The end of the furlough scheme: what next for employers?


16th September 2021

With the end of the furlough scheme in sight, employers must now consider their next steps, if they have not already done so. Their organisation's current and future financial situation, the sector that they work in, and anticipated future business opportunities will all be relevant to the decisions they make about what to do with their furloughed employees. We consider some of the options available for different circumstances.

On 3 March 2021, as part of the Budget, the Chancellor announced an extension of the furlough scheme to 30 September 2021. Any claims for September 2021 must be submitted no later than 14 October 2021 and any amendments by 28 October 2021. For further information on furlough please see our recently updated article.

When the furlough scheme ends on 30 September 2021, any employees still on furlough (whether full time or flexi-furlough) are entitled, in theory, to return to work under their previous contractual arrangements. However, the latest statistics reveal that as at the end of July 2021, 1.6 million people were still furloughed. Although this is the lowest number since the start of the pandemic, realistically, not all of those individuals will have a job to return to.

In addition, after 30 September 2021 businesses which had fewer than 250 employees as at 28 February 2020 will no longer entitled to reclaim up to 2 weeks of SSP payments arising from an employee’s absence due to COVID-19. Claims need to be made by 31 December 2021 (for periods up to 30 September 2021) and only for those who were absent on or before 30 September 2021.

With the end of the furlough scheme in sight, employers must now consider their next steps, if they have not already done so. Their organisation’s current and future financial situation, the sector that they work in, and anticipated future business opportunities will all be relevant to the decisions they make about what to do with their furloughed employees.

We consider some of the options open to employers below including:

  • Bringing employees back on their pre-furlough terms and conditions;
  • Voluntary and/or compulsory redundancies;
  • Other alternatives to reduce payroll costs;
  • Agreeing changes to terms and conditions of employment.

It is essential to be open and transparent with employees as to why a particular course of action is being taken. Whilst employees may not agree with a proposal they are more likely to accept it, if they know the rationale behind it.

Employees returning under their original terms and conditions

Consideration should be given as to what may be needed to facilitate a furloughed employee’s return. The letters sent to staff confirming furlough and any subsequent correspondence with them would be a good starting point.

Notice that furlough is ending should be provided regardless of whether an employee is returning to the workplace or will work remotely. Furlough agreements or side letters that were entered into when an employee was originally placed on furlough may specify how much notice is required to end furlough. If they are silent on that point, there is no minimum period, however, as much notice as possible should be given to allow employees time to make changes in their personal life, for example, childcare arrangements.

Other steps that employers should consider will be similar to those taken when bringing employees back from furlough previously (if applicable). These are, but not limited to, health and safety risk assessments, taking steps to ensure the workplace is COVID-19 secure, consulting with employees about their return and what the workplace will look like and any new rules in place, and considering whether any reasonable adjustments need to be made for disabled employees. Please refer to our article on the returning to work guidance for further information.

However, given the length of time some employees may have been on furlough, measures might need to be put in place to support their mental well-being as they return and readjust to being back at work.  Offering training or refresher courses, “buddy schemes” and having mental health first aiders are some of the ways to help ease the transition. A phased return to attending the workplace (if feasible) and flexible working arrangements to assist with the transition back to work are other sensible options.

Employees should be encouraged to raise concerns or difficulties they may have in returning to work, for example, about catching COVID-19. Having open discussions with employees directly may assist in alleviating concerns and assisting their return.

Please refer to the ACAS Guidance to ending furlough and returning to the workplace for further information.

Redundancies

When the expected end of the furlough scheme was in sight last year many employers made redundancies in anticipation that it would not be extended. The Office for National Statistics reports that the rate of redundancies recorded since the beginning of the pandemic already exceeds the highest rate reached during the 2008 to 2009 financial crisis.

It is inevitable that some employers will have to make redundancies once the furlough scheme ends particularly in those sectors still struggling, such as aviation and travel. A survey of 250 firms by the British Chamber of Commerce (BCC) has revealed that one in five plan to make redundancies as the furlough scheme winds down.

Prior to considering compulsory redundancies it would be prudent to consider whether voluntary redundancy is a feasible alternative and/or whether it could reduce the number of compulsory redundancies made. Employers are not under an obligation to accept an application for voluntary redundancy and this should be made clear from the outset. When deciding which areas of the business or employees to consider applications from, discriminatory criteria, such as age, should not be used. The same applies when deciding applications for voluntary redundancy. A voluntary redundancy is still a dismissal by reason of redundancy.

