Answers to frequently asked questions to offer guidance in responding to the coronavirus disease, COVID-19
Q: What if the employee has taken on other work during furlough?
If an employee has taken on other work during furlough the position depends upon what was specified in the original contract and the furlough agreement. The working arrangements, including the hours required by both the employer and employee, will also be critical.
During furlough, the HMRC guidance confirmed that furloughed employees could work elsewhere without the original employer's claim for wage costs under the scheme being affected. If employees took on other work while being furloughed, then the employees' contract is unlikely to have prevented them from working for another employer. Alternatively, the employer may have granted specific permission in the furlough agreement.
What happens next depends on what was agreed overall. The furloughing employer may have agreed a temporary change to the employee's contract to allow them only to work for another employer during furlough. If so, it is then up to the original furloughing employer to decide if they are happy to let the employee continue with the second role. Alternatively, a permanent variation may already have been agreed which enables the other work to take place.
The original employer should consider several issues. For example:
- Is there any conflict of interest between the employer and the second role, for example an estate agent is unlikely to want a negotiator working part-time at another estate agency when potential conflicts of interest could arise?
- Does the employer want the employee back full time or is only part time work required under a flexible working arrangement, and will the new job conflict with the employee's working hours?
- Is the arrangement to enable work elsewhere permanent or temporary?
- The employer should also consider the risk that the employee may decide not to continue with the dual arrangement and may prefer a full-time role with the second employer. If so, is the period of notice sufficient?
- The implied duty to maintain mutual trust and confidence implies a duty on the part of both employer and employee not to destroy or seriously damage the relationship of trust and confidence between the parties. For example, if an employee was working for the second employer on days they were meant to be working for the original employer, this may be a breach of the implied term as well as any express agreement about working hours.
- The implied duty of fidelity requires all employees to faithfully serve the employer, this means that an employee who is working elsewhere when they should not be, is likely to be acting against the interests of the employer. This term is especially relevant if the employee is working for a competitor and also arises if the employee is setting up a competing business.
- The duty to provide work may arise if the original employer does not allow the employee to work elsewhere but deprives the employee of the opportunity to earn by not providing them with work, e.g. if his or her pay includes commission. Although there is generally no duty for an employer to provide work for its employees, employees must be allowed to work to maintain their skills or public profile.
Q: What should we do about employees who have been on furlough because they are clinically vulnerable or have caring responsibilities?
Employers’ approaches to employees who have been on furlough because they are clinically vulnerable or have caring responsibilities will vary. Employers cannot adopt a single approach.
Employers will need to consult with previously furloughed employees individually to find solutions, considering the current government advice and the overall legal position. The key points of guidance and law are summarised separately below.
The extremely clinically vulnerable are no longer advised to shield and avoid the workplace. The government originally categorised groups of vulnerable people as clinically extremely vulnerable or clinically vulnerable. However, the stay-at-home advice for all those people (including shielding advice) was removed from 1 April 2021.
The latest general guidance on working safely during coronavirus says that employers should give extra consideration to those at higher risk, including workers facing both mental and physical health difficulties. Employers should continue to support workers who were previously furloughed or shielding by discussing their individual needs and supporting them in taking any additional precautions advised by their clinicians.
The emphasis in the advice is now towards risk management, recommending that the clinically extremely vulnerable should continue to consider the risks of close contact with others. Although there is no longer mandatory working from home nor a legal obligation to socially distance in the workplace, these options are still courses of action employers should consider on a voluntary basis. Employers should undertake individual risk assessments as well as collective ones and then implement the resulting precautions.
The advice emphasises that employers must explain to clinically extremely vulnerable employees the measures they have in place. The government advice also reminds employers of their pre-existing legal duties to protect all employees, especially the vulnerable, from risks to their health and safety.
Steps to take
As part of an employer’s general health and safety obligations, employers owe a duty of care towards vulnerable employees. The duty of care is higher if there are more serious consequences of COVID-19 for clinically vulnerable people. Failure to take steps to protect them could result in a claim for negligence. This extends to employees’ mental and physical health and wellbeing.
