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Furlough | Common questions relating to pay

Posted on 17th August, 2020

The Government’s guidance on the Coronavirus Job Retention Scheme (CJRS) (https://bit.ly/3iPT0CM) has struggled to keep up with the myriad of queries that keep cropping up as the weeks and months go by for those on furlough.

Firstly, there was the interaction of holiday and holiday pay for those on furlough. The Government guidance quite early on said that those who had been furloughed could defer 4 weeks of their statutory holiday entitlement for 2 years in order that businesses would not be hampered by requests for annual leave that could not be fulfilled in the latter part of this year. Employers also have the usual power to direct an employee when he or she must take holiday by giving notice that is twice the length of the period of annual leave that they want them to take. An effective way of doing this might be to split the rest of the holiday year up such that half of the employee’s remaining holiday entitlement is taken before the half way point is reached before the end of the holiday year with the balance to be taken before the end of the holiday year. Employers can exercise that power regardless of whether or not the employee is on furlough but note that those who are on furlough are entitled to receive their normal salary whilst on holiday, which means that the employer has to ‘top up’ the difference in pay from what they can reclaim from the CJRS up to 100% of the employee’s salary.

More recently the Government has confirmed that the same applies to notice pay so that if an employee’s employment is terminated on notice, notice pay should be paid at the employee’s normal salary and if the employee serves his or her notice whilst on furlough, the employer must top up his or her notice pay to 100%, after reclaiming what it can under the CJRS. But note, if the employment contract contains a clause entitling the employer to terminate the employee’s employment with payment in lieu of notice and the employer exercises that clause, the employer will not be able to claim any part of that payment back through the CJRS. If the reason for that termination is redundancy, any statutory redundancy payment (for those with over 2 years’ service) is calculated on the employee’s normal salary and not on any reduced furlough salary.

 

Redundancy

It’s no surprise that the UK economy is in a recession following lockdown and on the back of that will inevitably come redundancies as employers look at ways in which to cut overheads in order to preserve the longevity of their businesses. Staffing is usually a large overhead for a business and the Government is very much alive to the effect that COVID 19 is going to have on the employment market. ACAS has updated its Guidance on Managing Staff Redundancies (https://www.acas.org.uk/manage-staff-redundancies) to specifically include reference to redundancies during and post COVID19. It contains a number of links to useful templates and resources for employers and whilst these are not a replacement for bespoke legal advice, they are a good starting point especially for smaller businesses.

A redundancy occurs when the work that a business does ceases or diminishes either across the whole of the business or in the location where the employee worked. Where that is the case, an employer must then follow a fair procedure in order for the dismissal to be unfair. Only employees (not workers) with 2 years’ service are entitled to a redundancy payment and only employees with 2 years’ service have the right to bring a claim for unfair dismissal in respect of redundancy.

The case law is pretty well established to say that redundancy should be an act of last resort rather than first resort. The ACAS Guidance on Managing Staff Redundancies actually starts off by encouraging employers to look at ways in which they can avoid staff redundancies such as limiting or ceasing overtime; halting any ongoing recruitment initiatives and terminating the engagement of temporary or contract workers in the first instance. Employers may then want to consider terminating the employment of those with less than 2 years’ service; asking employees whether they can work flexibly, reduce their hours and/or whether they wish to volunteer for early redundancy or retirement. Those who have been furloughed could remain on furlough or work part time on flexible furlough (allowing the employer to reclaim 80% (August); 70% (September) & 60% (October) of their salaries respectively from the CJRS). Failing that, employers can ask employees to agree to lay off or short working (if there is a clause in their contract to that effect) or a period of unpaid leave or to be redeployed into another job (without or without training as necessary).

If redundancies can’t be avoided, then an employer must enter into consultation with the affected employee(s). If there are more than 20 employees, there is an additional obligation to enter into collective consultation with trade unions or employee representatives and to notify the Redundancy Payment Service. Employers have to devise and consult on (and where possible agree) the selection criteria they intend to use. The more subjective the criteria are, the more likely they will be open to challenge so it’s best to use mainly objective criteria (e.g. length of service, qualifications, disciplinary record etc) rather than subjective criteria (e.g. prepared to go the extra mile). Those criteria have to be weighted, scored and applied fairly too. An alternative method to selection criteria is to make everyone reapply for their jobs, but again this must be handled fairly in terms of the criteria used to reappoint the successful candidates.

Decisions should be confirmed in writing and employees should be given notice of termination (either statutory or contractual notice – whichever is greater), details of the statutory redundancy payment that the employer will pay (which is calculated with reference to the employee’s age, length of service and weekly pay; see: https://www.gov.uk/calculate-your-redundancy-pay) and a right of appeal.

Sally Lomas-Fletcher, Associate Solicitor, Employment

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