If voluntary redundancy is not an option, or there are insufficient applicants, employers will need to consider making compulsory redundancies. Collective consultation will be required where an employer is proposing to dismiss 20 or more employees by reason of redundancy. This will involve appointing employee representatives or engaging with trade unions before embarking on the minimum consultation periods of 30 or 45 days. A protective award can be awarded by an Employment Tribunal for failing to collectively consult with the maximum award being 90 days’ gross pay per employee.

Where collective consultation is not triggered there are no minimum consultation periods, however, a fair process consultation is still essential and will include:

  • Explaining why there is a redundancy situation;
  • Identifying an appropriate pool from which to select potentially redundant employees
  • Using objective and non-discriminatory selection criteria (where relevant);
  • Explaining why that employee is at risk of redundancy and giving them a copy of their selection score (where relevant); and
  • Consulting with the employee to try and find ways to avoid making them redundant.

When applying selection criteria employers need to ensure that individuals being scored are on a level playing field. It may be unfair, for example, to look at the last 18 months of employment when scoring an employee who has been on furlough for part or all of the time against someone who has continued to work.

Notice of termination of employment should normally only be given once the consultation period has run its course. It is important to remember that statutory notice pay and redundancy pay must be based on an employee’s normal pay rather than any reduced pay they may have received whilst on furlough.

Avoiding redundancies and reducing payroll costs

If the reason for a potential redundancy situation is for financial reasons it may be possible to reduce payroll costs to avoid redundancies. Please note that some of the suggestions below require a change to the terms and conditions of employees’ contracts, which is discussed below.

Reducing Pay / Banning Mandatory Overtime

This option can be effective if normal trading conditions will return relatively soon and there are short-term cash-flow problems which are currently making it difficult to pay employees.

Any reduction in pay and ban on overtime will need to be agreed with employees and their contracts of employment varied by letter or email. Agreement to the reduction of pay is unlikely to be welcomed, however, employees may take a broader view if the alternative is redundancies. As set out at the beginning of this article, transparency will be key.

Unpaid leave / Career Breaks / Sabbaticals

As above, this option may be appealing if an organisation wishes to retain certain employees but cannot afford to do so in current trading conditions.

Unpaid leave, career breaks and sabbaticals can only be agreed on a voluntary basis and the terms of the unpaid leave and return should be discussed and set out in writing. Employers may wish to reserve the right to decline a request to avoid losing staff in business critical roles.

Lay-off and Short-Time Working

Employers need the contractual right to lay off an employee or put them on short time working. Many employers may now have this contractual right or similar rights to temporarily reduce hours or work following the disruption caused by COVID-19.

Both of the above measures can avoid redundancies in the short term, however, after a period of time an employer can become liable to make statutory guarantee payments. An employee can also claim a redundancy payment if they are not provided with any work for four or more weeks in a row or six or more weeks in a thirteen-week period.

Early Retirement

This may be suggested to encourage employees to retire early, however, employees are unlikely to do so unless there is some financial benefit attached. The offer should not be aimed at employees of a certain age otherwise there is a risk of age discrimination.

Other potential cost-saving measures

  • Recruitment freeze/natural attrition;
  • Secondment to other areas of the organisation or to a client;
  • Requiring staff to take holiday;
  • Encouraging flexible or part time working;
  • Not awarding pay rises/bonuses;
  • Encouraging employees to use the salary sacrifice scheme;
  • Withdrawing job offers (on notice if there is a binding contract);
  • Avoid engaging temporary/agency staff; and/or
  • Redeployment to an existing vacancy within the organisation.

Making changes to terms and conditions

An organisation may need to consider a permanent or temporary change to the terms and conditions of a returning employee, such as reducing pay, to ensure their continued employment and to avoid redundancies. Any changes to an employee’s terms and conditions of employment

  • must be agreed with an employee on an individual basis:
  • will involve consulting or negotiating with an employee or their representative (for example a trade union if collective consultation is triggered), and considering alternative proposals;
  • should include an explanation of the reasons for the proposed changes and what those changes will look like; and
  • should include an explanation of what will happen if agreement cannot be reached.

Employees may be more willing to agree to a temporary rather than a permanent change, especially where it will be kept under review.

Information on changing terms and conditions is considered in our recent article.

Further information

Further information on the ending of furlough and what alternative schemes are available (such as the JobHelp website which includes the Kickstart Scheme and other Plan for Jobs support measures) can be found on the HMRC COVID-19 support page. Any of the options mentioned in this article will require careful planning and compliance with current employment law. Therefore should you require any further information please contact one of our Employment law team who can provide advice on your organisation’s situation. With only a few weeks to go before the end of the furlough scheme there is a lot for employers to consider.

This article was co-written by Vicky Schollar and Sara Trevor.

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