Health and safety rules also include protections under the Employment Rights Act 1996 (ERA) about serious and imminent dangers in the workplace. Employees have the right not to suffer a detriment or be dismissed for refusing to return to the workplace if there is such a danger and can take appropriate steps to protect themselves or others from danger. Employers need to mitigate all the legal risks arising especially for the vulnerable coming to work. Steps to consider may include:
- Compliance with all relevant HSE guidance in addition to the government guidance above.
- Assess risks via individual and overall risk assessments and respond to findings.
- Explain and consult with staff about risk control measures.
- Consider adjusting hours or working arrangements so the vulnerable can avoid peak travel times on public transport.
- Consider measures over and above the current government guidance including face coverings, PPE, regular lateral flow testing, cleaning, ventilation, and encouraging vaccination.
- Train employees and managers on health and safety duties.
- Respond to employee complaints about workplace safety including remembering vicarious liability for employees who take unnecessary risks.
- Be informed about employees who live with vulnerable people and have concerns about the welfare of family members. Employees who live with vulnerable people may have associative discrimination rights (see below).
- Discipline employees who break safety rules.
- Maintain pay for staff with legitimate safety concerns until the issues have been addressed.
- Maintain communication over any serious health and safety concerns and steps taken to address these.
- Accommodate refusal to return to work if there is an imminent danger.
- Ensure employees do not attend work if they show symptoms, test positive or are told to self-isolate. Consider use of the NHS contact tracing app.
- Provide sick pay to employees who have tested positive for COVID-19 and cannot work from home.
Employees who have been on furlough because they are clinically vulnerable or have caring responsibilities may be protected by a range of other pre-existing duties, as outlined below.
Employers do not owe a duty of care to people who live with their employees. However, discrimination law and some health and safety duties may extend to those with caring responsibilities.
The concept of associative discrimination protects employees from discrimination because of their association with a disabled person. This kind of associative discrimination is unlikely to be relevant in many COVID-19 situations. However, if a household member is disabled under the Equality Act and an employee feels the employer treated them worse because of this then they may attempt a claim.
Employments Rights Act claims are more likely, for example in Gibson v Lothian Leisure an employee raised concerns about coming to work because he lived with his vulnerable father and reasonably believed that his father would be in a serious and imminent danger. The employer had not taken COVID-secure measures or provided PPE. The employee won his unfair dismissal claim.
For clinically vulnerable employees the best approach is likely to allow them to continue to work partially or wholly from home if they request this and it is feasible. Other options for employees who don’t want to return may include unpaid leave or sabbaticals. Ultimately, employers who feel that they have taken all reasonably practicable steps to control the risks outlined above and have a highly vaccinated workforce may try to encourage a vulnerable employee to return to work backed up by disciplinary action if the employee refuses. This is not without risk and specific legal advice may be needed.
Q: What should we do for employees who have some work but not enough now that furlough has ended?
Following the end of the furlough scheme, employers with insufficient work for employees have several options, including making redundancies and reducing everyone’s hours equally. Employers may need to reduce their overheads through other means to avoid staff reductions.
Reductions in pay or working hours can be a fundamental breach of the employment contract, leaving an employee with no other choice other than to leave, leading to constructive unfair dismissal claims. Alternative options may include temporary lay-offs, short-term working, offering staff unpaid holiday, flexible working, sabbaticals or unpaid leave. Also, by agreement, there could be minimum-hours or zero-hours contracts, temporary or permanent reductions in working days for all employees, alternate-week working patterns, reduced bonuses, recruitment freezes or salary reductions.
If employers decide a longer-term reduction in hours or pay is the only solution, then employees will of course also need to agree to this, and employers must proceed carefully. A preferred course of action always involves some degree of staff consultation to find a solution that works for everyone. The starting point is to consider the employee’s contract to see if a reduction in their working hours was envisaged and to consider the extent of the change. The ability to vary contracts depends on how much of a change is entailed, but in most cases a contract renegotiation with the employee will be needed. Staff may be more receptive to fewer hours if they have been kept aware of financial difficulties. Staff may agree to temporary or longer-term changes if the alternative is making them redundant.
If there are at least 20 employees at one establishment whose terms are being changed, then employers will also have to collectively consult with trade unions or elected employee representatives, if no agreement is reached dismissal and re-engagement on the new terms may be the only (risky) option.
