Covid-19 redundancy guide – Part 1: Job Retention Scheme and its effects

Since I first blogged about this topic, there have been a number of changes to the government’s support schemes. This post outlines the situation at time of writing.

The coronavirus (Covid-19) pandemic poses a significant threat to people’s health and wellbeing, as well as huge disruption to businesses. People professionals will need to rapidly adapt their practices and procedures to suit the current situation, but also to ensure their business continuity and viability.

Part of this response may unfortunately have to include redundancies or other cost-cutting measures. The nature of the virus will mean that employers may need to consider adapting their usual redundancy procedures, taking into account the Job Retention Scheme (known as furlough).

This post is the first in a series based on the detailed guidance from the Chartered Institute of Personnel and Development (CIPD) on how this scheme affects redundancy procedures.

The Coronavirus Job Retention Scheme and redundancy procedures

In March 2020, the UK government announced the implementation of the Coronavirus Job Retention Scheme, to help businesses deal with the economic consequences of the Covid-19 pandemic and consequent lockdown measures. The scheme has subsequently been extended and aims to help employers whose operations have been severely affected by coronavirus until it ends at the end of March 2021.

The scheme allows organisations to furlough employees, i.e. place them on a temporary leave of absence. There have been several phases of the scheme:

  • Under the first phase of the scheme (which concluded at the end of June 2020), employers could reclaim up to 80% of furloughed staff wage costs from HMRC, subject to a cap of £2,500 per month if staff were fully furloughed.
  • A second flexible phase of the scheme was operational between 1 July and 31 October. During this phase, employees could be partially furloughed, combined with part-time working. Employers needed to pay for any working time but could still claim a grant for periods of furlough, subject to certain conditions. Employers had to pay employers’ NI and pension contributions from August onwards, and contribute 10% and 20% towards furlough pay in September and October respectively.
  • The third extended phase of the scheme applies from 1 November until March 2021. The extended scheme will support salaries at 80% up to maximum of £2,500. This returns the scheme to August levels (before greater employer contributions were required in September and October). In January 2021 employers may be asked to contribute more. Employers will pay National Insurance and employer pension contributions for both hours worked and hours not worked.

Employees have to agree to being furloughed and to any decrease in salary. Since 1 July, any pattern of working can be agreed and any furlough periods can be claimed for in blocks of at least one week.

Additional considerations for employers

The usual rules around redundancy have not been changed. However, while the furlough scheme is in place and other government assistance is available, there are some additional considerations to be borne in mind. For example:

  • Logistical issues will need to be overcome if redundancy consultation processes take place remotely with staff who are furloughed.
  • Organisations will have to think carefully about ensuring that redundancy pooling and selection criteria are fair. In particular, if an organisation is proposing to select staff for redundancy based purely on the fact that they are furloughed, there is a risk that this approach may give rise to an unfair or even discriminatory redundancy process and/or dismissals. The extent of the risk will depend on the reasons for staff having been placed on furlough in the first place, and the selection process that was used to do this.
  • Staff are entitled to be paid their full salary during their notice period, even if they have only been receiving the relevant percentage of furlough pay during furlough. The precise rules about notice depend on whether the furlough period is before or after 1 December and whether the notice period is contractual or statutory, and current government guidance. Redundancy pay should be based on full salary, not furlough pay. Any outstanding annual leave should also be paid at the full rate of pay.
  • Redundancy dismissals may count as unfair dismissals if they take place in circumstances where an employer did not properly consider alternatives. Such alternatives include retaining the employee on furlough.

An important point to bear in mind is that new government guidance is being published and updated on a regular basis. This means it is important for businesses to keep matters under close review, and always read the latest guidance before beginning any processes.

My next post in this series will explore the ins and outs of redundancy consultations.

If you would like further information in the meantime, email me or call me on 020 7099 2621.