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Furlough, workforce reduction and managing employees

As coronavirus (also known as COVID-19) continues to spread, employers should aim to help reduce the spread and safeguard the welfare of their staff, while continuing operations as normally as possible. Read this guide for an explanation of what it means to 'furlough' employees and managing staff during this challenging period.

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In light of the global health crisis, a number of businesses have experienced cash flow pressures and as a result, are seeking ways to effectively manage their costs. A major cost in many businesses is the cost of employees, meaning businesses have resorted to making employees redundant as a way to manage these costs.

It is important to note that making employees redundant should be the very last resort. There are a number of alternative measures that you could consider to avoid making employees redundant.

Lay-off and short-term working

Lay-off is a temporary measure, whereby an employer provides employees with no work (and therefore, no pay) for a period while still retaining them as employees. Lay-offs tend to be used as a temporary solution to a problem such as shortage of work, or in this case, the impact of a pandemic. 

Short-term working on the other hand, means providing employees with less work and therefore, lower pay for a period, while also still retaining them as employees. Like a lay-off, short-term working is a short-term measure often designed to deal with a shortfall of work. 

There are, however, a number of difficulties with lay-offs and short-term working, including:

  • the need for express contractual provisions. In the absence of such provisions in employees' employment contracts, employees may claim constructive dismissal

  • potential claims for statutory redundancy pay by employees. Even if an employer has the contractual right to lay-off employees or introduce short-term working, employees may still be able to claim statutory redundancy pay where:

    • they have more than 2 years' service; and 

    • have been laid off or kept on short-term working for more than 4 weeks in a row/more than 6 non-consecutive weeks in a 13 week period.

'Furlough' employees

'Furloughed' employees are employees who would have otherwise been laid-off during the crisis. Under the Coronavirus Job Retention Scheme, all employers in the UK will be able to access support to continue paying part of these employees' salaries, therefore, keeping them on the payroll and avoiding the need to make them redundant. 

Who is covered?

Staff paid through the PAYE system, including:

Staff must have been on the payroll as at 19 March 2020 to qualify (so those employed from 19 March 2020 onwards will not be covered).

Those who are self-employed are not covered by the Scheme but may apply for a grant through the Self-Employment Income Support Scheme.

How does it work?

You can:

  • claim a grant of up to 80% of a 'furloughed' employee's salary up to a cap of £2,500 a month. You can also claim contractual commission payments under the Scheme.

  • top-up the difference between the grant of 80% of salary costs and furloughed employees' normal salary, but do not have to. 

Furloughed employee salaries covered by the government grant will be subject to deductions for tax, national insurance and any employee pension contributions. 

How can you access the Scheme?

1. Designate affected employees as ‘furloughed'. Employees who cannot work from home and who currently have no work to do will be obvious candidates for furloughing. Otherwise, you may need to consider a process of calling for volunteers, pooling and selection (as with a redundancy process). There is a risk of claims (eg discrimination claims) if the process is not handled correctly.

2. Notify 'furloughed' employees by using a Furlough letter to employees. Keep this communication on record for 5 years. 

3. Once employees have accepted their new status, write to them to confirm they have been furloughed by using a Furlough leave confirmation letter. Keep this communication on record for 5 years.

3. Submit details about which employees have been 'furloughed' and their earnings to HMRC through the online portal

How long will the Scheme run for?

The Scheme will run for 7 months from 1 March 2020 through to the end of October.

What other requirements must I consider?

If you're looking to reduce pay for furloughed employees to the maximum HMRC grant, then you will need their prior written consent. Reducing an employee's pay without their consent (or contractual agreement) constitutes unlawful deduction from wages.

To be eligible under the Scheme, employers must also confirm in writing to their employees that they have been furloughed. 

A record of the employee’s written consent and confirmation of furlough must be kept by the employer for a minimum of five years.

See GOV.UK for further details of the Scheme.

How do I inform a furloughed employee that they are to return to work?

You should use a Recall an employee from furlough letter to inform a furloughed employee that they are to return to work. This letter sets out when the furlough period will come to an end and the employee is expected to resume working.

Employers are contractually obliged to pay employees on terms that have been agreed in their employment contract.  A reduction in that rate of pay can only be achieved through an agreement with the employee or, in extreme circumstances, dismissing the employee under their existing terms and conditions and offering to re-employ them on the same conditions, but with a reduced rate of pay. 

In the event of a unilateral reduction of pay, employers run the risk of employees resigning and again, opening themselves up to constructive dismissal claims. There is also the possibility of claims for breach of contract and/or unlawful deduction of wages, which would render any post-termination restrictions imposed by the employer, eg non-compete clauses, void.

Requests

Some employers may have a flexible working policy setting out the procedure employees should follow when requesting flexible working. 

Where employees wish to change their working patterns or work from home on a short-term basis (or as a one-off), employers are often open to agreeing to this on an informal basis. However, when employees seek to change their working patterns or work from home for an extended period, they usually have to make a formal request to their employer for flexible working and follow the procedure therein. 

Given the Government's advice to "work from home wherever possible", employees should be allowed to work from home (if their role allows for it) or adapt their working patterns accordingly (eg allow them to travel on public transport at less crowded times of the day) for an extended period without having to observe your formal procedure. This is assuming that your operational needs continue to be met. 

Once flexible working is agreed with an employee, that arrangement should continue until further notice.

Working remotely

Some employers may not expect employees to work remotely, specifically:

  • taking their laptop home with them after work each day; or

  • accessing work emails remotely while away from the workplace.

However, the global health situation warrants that employees work remotely, if they can. Your IT department should be able to assist employees with remote working set-up. 

Work-related travel

To meet the needs of the business, employees may be expected to travel for work. Given the Government's advice to "avoid all non-essential travel overseas", employees should not be required to: 

Employees should be encouraged to keep in contact with persons based overseas, by conducting any meetings over the telephone or via video conferencing. 

Non-work related travel

If employees wish to travel overseas in their own time, eg on a holiday or for family reasons, it is recommended that they tell you as soon as possible before they depart where they are going. Upon their return, employees who have travelled overseas should:

  • not return to work and self-isolate for 7 days;

  • visit the 111.nhs.uk website, even if they do not have symptoms.

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