Flexible furlough, post-furlough planning and alternative workforce measures

1st June 2020

Many businesses have made use of the life-line provided by the Coronavirus Job Retention Scheme, with claims totalling £15 billion as at 24 May 2020.  The scheme has now been extended until the end of October, and will be converted to a new “flexible-furlough” scheme from 1 July 2020.

As employers turn their attention to the longer-term impact of the pandemic on the economy and their businesses, many are questioning: What comes after the scheme ends?  And is “flexible-furlough” right for me?  With this in mind, we have highlighted the key points on “flexible-furlough” and furlough “exit-strategy” considerations below.

Flexible furlough

The scheme has now been extended until the end of October 2020, with key changes announced as follows:

• From 1 July, employers will be able to bring employees back to work on a part-time, flexible basis, while still receiving furlough pay from the government for the hours which the furloughed employees would have usually worked. Importantly, employers must note that only hours not worked (that would have usually been worked) can be claimed for under the scheme.

• While matters are designed so that employees will still be receiving 80% of their wages (capped at £2,500 per month in terms of the government’s contribution (albeit employers may have chosen to top up)), employers will be required to start contributing to the payments covered under the scheme: from August employers must pay employer’s national insurance and pension contributions; from September they will also have to pay 10% of furlough pay (meaning the government will be covering 70% of furlough wages up to £2,187.50 per month); and from October they will have to pay 20% of furlough pay (meaning the government will be covering 60% of furlough wages up to £1,875 per month). In this context, “furlough pay” is only for hours which are not worked by the employees – hours which are worked must be paid for by the employer in the usual way.

• Importantly, employers will only be able to claim under the scheme in respect of employees who have been placed on furlough leave by no later than 10 June 2020. In addition, the number of employees an employer can claim for in any claim period under the amended scheme cannot exceed the maximum number of employees they have claimed for under any previous claim (presumably to prevent abuse of the system).

• Employers will have until 31 July to make any final claims under the “old” scheme (i.e. for claims in respect of the claim period up to 30 June 2020). From 1 July, the new “flexible furlough” scheme will be open.  From this date, claim periods will no longer be able to “overlap” months (given the differing levels of support available for each month).

• With all of the above in mind, calculations are likely to be complex – so your payroll teams will need to take time to work out the maths and it may be worth allocating another individual in the business or an external provider to sense check the calculations.

• Employers should also remember that any variations to working hours still constitute a contractual variation to employees’ terms in the usual way – therefore agreement from employees must be sought (employers need to remember that they shouldn’t just focus on the CJRS application process, ultimately the employees need to consent to reduced pay/varied hours, or there could be disputes later down the line).

• Detailed guidance about the amended scheme is expected to be published on 12 June 2020.

Unfortunately, for some employers, the scheme may only be serving to delay other cost-cutting strategies, rather than removing the need for such measures altogether.  This is a time to think creatively about the options available, while acknowledging that there are situations where redundancies cannot always be avoided.  We set out some guidance on such matters below.

Post-furlough planning and alternative workforce measures

In all of the below cases, meaningful consultation is key.  Given the context, staff and representative bodies are more likely to be open to creative proposals which might present an alternative solution to job cuts.  This crisis has certainly reinforced the value of stakeholder engagement.  Things to consider are:

• Re-training, role changes and secondments – The Covid-19 situation may have highlighted areas where your business could expand and grow, as well as areas which may need to contract. Consideration should therefore be given to whether staff could re-train or up-skill into business critical roles, or new roles to service customers’ new demands.  This really does give a different meaning to “suitable alternative” employment, but individuals may well have found themselves taking on new tasks and responsibilities (such as developing media content in an increasingly digital world, or assisting other business areas which are inundated with work such as HR, payroll or IT) and be willing to capitalise on those new skills.  Employers may have already implemented a recruitment freeze. However, if there are areas where you would ordinarily need to recruit, you could look to the existing workforce in the first instance.  There may also be the opportunity to second employees to other businesses which are seeing an increase in demand in order to try and retain their skills in the long-run (for example, certain businesses in the food manufacturing sector are seeing unprecedented demand – and there has already been a drive to divert furloughed/redundant staff who were servicing retail, hospitality and leisure into the vacant roles on the food manufacturing production lines and warehouses).

