Farewell to furlough: critical decisions for employers

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Article provided by Jane Amphlett, Head of Employment, and Alex Mizzi, Legal Director, at Howard Kennedy

The CJRS (furlough) scheme, which pays 80 per cent of furloughed workers’ wages up to a cap of £2,500, has seen overwhelming take-up. 

Around 8.9 million workers were on furlough in early June, representing over a quarter of the UK workforce. As expected the Treasury has announced plans to taper the financial support for employers as the scheme’s end date, 31 October, approaches.

From 1 August, employers will need to pay employer NICs and pension contributions for furloughed staff (and any top up above the 80 per cent wages to a cap of £2,500 per month which are covered under the scheme).  Then from 1 September, employers will also need to pay 10 per cent of their wages and, from 1 October, 20 per cent of their wages.

There is help for businesses which may be starting to see demand picking up again:  from 1 July the furlough scheme allows for flexibility to enable furloughed workers to undertake part-time work at their usual contractual pay, with the furlough grant paid for the proportion of their usual hours not being worked.

Businesses now need to evaluate urgently what impact these changes will have on their current staffing levels and consider their next steps.  Some key considerations:

  • The 10th June was a critical date: by then employers must have placed on furlough every member of staff who they may want to have on furlough between 1 July and 31 October (with the exception of staff currently on statutory family-related leave), including those who they wish to be able to work part-time under the flexible furlough arrangements.  Under a quirk of the scheme, employers must also bring back any staff on rotational furlough (e.g. 3 weeks on, 3 weeks off) in order to maximise the number of staff for whom they can claim the furlough grant after 1 July.
  • If the business needs staff to return from furlough on a part-time basis from 1 July, do the employment contracts and furlough agreements permit this or will this need to be agreed separately with staff? How will the business decide who will return? Any selection process needs to be fair and non-discriminatory and should avoid pre-judging any future redundancy exercise.  The employer must also consider how it will manage staff who are unable (for example due to childcare or medical issues) or unwilling to return to work.
  • With hibernation no longer an option as the furlough scheme is wound down or when it ends, employers must also consider whether they may need to make redundancies or implement other cost-cutting measures, such as changes to employees’ terms and conditions of employment.  Depending on the numbers and timing of those measures, they may need to collectively consult with employee representatives (or a recognised trade union) as well as consulting individually.  If so, there are minimum timescales of 30/45 days before the redundancies or other measures can be put into effect and the employer will need to consider how to make the election and consultation process effective and fair, particularly if it will take place while staff are furloughed.
  • Employers making redundancies during the life of the furlough scheme will need to consider how that impacts on the fairness of the redundancies and potential exposure to claims for unfair dismissal.  Employers are obliged to consider alternatives to making redundancies, which might include keeping employees on furlough, so they will have to consider whether the employer contributions to employment costs under the scheme from August will make current staffing levels unaffordable and document their decision-making.
  • Likewise, employers changing terms and conditions should consider whether changes should be indefinite or only for a defined period (e.g. while social distancing remains in place).  Staff may be less likely to agree to indefinite changes.

These decisions require careful financial modelling, as the economic situation remains unpredictable.   However, factoring in potential legal exposure and the need to maintain constructive employee relations is equally as important.

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