What Options do Employers have?

The COVID-19 pandemic has brought about huge changes to the business landscape in the UK and whilst some organisations have been more directly affected than others, consequential impacts across the economy are vast. Accordingly, a great number of employers are affected to a greater or lesser degree and, as a result, need to adjust their overhead base.

Employee costs are often the most significant expense in an organisation and ways to reduce that cost base are therefore a key focus at this time. The options available are both short term with relatively modest impact e.g. requiring employees to take holiday whilst on furlough leave to long term with material savings and consequences such as a restructuring/redundancy programme.

 

Below is a summary of options to consider but do remember that to protect your organisation from claims by employees arising from implementing these measures, you need to make sure that you follow a correct and lawful process.

Furlough leave

The Coronavirus Job Retention Scheme (CJRS) allows organisations to recover the majority of the wage costs of their employees put on furlough as a consequence of the COVID-19 pandemic, up to a maximum of £2,500 per month per employee.

There are an expanding set of regulations that cover eligibility to the scheme and how to reclaim the wage costs from HMRC – click here for further details on the gov.uk website

From a procedural perspective, it is important to maintain good records of each employee’s absence on furlough so that you can substantiate the claim if HMRC investigate. It is a requirement that the furlough period is agreed with the employee (it cannot be imposed) and that such agreement is evidenced in writing.

The CJRS has been key in, at least, delaying mass redundancies being implemented in the UK during the pandemic and although it is gradually reducing in scope from 1st July 2020, the fact that part time working is to be allowed from that date should hopefully continue to make it a key tool for employers trying to navigate their way through the significantly changed business environment without having to make job cuts prematurely before understanding the new business environment that their organisation is facing.

Reducing pay

Whilst the scope for unilaterally reducing pay costs is limited, employers should consider whether they can freeze any planned pay increases and eliminate any non-contractual benefits. Beyond this, pay reduction is typically only possible by agreement. Whilst normally this is not likely where the alternative may be the closure of the organisation and job losses, employees may be willing to agree to a cut in pay at least for a limited period.

One option here if cash flow is the issue, is to agree to pay cuts in the short term with any shortfall being repaid within an agreed time scale.

Always remember that your staff should be paid at least the National Minimum/Living Wage, and the changes to terms agreed in writing.

Short time working

Similar to cutting pay, a reduction in hours can generally only be by agreement with the employee unless there is contractual provision to impose it. However, such a reduction in the current environment may be achievable. Indeed, it is likely to be preferable to an employee to work less hours for less pay than the same hours for less pay!

As for an agreed pay cut, do make sure that you follow an appropriate process with the outcome agreed and documented.

Shorter working hours may be positively welcomed by some members of staff so think about asking for volunteers as a first step particularly if you only need a relatively small reduction in hours across your organisation. A period of unpaid leave may be also appealing to some staff so again think about asking if anyone wishes to take an unpaid period of absence.

Contractors

Contractors, provided of course they are genuinely contractors and not “disguised” employees, may be terminated without the risk of an unfair dismissal claim. However, you should of course comply with the terms of their contract when terminating as they will usually be subject to a specified notice period or, if not, reasonable notice will usually be implied.

Requiring employees to take holiday

Requiring staff to take holiday particularly those that are on furlough is a very sensible option to consider as most of their holiday costs will be covered by the CJRS with the employer only bearing the cost required to top the employee up to full pay whilst they are on holiday – at least until 31st July 2020. Requiring those who are not on furlough to take holiday does not save money in the short term, but will help ensure a full workforce is available once business picks up as the year goes on and lockdown eases.

Remember that as an employer you must give notice to the employee of at least twice the length of the proposed holiday period e.g. two weeks’ notice must be given of a holiday period of one week.