• Reviewing contractual relationships with contractors and agencies – Businesses may have already sought to reduce the use of “off-payroll” staff ahead of cutting employee numbers. Some, however, may have reached commercial agreements to support their agencies/employment businesses in furloughing staff, recognising the value and need for those individuals.  As the longer-term impact on the business’ finances and customer demand emerges, employers should be reviewing all of their commercial agreements and asking, are the contracts in place with agencies/employment businesses and contractors fit for purpose?   Many businesses may have historically unwittingly entered into unfavourable terms with agencies/employment businesses, including hefty fees for any subsequent direct employment of agency workers and high legal-risk in respect of status and taxation.  If you want to keep such relationships, now is the time to consider re-negotiating contracts to offer greater protection and flexibility and develop your own standard terms.  The other question to ask is: Should these individuals really be engaged in this way?  While the changes to IR35 and the off-payroll working rule have been delayed by a year, the issue of status is still as relevant as ever, so check that the reality of the relationship with off-payroll individuals isn’t such that they may, in reality, have employee or worker status – and look to change the way you engage them if necessary.

• Salary reductions (starting at the top) and other changes to terms of employment – Given the context, employees will be more likely to accept salary reductions and other changes to their terms of employment to seek to avoid the possibility of losing their job completely. However, in line with the “we are all in this together” message, salary reductions should, in many cases, start at board level.  In difficult times such as these, solid leadership and maintaining good staff morale will reap rewards – and leading by example will increase stakeholder buy-in.  Similarly, wage deferrals could be considered – although it will be difficult for employers to determine a time period after which the deferred wage can be paid, given the uncertainty of the situation and likely continued impact.  It is of course also worth looking holistically at all areas of the business to identify any non-workforce related measures where savings might be made that present an alternative to staff cutbacks.  Other changes to terms of employment, such as reductions in working hours, shorter working weeks and changes to shift patterns (in conjunction with the flexible-furlough scheme) may be required in order to adapt to differing demands.  With all of the above, seeking employee agreement is key.  HR professionals are well aware that such changes carry a high degree of legal risk and it is important to navigate the process in line with company procedures, engage in collective consultation where necessary, and communicate with staff representatives and unions where relevant, in order to minimise exposure to claims.

• Continued temporary measures such as unpaid or part-paid leave (or extended “furlough”) – While this is not a long-term solution, if you think that business is likely to pick up within a few months, you might seek to extend any leave period for some employees, even if the coronavirus job retention scheme is no longer open for financial support. To do this, you could seek agree to pay employees a percentage of their wage and/or ask them to take holidays to cover as much of the period as possible.  There may be some employees willing to take extended unpaid sabbaticals, but bear in mind that properly documenting the parameters of the sabbatical agreement will be essential – for example, give thought to what will happen if the job is not available at the end of the leave period.

• Redundancies – Ultimately, and after consideration of all feasible alternatives, it may simply not be possible to avoid redundancies. If this is the case, the key will be to follow correct legal processes and engage meaningfully with unions, employee representatives and individual employees, to minimise the risk of claims and the additional cost this would represent.  If numbers are such that collective consultation will be required, employers will need to consider whether the time is coming (or is already here) to begin consultation and take necessary steps in relation to filing a HR1 form and dealing with unions/employee representatives.  Care should be taken over selection criteria for redundancies – while this is unchartered territory, simply selecting those who have been on a period of furlough leave as “at risk” is likely to create employee relations issues and result in claims for unfair dismissal.

In considering all of the above measures, involving employees in strategy planning increases buy-in to the eventual outcome.  While consultation is a key legal obligation, there is a clear reason as to why it is required – it will prove useful as an idea sharing tool in which all stakeholders can participate, to hopefully ease the impact of cost-cutting measures on the business and retain as much talent as possible.