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.
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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Alternatives to redundancy
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.
'Furloughed' employees are employees who would have otherwise been laid-off during the crisis. Under the Coronavirus Job Retention Scheme (CJRS), 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:
Casual workers (including workers on zero hour contracts)
Agency workers who are employed by an agency
Office holders, eg company directors
- Salaried members of Limited Liability Partnerships
- Foreign nationals
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). For the CJRS extension lasting to March 2021, staff must have been on the payroll by 30 October 2020.
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?
March to July 2020
Until the end of July 2020 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.
August to October 2020
Between August and October 2020, the costs will be shared between the Scheme and participating employers. These costs will be split in the following ways:
from August 2020, employers will be asked to pay National Insurance and pension contributions
from September 2020, the Government will cover 70% of wages (up to a maximum of £2,187.50) and employers will be to make a 10% contribution to the furlough pay, in addition to National Insurance and pension contributions
from October 2020 the Government will cover 60% of wages (up to a maximum of £1,875) and employers will be to make a 20% contribution to the furlough pay, in addition to the National Insurance and pension contributions
November 2020 to March 2021
The CJRS has been extended until 31 March 2021. From November to December, the Government will cover 80% of wages (up to a maximum of £2,500) with employers paying National Insurance and pension contributions. The Scheme will be reviewed in January 2021, what percentage of wages the Government will cover between January and March.
To be able to claim under this extension, employees must be on an employer’s PAYE payroll by 30 October 2020, however, they need not have been previously furloughed. This means that employees that were not previously placed on furlough, may now be furloughed.
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. You can claim before, during or after you process your payroll as long as your claim is submitted by the relevant claim deadline.
How long will the Scheme run for?
The Scheme will run for 13 months from 1 March 2020 through to 31 March 2021.
While the Scheme originally closed to new entrants on the 30 June, this is no longer the case. Under the CJRS extension, all employees can be placed on furlough regardless of whether they had previously been placed on furlough or not. Employees must, however, have been on the payroll by the 30 October to be eligible for furlough.
From 1 July, employers will be able to recall their furloughed employees part-time (also called ‘flexible furloughing’). Employees will be paid their usual salary in full for the days they work. For the days they do not work (ie the days the employees are furloughed) they will be covered by the Scheme.
The amount of time an employee works each week can be varied over the month, with employers varying it week by week, for example, employers may wish to have their employees come in for more time if their business suddenly picks up.
This means that employers can place employees on flexible fulough for any amount of time and on any pattern of work they agree on, while claiming support from the Scheme for the hours not worked by the employee. For example, an employer can place an employee who usually works five days per week on a flexible basis by asking them to work three days a week. The employee will be paid their usual salary for the three days they do work, and paid according to their furlough agreement for the two days they do not work.
Staff placed on furlough from 1 November 2020, can be furloughed on a full-time or part-time basis.
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 Furlough letter for previously furloughed employees 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.
Reductions in pay
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.
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.
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.
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:
travel abroad for work; or
travel to certain regions/countries by way of a travel ban. If you wish to impose a travel ban, please do so after consulting the UK Government's travel guidance and the World Health Organisation's daily situation reports.
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.
- Make your Furlough letter to employees
- Get started
- Answer a few questions. We'll take care of the rest