Coronavirus Job Retention Scheme Update – 13th October 2020
Note: This article was written at 10 am on Tuesday 13 October 2020. It is likely that further guidance and clarification will be provided and therefore the content of this article may be superseded.
The Coronavirus Job Retention Scheme (CJRS) or as it is commonly referred to, the furlough scheme, ends on 31st October 2020. The CJRS has been invaluable to many employers by allowing them to retain their employees during the pandemic and the resulting catastrophic economic impact.
With the scheme coming to a close, Chancellor of the Exchequer Rishi Sunak, has launched a new scheme entitled the Job Support Scheme (JSS). This commences on 1st November 2020 and runs through to 30th April 2021.
The JSS is not as generous as the CJRS and if used will require a higher investment or contribution from employers.
On first glance the JSS does not appear attractive. A simple calculation shows that it will cost an employer more to have two employees working 50% of their hours than having one employee working 100% of their hours. However, although it will not be for all employers, it may be more attractive than it appears at first glance.
Calculations
The JSS operates as a cost/loss sharing scheme between the employer, employee and the Government.
To be eligible for the JSS an employee must work a minimum of 33% of their normal hours. For those hours they will be paid in full.
This leaves 67% of their normal hours as being non-working hours.
The JSS operates that the cost of the non-worked hours is then shared between the employer, employee and the Government as follows:
- Employer pays a third – 23% (I have rounded this up for the sake of the calculations but the Government has not yet clarified what will happen with rounding up)
- The Government will pay a third – 22%
- The employee will forgo 22% of pay
The result is that the employee will receive 78% of their normal pay.
Is it worth it?
As with many legal questions, the answer is “it depends”.
Looking at the above example, the employer would pay 56% of an employee’s pay for 33% of their normal hours. They will be paying a significant amount more for the employee’s labour than under normal circumstances.
If an employer were to offer the employee more than 33% of their normal hours, the amount paid for non-worked hours reduces and perhaps makes the JSS more attractive.
If the employee were to work 50% of their normal hours then the employer would need to contribute an additional 17% to fall in line with the JSS.
If the employee were to work 85% of their normal hours then the employer’s additional contribution would be 5%.
When considering whether the JSS is worth implementing, an employer should run through the calculations and scenarios to determine what would be the maximum amount of hours they could realistically offer to the employee. The more hours they work then the less the contribution to non-worked hours becomes.
Other considerations
Whilst the calculations mentioned can make the JSS more attractive, an employer will still be faced with the prospect of paying an employee for time they have not worked. There are however other indirect financial consequences that an employer should take into consideration.
Cost of redundancy. Employees with more than two years’ service who are made redundant are entitled to statutory redundancy pay. All employees are entitled to a minimum of statutory notice and a payment in lieu of any accrued but untaken leave. Depending on the length of service and level of pay redundancy costs can be significant.
Redundancy process and litigation. Employment tribunal litigation is on the rise and will only increase given the expected numbers of redundancies. Employees with more than two years of continuous service can issue claims for unfair dismissal to the employment tribunal. It is crucial that an employer conducts a fair redundancy consultation process. This process is time consuming and may incur costs if professional advice is needed.
Litigation in the employment tribunal can be costly in respect of legal fees, awards made by the employment tribunal and also management time.
Ability to meet client/customer demand. I am no economist and I do not know how long this recession is likely to last. There is a school of thought that as the recession is a factual matter (i.e. it has been caused by the pandemic) that when the pandemic comes under control that the economy can open up quickly.
On the assumption that this school of thought is correct (and let’s hope it is) then employers who cut their workforce may struggle to meet client/customer demand. The JSS allows employers to retain their employees and increase their hours to meet demand.
Recruitment costs – As mentioned above, the pandemic will end at some point. When that day comes hopefully the economy will start to recover. Employers who have cut their workforce will then face the issue of recruitment. Where employers require highly skilled or qualified employees it may be difficult to quickly replace those employees and it may be expensive as those new recruits may demand higher salaries than the previous employees enjoyed.
Taking the above into account and playing around with the calculations potentially makes the JSS a more viable option than it may first seem. The approach to the JSS is much more nuanced than the approach to the CJRS. Employers should consider not just the extra cost today of keeping the employee, but the potential future costs which may be incurred by making the employee redundant now.
Fair redundancy consultation process
If an employer decides to make employees redundant they must conduct a fair redundancy consultation process. Failure to do so could result in costly claims of unfair dismissal in the employment tribunal.
As the JSS is designed to save jobs then, as part of the consultation process, an employer should consider the JSS. Failure to do so could lead to a flawed consultation process and an unfair dismissal finding.
Employers should undertake the calculations under the scheme to determine why it is not viable for them and why redundancy is the only option. It is unlikely that employment tribunals will accept broad comments from employers that the JSS would not work. By actually doing the calculations employers will have clear data to support why the JSS will not work and why the redundancy process must go ahead.
As with the CJRS I fully expect that there will be far more guidance and opinion on this. To address local lockdowns a variation on the JSS has already been announced before the JSS has even begun. I will keep a close eye on developments and will look to write further articles on the JSS in the coming weeks and months.
If you are an employer and have any questions related to the scheme then please feel free to contact me on Robert.zacal@GAsolicitors.com or call 01752 203500.
Attend our webinar on Thursday 22nd October at 9.30 am, to find out everything you need to know about the new job support scheme. To reserve your place, please email katy.mckenna@GAsolicitors.com.
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