For further information on the legal options for reducing the number of hours worked (short-time working) and suspending employment for one or more days (laying off) see our Q: I’ve heard about short-time working and lay-offs? What are they and should I implement them? below.
For further information on the option of changing terms and conditions to reduce working hours see our Q: Can we change terms and conditions after furlough? and Q: If an employer has been attempting to change terms and conditions by a dismissal and re-engagement process, is that dismissal classed as a redundancy?
Employers have considerable discretion about how part-time working operates and once working hours and patterns are agreed with employees this should be confirmed in writing.
Q: Can employers implement redundancies immediately before or after the end of the furlough scheme and do special procedures apply?
With the closure of the furlough scheme at the end of September 2021, some employers had to consider whether there was sufficient future work to retain employees. The ending of the furlough scheme was not a sufficient reason on its own to justify redundancies. Employers must meet the normal redundancy criteria, namely that the work has ceased or diminished, or is expected to cease or diminish. If this is the case then redundancies can be implemented following full normal redundancy procedures for notice, consultation, and selection.
Employers who decide there is no alternative but to press ahead with redundancies, should fully consult and keep careful records to show why the redundancies or the proposed restructuring is needed.
Some employers may have their own written redundancy policy in place which should be followed carefully. Employers with no written procedure should still carry out a fair redundancy process including full information and consultation. Although genuine redundancy situations may be satisfied there still has to be a fair pooling and selection process, consideration of alternatives, notice payments and statutory or enhanced contractual redundancy packages.
Since 1 December 2020, employers could not claim the furlough grant for any days where an employee is serving a contractual or statutory notice period. This means for redundancies that started before the furlough scheme ended, employers should have funded full notice payments for redundant employees in addition to the redundancy payment and any other outstanding liabilities such as holiday pay.
For further information about claims on defective redundancy processes which started during furlough see Q: Are employers vulnerable if they started a redundancy process when someone was on furlough? Should employers have ended their furlough first? (below). Also see our Q&As on redundancies for more details of the general stages to be followed.
Q: Should redundancy and notice pay be based on normal pay or furlough pay?
Redundancy pay should be based on employees’ full normal salary rather than furlough pay. The full legal position is more complex, especially with respect to notice pay, making it harder for employers to calculate the correct redundancy and notice pay amounts.
Most employers will have agreed that employees get 80% salary while on furlough. With effect from 31 July 2020, legislation has confirmed that statutory notice pay is payable at the rate of the employee's full contractual normal salary, not their wages under the furlough scheme.
Notice pay generally can be based on either the contractual, or statutory minimum, notice period, whichever is longest. Statutory minimum notice is basically one week’s pay for the first two years of work followed by one week’s notice for every year worked up to a maximum 12 weeks. Working out notice pay can be complicated.
From 1 December 2020 employers could not claim furlough for any day when an employee is serving statutory or contractual notice from this date onwards. The cost of notice pay after 1 December 2020 was not covered by the scheme and employers must pay notice themselves at the rate of the employee's full contractual normal salary. Employers should have ended furlough when employees start their notice period, and this should be paid at usual pre-furlough levels.
An employee entitled to statutory minimum notice should therefore be given full notice pay based on normal pre-furlough pay, not furlough salary. Employers should top-up pay for furloughed employees working out their notice. The Coronavirus job retention scheme guidance confirmed that redundancy rights should not be affected by furlough.
Both redundancy pay and notice and payments in lieu of notice should be calculated using full, pre-furlough salary.
Q: Are employers vulnerable to claims if they started a redundancy process when someone was on furlough? Should employers have ended their furlough first?
Some employers are vulnerable to claims if they started a redundancy process when someone was on furlough. However, there was no obligation on employers to end furlough before making redundancies. Staff could always be made redundant during or after furlough.
For some employers the long-term effect of the pandemic on their business will be inevitable closure or rationalisation. Before and after the end of the furlough scheme employers could implement redundancy dismissals provided that the normal redundancy definitions are met, and a proper process was followed, including consideration of alternatives.
