What will your workforce look like after furlough?
It is clear to all that the Coronavirus has turned the world upside down. Every aspect of life and society has been affected and the sad reality is that this is likely to continue until there is a vaccine.
Both the economy and the workplace have been badly impacted by COVID-19. Businesses are now faced with the biggest challenges since at least 2008 and the financial crisis. Business protection will be the first hurdle as government support is phased out, if that hurdle is cleared the next one will be how to grow again in a changed economy. My colleague James Peterson takes a structural look at those significant challenges in more detail here.
Of course, the decisive action of the government to introduce the furlough scheme has helped huge numbers of organisations to survive the economic shock by paying up to 80% or £2500 of employees pay. So much so that taxpayers are now covering the wages of 6.3 million people at a cost of £8bn. The Government has announced changes to the Coronavirus Job Retention Scheme which will see employers start to contribute to furloughed employees’ costs from August 2020. Please see my other article summarising the changes to the Scheme. The Chancellor, Rishi Sunak, has also confirmed that the Scheme will close on 31 October 2020.
Now that it has been confirmed that the Scheme will end on 31 October 2020 business owners should now be trying to look beyond it and prepare for what life will be like without government subsidy.
I believe that the saying that employees are a business’s greatest asset is true. Whilst that is true, they are also usually the biggest expense to a business. My advice is that businesses should now start planning and work backward from two positions. From August they will need to pay something towards employment costs and from 1 November they will once again be responsible for 100% of all employees’ pay. If a business knows or suspects it will not be able to afford all its employees now, they should start planning how to address that issue – which may involve a redundancy process.
It is obvious to say that redundancy processes are horrible for both employees and employers. The uncertainty caused by them can stir up understandable emotions in the employees which can lead to feeling disgruntled and upset which can result in legal claims in the Employment Tribunal. Redundancy processes require time and care to ensure that they are fair and reasonable and carried out correctly. Getting it wrong can be very costly both financially and with respect to reputation.
The first piece of advice I would give to any business is to now do the sums. Produce a realistic cash forecast from August to at least the end of 2020 but in reality probably beyond that to March 2021 when deferred VAT is due to be paid. No doubt, businesses can call on the assistance of their accountants and bank when doing this. By having a realistic financial forecast businesses can assess whether savings are required or not – not just savings on employment costs.
If after crunching the numbers it is apparent that redundancies are required thought needs to be given to how many. Where larger scale redundancies are contemplated a business has an added obligation to undertake collective consultation – failure to do so can be very expensive (up to 90 days gross pay per affected employee). Collective consultation requires that the following consultation periods take place before any redundancies can be made:
- For 20 or more redundancies at one site = 30 day consultation period.
- For 100 or more redundancies as one site = 45 day consultation period.
The obligation starts when redundancies are proposed not when they have been decided. One of the key functions of collective consultation is for there to be two way dialogue between the business and the employees to discuss the reasons for the proposed redundancies and whether some or all can be avoided.
Once it is clear redundancies are going to be necessary my advice would be a form of business proposal/plan is produced which contains and considers all the relevant data and information informing the decision. The proposal/plan can also consider how many redundancies are considered and which roles or departments are at risk. Having such a proposal/plan from the outset should make the redundancy process easier to manage and will act as evidence that a fair, transparent and considered approach was taken.
Businesses may next want to consider whether to offer employees the opportunity to apply for voluntary redundancy, perhaps on enhanced terms. Those employees who take voluntary redundancy would be required to enter a settlement agreement under which they would contractually waive their ability to exercise their employment rights via the Employment Tribunal or County Court.
Next, an employer may want to consider whether savings can be achieved by seeking a reduction in hours and pay – perhaps working a 4 day week. This would commonly require an agreed variation of contract and therefore employees would need to agree to this. A business making a unilateral decision to cut pay may be faced with resignations and constructive unfair dismissal claims.
If the necessary cost savings cannot be achieved the business may then need to undertake compulsory redundancies. Common features of a fair process include warning employees of the risk of redundancy, applying some form of objective scoring criteria, holding individual consultation meetings and considering any alternatives to avoid redundancies. This process can take some time and should be planned properly.
The Government’s Coronavirus Job Retention Scheme confirms that the cost of statutory redundancy pay cannot be claimed. However, it appears from the guidance that periods of notice potentially can form part of the grant provided to businesses. As such, it may be possible for notice periods to begin during furlough allowing businesses to claim some of the overall redundancy costs from the Government. This would soften the financial impact of redundancy somewhat but businesses must ensure that they conduct a fair redundancy process.
As stated at the outset, COVID-19 has caused an enormous upheaval both here in the UK and around the world. Whilst I am no economist it seems fairly evident that the economy will feel the impact for some time to come and I will not be a case of “flicking a light switch” and everything will return to what it was in February. My advice is that businesses start planning now and give serious thought to whether redundancies are needed now and not wait until August or November 2020.
If you would like to discuss anything raised in this article and/or require assistance, please do not hesitate to contact Rob Zacal on 01752 513549 or email@example.com