LawFlash

Coronavirus Job Retention Scheme Wind-Down: What Will It Mean For UK Employers?

June 01, 2020

The UK government on 29 May published updated guidance on the Coronavirus Job Retention Scheme, which has been extended to the end of October 2020 but for which employers will need to contribute to furloughed employee costs from August 2020. Additionally, staff who were furloughed by 12 June can be flexibly furloughed. This LawFlash covers the new guidance and considers employers’ options as the scheme winds down, including redundancies during or following furlough.

This LawFlash supplements our detailed prior analysis of the scheme.

KEY CHANGES TO THE SCHEME

The UK Chancellor on 29 May announced long-awaited details about the extension to the Coronavirus Job Retention Scheme (the Scheme), which was originally introduced to sustain businesses adversely affected by the coronavirus (COVID-19) pandemic and to avoid redundancies.

The UK government has said that the Scheme will now be brought to a gradual close at the end of October 2020, although local versions of the Scheme may need to be implemented in the context of any second wave of COVID-19. Employees will continue to receive at least 80% of their wages subject to the £2,500 per month cap, but employers will be asked to start sharing certain employment costs from the beginning of August.

The revised Scheme will be wound down as follows:

  • June: No changes. The Scheme will continue to cover the full furlough payment, up to the cap. Employees must be furloughed by 12 June to allow them to be flexibly furloughed. Employees must be furloughed by 10 June to remain eligible for the Scheme.
  • July: Employees can return to work flexibly. The Scheme will continue to cover the furlough payment, up to the cap for flexible working employees (or fully furloughed employees), and employers will need to pay for costs for employees performing work on the flexible basis. The anticipated flexible furlough scheme details, to be announced by the government on 12 June 2020, are going to be crucial in determining how the flexible arrangement will work.  
  • August: The Scheme will continue to pay 80% of employee wages, but employers will need to pay employer National Insurance Contributions (NICs) and employer pension contributions (this is usually approximately 5% of average employment costs).
  • September: Employers will need to contribute 10% of furloughed employees’ wages (the Scheme will cover the remaining 70%) and pay employer NICs and pension contributions.
  • October: Employers will need to contribute 20% of employee wages and the Scheme will cover 60%.
  • November: Under the current timeline, the Scheme will no longer be available starting 1 November 2020.

FLEXIBLE FURLOUGH

From 1 July, employers will be able to bring back to work on a flexible basis any employees who have previously been furloughed. The employer will still be able to claim under the Scheme for such employees’ normal hours not worked, but they will have to pay full employment costs for any hours worked. To be eligible, employers will have to agree with their employees on any new flexible furlough arrangement and confirm that agreement in writing.

Detailed guidance on the flexible furlough arrangements is expected on 12 June. The intention is to return the workforce in a measured, controlled manner, allowing employers to plan the safe return of their workforces and enabling staff to plan how to manage a return to the workplace. As mentioned in our previous LawFlash, employers need to plan for health and safety as well as logistical steps to return safely to the workplace.

FURTHER TREASURY DIRECTION

On 22 May, the UK Treasury issued a further Direction to reflect the original extension of the Scheme until 30 June 2020 (but not the current extension to 31 October 2020). Any applications for payment under the Scheme made after 22 May 2020 will have to comply with this Direction. The further Direction resolves discrepancies between the Treasury Direction as originally drafted and the various iterations of the Her Majesty’s Revenue and Customs (HMRC) guidance on the Scheme.

Key updates:

Employee Agreement. The explicit requirement for employers to obtain agreement in writing to place employees on furlough leave has been amended to allow for such agreement to be “made in writing or confirmed in writing by the employer (such agreement or confirmation may be in an electronic form such as an email)”. The agreement will need to specify the main terms and conditions, be incorporated  into the employee's contract, and a record of the agreement must be retained until 30 June 2025.

Study/Training During Furlough. Further guidance on the type of study or training that can be undertaken during furlough leave is provided.

Statutory Sick Pay. Where Statutory Sick Pay is “in payment or due to be paid”, furlough cannot begin until immediately after the period of incapacity has terminated.

Regular Pay. The requirement that regular pay is not conditional on any matter has been removed, and additional definitions of “regular pay” are provided, including that pay “cannot vary according to a relevant matter except where the variation in the amount arises from a non-discretionary payment”.

Timing. Employers are not precluded from making a claim under the Scheme if they have not paid the employee, provided that the employer intends to pay within a reasonable period after receiving the payment claimed under the Scheme.

Furloughed Directors. Furloughed directors are permitted to make claims under the Scheme and pay employees' wages, in addition to fulfilling their statutory duties.

