It is hard to believe that just over a year ago, the concept of “furlough leave” was just beginning to evolve. Employers, HR advisers and Employment Law specialists were frantically trying to keep abreast of the rules and regulations relating to this new concept; not helped by the fact that the guidance was constantly being updated and changed.
Fast forward a year and the concept is now part and parcel of business life and employers and employees alike are adjusting to this new way of working (or not as the case may be!).
But “furlough leave” is not here to stay; it is not going to be part and parcel of business life for evermore (or that is the plan anyway) and employers and employees need to prepare for life after furlough which, as it currently stands, is due to come to an end on 30 September 2021.
So, what will life after furlough look like? Well, before I look at this issue, I think it important to stop and pause for a moment as there are some more immediate changes coming to effect on 1 July 2021. If they have not already done so, employers will need to factor in the additional financial burden that these changes may well bring.
So, what is happening on 1 July 2021?
The level of grants employers can claim from the Government is being reduced. This will not impact on the level of income the employee receives but will impact on the financial cost to employers who will be required to contribute towards the cost of their furloughed employee’s wages:
- In July 2021, employers can claim up to 70% of furloughed employees’ wages, up to a maximum of £2,187.50; and
- In August and September 2021, employers can claim up to 60% of furloughed employees’ wages, up to a maximum of £1,875.
Employers will be responsible for making up the difference so that furloughed employees continue to receive 80% of wages for hours not worked, up to a maximum of £2,500 per month. Employers must continue to pay all employer’s national insurance and pension contributions.
So, what happens when the scheme ends?
There is of course no guarantee that there will not be a further extension. However, as it currently stands, this is not proposed and so employers should start to plan for life after furlough. This is particularly important for those businesses which may not recover financially by the end of the scheme as cost-saving measures may need to be considered; but what do these measures look like and what are the options available to businesses?
Redundancy, whether voluntary or compulsory, is the first measure that usually comes to mind when looking at saving costs and comes into play in three situations:
- when a business closes (“business closure”);
- when a workplace closes (“workplace closure”); or
- when a business has a reduced requirement for employees to carry out work of a particular kind (“reduced requirement”);
the latter being the most common, although it is anticipated, due to the impact of the COVID-19 pandemic, that we may see more businesses and workplaces unfortunately closing.
What should employers be thinking about in a potential redundancy situation?
Before employers embark on a redundancy process, it is vitally important that they take some time to prepare and consider whether redundancy is the right way forward. Businesses should consider:
- from a strategic point of view, what they need their business to look like from a staffing point of view, going forwards;
- if it looks as though there needs to be a reduction in the workforce, what is the reason for this? Is it because of a business closure, workplace closure or reduced requirement?;
- the number of employees potentially at risk of redundancy. This is particularly important if this is likely to be 20 or more as there are additional consultation obligations to follow and statutory timeframes to comply with;
- whether there are any ways to avoid redundancies, for example, introducing recruitment freezes, reducing employees’ hours of work, ceasing overtime, reducing salaries, reducing the number of temporary workers or self-employed contractors and, perhaps most importantly, consider asking for volunteers for redundancy;
- whether there are any internal redundancy policies in place which set out the procedure to be followed and/or enhance employees’ entitlements in a redundancy situation; and
- which roles are at risk of redundancy and if a number of employees undertake such roles, how they will be “pooled” so that fair and objective selection criteria can be applied to each of these individuals to establish who will be made redundant if redundancies are required. As part of this process, the employer will need to decide on the criteria to be used ensuring that such criteria are objective and non-discriminatory.
If, having considered the above, the employer comes to the conclusion that redundancies are necessary, only then should they start the redundancy procedure.
So, what is the redundancy procedure?
The procedure that needs to be followed will be determined by the number of employees at risk of redundancy. If it is less than 20, the employer will need to undertake individual consultation; if it is 20 or more, the employer will need to undertake collective as well as individual consultation. Employers should note that, whilst there are no statutory timeframes applicable to individual consultation, there is for collective consultation and if employers fail to comply with these, there are additional financial consequences for the employer.
Employers should ensure that they are familiar with their consultation obligations prior to commencing the redundancy exercise and take appropriate advice.
Alternatives to Redundancy
Redundancy may not always be the answer, what if the cost-saving is a more temporary issue, what if employers need to make shorter-term changes in order to sustain the business in the long-term? What if the business does not need to close or does not need to make reductions in the numbers of staff?
In such situations, businesses could consider the alternative options such as: short-time working and lay-offs, implementing contractual changes to e.g. salaries or hours of work, and sabbaticals.
Short-time working and lay-offs
Short-time working and lay-offs are more temporary measures. They can be implemented to try and help stabilise the business if there is still insufficient work, but an upturn is expected soon. These involve reducing the number of hours employees work for the employer. There is no limit to how long employers can lay off employees or place them on short-time working. However, if employees are laid off or put on short-time working for four weeks in a row or six weeks over 13 weeks, employees are able to apply for redundancy and claim redundancy pay.
Another option available to employers is to implement contractual changes whereby salaries and/or hours of work are reduced, temporarily or for a fixed period of time, pending a review.
Whilst this results in a financial loss for employees, that loss is less than in a redundancy situation whereby the employee loses his/her job and therefore income.
From a business perspective, it reduces the financial burden on employers and it retains the workforce, thereby retaining the skills, experience and know-how of the employees (which is often an issue in a redundancy situation, particularly when the business starts to stabilise and needs its skilled workers back!). It is of course hoped that, once the business starts to stabilise, the contractual changes can be brought to an end and the employees can revert to their full salary and/or hours of work.
Offering sabbaticals to employees is becoming increasingly popular and once travel restrictions start to ease (hopefully soon!), may be appealing to employees, particularly given the limitations on travel imposed as a result of the pandemic. Once again, depending on the length of the sabbatical and the numbers of employees applying for and being granted a sabbatical, cost-savings could be achieved, whilst retaining the employees who will hopefully return once the sabbatical is over.
It is of course open to employers (and employees) to negotiate their exit from the business, without the need to follow established and recognised dismissal procedures. Such negotiations would usually involve the employer and the employee agreeing to a financial severance package and the employee agreeing to sign a Settlement Agreement. This can often be the best outcome for both the employer and the employee; it can be quicker than following a more formal procedure and can have a more positive impact psychologically on employees, as well as reducing the impact on other employees which the business wishes to retain.
Working from Home
It may not be immediately apparent as to how employees working from home can lead to cost-savings. However, now that employees have experienced home working and it has been “tried and tested”, there is a growing demand to continue moving forwards.
Employers who are satisfied with the home working arrangements could seek to introduce this more formally going forwards, reducing the need for employees to be at a desk in an office, thereby potentially reducing the amount of office space required and thereby reducing the overhead of often costly office space, particularly in major cities.
Food for Thought!
It is clear that, for most businesses, the end of the furlough leave scheme will put additional pressure financially on them and the best way to prepare for this is to start thinking about the needs of the business now and how to achieve and manage these going forwards. If changes need to be made that will or may affect the workforce, these need to be planned for and timetables and plans of action need to be drawn up now so that procedures can be implemented and followed prior to the ending of the furlough scheme on 30 September 2021. The majority of the options set out above require some form of consultation and/or agreement with employees which take time and if employers do not act reasonably and/or fairly when seeking to implement these, they could face claims in the employment tribunal.
Partner, Marlborough House Partners LLP