Scheme that will allow all UK employers to access support to continue paying part of their employees’ salary for those employees that would otherwise have been laid off during this crisis.
As of 12 May, 2020, the Chancellor announced the scheme would be extended until October. On Friday 29th May it was announced that from August, employers will be expected to pay for the National Insurance and pension contributions towards their employees wages. In September, businesses will be expected to pay 10% towards the furloughed staffs wages, then 20% in October – the final month of the scheme.
The scheme will increase its flexibility from July 1, meaning the old scheme closes to new employees from June 30. Flexibility is earlier than originally expected and means staff can return on a part-time basis with their remaining hours covered by the furlough scheme.
On 15 April 2020, the government issued a Statutory Direction setting out requirements for the Coronavirus Job Retention Scheme, also known as furlough leave. We believe this takes precedence over the government guidance, which was also updated on 15 April. Bira Legal have outlined these below:
The first is the requirement for there to be a written agreement from both employer and employee to be furloughed. This contrasts with the current online guidance, which simply says “To be eligible for the grant employers must confirm in writing to their employee confirming that they have been furloughed. A record of this communication must be kept for five years.”
The second point is likely to be even more problematic. A lot of employers have placed employees on furlough and not continued to pay them until such time as HMRC paid the grant under the scheme, which would then be passed on to employees. There are obvious reasons why an employer may do this in the current circumstances and there was, and is, nothing in the online guidance to suggest this is not allowed. However, the new Direction seems to suggest that you can only recover monies from HMRC that have already been paid – effectively the grant amounts to a reimbursement of monies paid. The requirements appear to be as follows:
- If between 1 March and 18 April there has been a period in which an employee has been furloughed and you have not paid the employee what they would get under the scheme, you will have to make up the pay they would be due under the scheme for that period BEFORE you make a claim.
- For any period after 18 April, if you have not paid an employee what they would get under the scheme while they are furloughed, you will not be able to make that pay up later and, therefore, you cannot be reimbursed by HMRC for that period. Effectively, we think this means that if you continue to not pay employees 80% of their salary (subject to the £2,500 p/m cap), you will not get money from HMRC.
It’s important to also note that this Direction can be changed at any time by the government.
Holidays and furlough
Bira Legal have previously advised not to allow holidays during furlough until there is more clarification on the matter. That has now arrived from two sources: the guide on how to calculate pay and the employee CJRS website guidance (although, for some reason, the employer guidance is still silent on the issue).
Both sources confirm that employees on furlough can take annual leave. However, employers are required to top up pay to normal 100% levels for any day’s holiday taken during the furlough period. If you now wish to instruct employees to take annual leave, you can do so by giving notice twice the length of the holiday you require them to take (i.e. two weeks’ notice to take a one-week holiday).
Bira Legal go on to advise that instructing employees to take all their annual leave during a lockdown period could affect the relationship of trust and confidence between you and your employee, so please speak to your adviser before forcing any holiday periods longer than one week. There is also a possible argument that this could be in breach of the Working Time Direction, the European legislation from which the UK legislation was formed.
There must be a contractual right
An employer cannot lay employees off or put them on short-time working unless the Contract of Employment states that there is a right for the employer to do so or the employee specifically agrees to being laid off or put on short-time working. If in doubt, Ellis Whittam’s Employment Law Advisers can provide practical advice on implementing lay-off or short-time working.
What happens now if I want to lay off my employees? Updated 16.04.2020
In the first instance, you should check their contract for the existence of a lay off clause. If there is one, and it allows you to lay off an employee in these circumstances, then you can send your employees home. That would normally be without pay but in view of the government’s announcement you should apply to HMRC for payment under the scheme.
If there is no lay off clause in the contract you will need to seek agreement from your employees in order to lay them off on reduced or nil pay.
If you haven’t already got written agreement to be furloughed from your employees, you should seek this now. We have put together a template email that you could use – please ensure that all relevant information is inserted into this before sending it to affected employees. Download template email
Gov.uk guidance: Claim for your employees’ wages through the Coronavirus Job Retention Scheme – read more here
Notice of intention to claim a redundancy payment
At present, we have no information about the interplay between the new Job Retention Scheme and the existing right to claim a redundancy payment whilst laid off.
At the moment, if a period of lay-off lasts for more than four consecutive weeks, or more than six weeks in any 13-week period, employees are entitled to serve notice to terminate their employment and claim a redundancy payment. The same applies to short-time working where the employees’ remuneration is reduced by more than half for the same periods.
If this happens, the employee can claim that a redundancy situation exists and seek a redundancy payment. However, given the current guarantee to reimburse 80% of furloughed workers wage costs up to £2,500 per month, it is doubtful many, or indeed any, employees will choose to pursue the option of a redundancy payment.
However, if one did, the employer can object to this by serving a counter-notice stating that it expects to be able to provide the employee with at least 13 weeks’ continuous work. If the employee does not withdraw his claim to a redundancy payment, the matter is referred to an Employment Tribunal, which will decide whether there is a reasonable prospect that work will be provided for 13 weeks. The procedure is complicated, so please take advice if an employee proceeds down this route.
At present, we have no information about the interplay between the new Job Retention Scheme and the existing right to claim statutory guarantee payments (SGP) whilst laid off.
Currently, during a period of lay-off, employees may be entitled to SGP for days when they would normally be required to work under their Contract of Employment, but no work is available for them to do and the lack of work leads to no pay. Given that the new scheme will allow employees to receive a significant proportion of their wages whilst laid off, it may well be that the SGP will be suspended (which would require legislation from the government) or, more likely, employees simply will not request SGP given they are very modest amounts.
SGP is only required to be made for complete working days when no work (and no pay) is provided (workless days). An employee must not unreasonably refuse alternative work that is offered by the employer on a workless day.
A guarantee payment is not payable where the failure of the employer to provide work is caused by industrial action at the employer or a group company.
To qualify for SGP, the employee must have been employed for at least one month.
An employee is entitled to a guarantee payment for up to five days in any three-month period, except when the employee works fewer than five days per week. In those circumstances, their entitlement is limited to the number of days they work per week under their contract.
Amount of the guarantee payment
The daily guarantee payment is calculated by dividing a week’s pay by the normal working hours. There is a maximum daily limit of £29, however.
Common tricky areas
Can I place just some of the workforce on lay-off or short-time? If it’s short-time, does everyone have to have the same drop in hours?
The employer has quite a wide discretion in relation to who is placed on lay off or short time working. Employers need to ensure they do not exercise the lay off clause in such a way that breaches trust and confidence, is discriminatory, or is for a protected reason, e.g. whistleblowing.
Therefore, you can place just some of the workforce on lay-off and/or short-time working. The employer should consider how they will do this fairly in order to avoid arguments of discrimination of repudiatory breach. In extreme circumstances, we have seen some employers who have decided to pull names out of a hat to see who went off, although it is likely to be far more beneficial to work out who to retain based on business need.
How long can I lay my staff off for?
There is no maximum time that staff can be laid off for so, in theory, the layoff could last indefinitely, although please note the comments above about the right to claim redundancy pay for employees laid off for 4 consecutive weeks or any 6 weeks in 13.
Last updated 16.04.2020