Furloughed Trustees of Occupational Pension Schemes. Trustees are permitted to undertake work for the sole purpose of fulfilling their duties as trustees.

CHANGES TO THE WORKFORCE

As the UK government begins to ease lockdown measures, employers will need to make important workforce decisions. From August 2020, employers will need to contribute to the furlough payment in increasing proportions until the Scheme closes at the end of October. For some businesses, this may not be possible, and redundancies will need to be made.

Additionally, employers should consider any other workforce issues (e.g., implementing flexible working arrangements, managing poor performance) that may have previously been overlooked whilst employees were busy or the businesses were otherwise successful. Employers should be mindful that redundancies can be costly, may give rise to unwanted litigation, and can have a negative impact on the morale of retained staff.

Further, proposals to dismiss 20 or more employees in a period of 90 days or fewer will trigger collective consultation requirements and also the requirement to elect representatives, if none are already elected for consultation purposes.

Employers should consider all options such as freezing salaries, reducing bonuses (or not paying them at all, depending on the type of scheme), implementing hiring freezes, and reviewing outstanding offers of employment and other recruitment processes so that staffing meets the new requirements of each employer’s business.

When planning to return staff to the workplace, employers should deal with any health and safety concerns regarding COVID-19 risks and bear in mind that employees who raise concerns—whether justified or not—could be protected against adverse treatment under UK whistleblowing laws.

REDUCING THE WORKFORCE

Until the end of July 2020, the Scheme will continue to operate in its current form so employers will be able to keep employees on furlough, even if they will subsequently be made redundant (provided employees agree to the furlough extension). This does not prevent employers from making redundancies while employees are on furlough. As the Scheme draws to a close, employers may wish to commence consultation so that the expiry of notice periods coincides with the end of the Scheme.

The Scheme will not reimburse employers for statutory redundancy payments, but employers can claim for notice pay if an employee is on furlough leave during their notice period. Whether the employer is obliged to "top up" notice pay to 100% will depend on the contract, including whether the employee is entitled to statutory notice, or at least a week more than statutory notice, and whether or not the employee has normal working hours.

Employers must ensure that they follow a fair consultation process. Employers will have to decide the number of proposed redundancies to make. There has to be a genuine redundancy situation, i.e., a workplace or business closure or other reduced need for the number of employees to perform the work.

If an employer is proposing to make 20 or more dismissals within a 90-day period at one establishment, it will need to comply with collective consultation requirements. Employers must notify the Department for Business, Energy and Industrial Strategy (BEIS) of the proposed redundancies using form HR1. Employers will need to consult collectively with unions or employee representatives on ways of (1) avoiding dismissals, (2) reducing the number of employees to be dismissed, and (3) mitigating the consequences of the dismissals.

While some roles may become obsolete, employees could be re-trained for new roles, particularly given the renewed importance of technology and automation. Careful thought should be given to possible ways of retaining staff. Individual consultation is also generally required when proposals are progressed to make individual roles redundant. Collective consultation must commence in good time: At least 30 days before the first notice is served (for proposals to dismiss fewer than 100 employees) or 45 days (for proposals to dismiss 100 or more employees) before the first dismissal.

Given the large proportion of remote workers and likelihood of staff being furloughed, it may be prudent to start planning for the election of representatives in advance of the minimum consultation period, as the process may take longer than usual. Employers may also wish to time the redundancies so they coincide with the end of the furlough Scheme to avoid being liable for 100% of employee salaries once the Scheme ends.

There is a reputational risk of making large redundancies while the furlough Scheme is still available. Organisations should consider whether furloughing staff is the right business as well as employment decision to make. The guidance, however, does permit redundancies to take place during the furlough period. For example, trade union or employee representatives are able to participate in collective consultation whilst on furlough without invalidating their furlough leave.

CORONAVIRUS COVID-19 TASK FORCE

For our clients, we have formed a multidisciplinary Coronavirus COVID-19 Task Force to help guide you through the broad scope of legal issues brought on by this public health challenge. Find resources on how to cope with the post-pandemic reality on our NOW. NORMAL. NEXT. page and our COVID-19 page to help keep you on top of developments as they unfold. If you would like to receive a daily digest of all new updates to the page, please subscribe now to receive our COVID-19 alerts, and download our biweekly COVID-19 Legal Issue Compendium.

CONTACTS

If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:

London
Matthew Howse
Pulina Whitaker
Louise Skinner
Lee Harding

Trainee solicitor Sol Gelsomino contributed to this article.