Outsourcing

Outsourcing to allow greater focus on core business activities continues to increase as more and more organisations understand the benefits and cost savings if you get outsourcing right. We know from our own experience as providers of outsourced payroll and HR options that considerable savings can be made by using an organisation dedicated to the efficient provision of the outsourced activity. Whilst it can result in job losses, the starting point is that any employees focused on the activity that is outsourced automatically transfer to the new provider, so it may be even more cost effective than first anticipated. Look also to understand the hidden costs associated with employing staff to carry out non-core functions – e.g. office overheads, software costs, sickness and holiday absences and management time. Add these to the direct salary and associated costs and the savings make this a very worthwhile option to explore.

Lay-off and Guarantee Payments

If for some reason, it is not possible to access the CJRS, employers can consider using a less well-known scheme which provides limited financial support to employees. This is the statutory lay off scheme which, if an employer has a contractual right to invoke lay off or gets the employee’s agreement, allows the employee to claim £30.00 per day that is not worked up to a maximum of 5 days in any 3 month period. Part time workers can only claim for a pro rata amount so this is altogether a much less meaningful support scheme. It also has pitfalls for employers in that if an employee has been laid off for four weeks in a row or 6 weeks in any 13 week period, the employee can claim redundancy. Further information can be found here – https://www.gov.uk/lay-offs-short-timeworking.

Redundancies

Implementing redundancies is usually the most severe step that an employer takes to reduce workforce costs. The impact on the individuals that are affected are likely to be serious and for that reason there is considerable statutory regulation in place to ensure that employers conduct redundancy terminations in a fair way. It is therefore essential that employers make sure that they prepare effectively before commencing the process.

We view these as keys steps when making redundancies:

A) Take time to plan properly
  • What are you trying to achieve from both a financial and organisational perspective
  • What structure do you need to end up with?
  • What skills do you need to retain?
  • How are you going to decide who should be selected for redundancy if you have a number of individuals in similar roles?
  • Remember it is the job role that must be redundant not the employee.
B) Undertake effective consultation
  • Where you are making 20 or more redundancies within any 90 day period you will need to consult with employee representatives as well as undertaking individual consultation.
  • If you do not have Trade Union or other employee representatives in place, you will need to facilitate their election before any consultation process can begin.
  • The law prescribes certain information that must be provided to your representatives so make sure that you have it ready once the formal consultation process starts.
  • Allow an appropriate amount of time for the consultation process. Again there are legal constraints here – for 20 or more redundancies there must be a minimum 30 days of consultation and where there are over 99 redundancies that consultation period increases to 45 days.
  • Genuine consultation includes listening to employees suggestions on how redundancies and properly considering them.
C) Make sure you have a robust selection process in place if you need to make decisions about who to retain out of a pool of employees
  • Remember your selection criteria should be objective and not driven by any form of discriminatory bias relating to a protected characteristic such as an employee’s race, gender, disability etc.
  • Be careful of indirect discrimination – e.g. if you are using attendance at work as one of your criteria remember to disregard any periods of absence that relate to an employee’s disability.
  • It is perfectly permissible and indeed sensible to focus your selection criteria on retaining the skills that you need in your organisation to help ensure its future success.
D) Make sure that you carefully calculate what redundancy and notice pay is due to each employee
  • Remember to consider both the statutory and contractual requirements.
  • Statutory entitlements are impacted by both the age and length of service of the employee and are also subject to a cap both in respect of the amount of a week’s pay and the number of weeks’ pay to which an employee is entitled.
  • A contractual entitlement may exceed the statutory entitlement but cannot be less.
E) As always with HR matters, keep careful records of the process that you have followed and the communications that you have had with your employees
F) Remember you have an obligation to notify the Government’s Redundancy Payment Service if you intend to make 20 or more employees redundant. Failure to do so leaves the organisation and its officers open to criminal prosecution and sanction.
The above is only a summary guide of options to consider when needing to make reductions in employment costs. It is by no means a full guide to all of the steps that should be taken when implementing such measures and does not factor in multiple scenarios employers may be facing. If you do need further assistance please feel free to contact us for a no obligation to chat as we would be happy to assist with any of these matters.

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