Tribunal cases are starting to work their way through the system which show the mistakes made by employers who started redundancies whilst furlough was available. Given that the furlough scheme was designed to minimise redundancies, furlough should at least have been considered as an alternative to redundancy. A complete failure to consider furlough as an alternative to redundancy or defective procedure are common reasons for triggering later unfair dismissal claims. Employers faced with such claims will need to consider whether they applied the redundancy selection and consultation processes properly despite furlough and, if they did not, they may need to take specific advice and budget for a possible settlement agreement.
Employers should bear the following in mind:
- A redundancy is not unfair just because the redundancy process started during furlough.
- At no stage did furlough have to be ended before starting a redundancy process. The government’s furlough guidance warned employees that they could be made redundant while on furlough or following it.
- The furlough guidance also reminded employers that furlough grants could not be used for redundancy payments, payments in lieu of notice or untaken annual leave. The Treasury guidance confirmed that employers could not claim furlough for any day when an employee was on statutory or contractual notice from 1 December 2020 onwards, so employers had to pay the cost of notice pay in full.
Q: Could employers claim the furlough grant for furloughed employees serving contractual or statutory notice periods as part of a redundancy process?
Some employers implemented a redundancy process at various stages in the approach to the end of furlough in September 2021. The timing of the process may have been affected by the reduction in the government's 80% wage contribution during July and August.
The position concerning notice pay changed during the pandemic. Prior to December 2020 employers could claim the furlough grant for furloughed employees serving contractual or statutory notice periods. The position then changed so that employers cannot claim furlough for any day when an employee is serving statutory or contractual notice. The cost of notice pay after 1 December 2020 was therefore not covered by the scheme and employers had to pay this themselves in full.
Employers dismissing for redundancy or otherwise towards the end of the scheme had to pay any redundancy and notice pay in full rather than allocating a portion of the furlough grant towards the notice payments.
In any redundancy decision-making process employers should evaluate the likelihood of employees challenging the fairness of selection for redundancy if furlough was not considered as an alternative during the operation of the scheme.
Q: For redundancy consultation do normal timelines apply or is this a special case?
There were no pandemic-based changes to actual redundancy procedure, instead there were some financial measures seeking to help employers avoid or minimise redundancies and some rules on maintaining normal redundancy pay. If redundancies are unavoidable, the safest approach is to follow normal redundancy procedures, consultation and timelines.
The law does provide a rarely used exception that, in some cases, an employer may be able to justify not meeting the full consultation requirements. This is explained further below. Whilst the coronavirus situation is unprecedented, it is not a ‘special circumstance’ in a redundancy context justifying avoidance of consultation because there is still time to consult. It is extremely difficult to justify cutting down on the redundancy consultation process; employers should follow consultation procedures in full and not rely on the potential exception. The main consultation timings are summarised below, but the other usual stages must be followed in addition to consultation.
There is only an obligation to consult individually if 19 or fewer employees are affected. Employers must consult both individually and collectively if proposing redundancies of 20 or more employees at one establishment within a period of 90 days or less.
The consultation must begin:
- at least 30 days before the first dismissal where 20 to 99 redundancies are proposed, or
- at least 45 days before the first dismissal, if 100 or more redundancies are proposed.
The collective consultation should be completed before the employer serves any notices of termination of employment. Collective consultation will also apply if employers propose to dismiss and re-engage employees who do not agree to a proposed contractual variation. Failure to comply can lead to a protective award of up to 90 days’ pay for each affected employee.
Notification on Form HR1
In addition to consultation employers proposing making 20 or more employees redundant within the 90-day period must notify BEIS using Form HR1. The HR1 form must be submitted before giving notice to terminate any of the employees' contracts. The timings are:
- If between 20 and 99 employees are proposed to be dismissed, the form must be submitted at least 30 days before the first dismissals.
- If 100 or more employees are proposed to be dismissed, the form must be submitted at least 45 days before the first of the dismissals.
After all the usual stages employers will eventually reach the point where they must individually meet with employees provisionally selected for redundancy for several individual consultation meetings. Provided employees have and can use the requisite technology, during the pandemic these meetings can occur virtually through Skype or Zoom etc if meetings in person are still being avoided. There is no set timing for individual consultation although they occur after numerous communications with the potentially affected employees, including the reason for the proposed redundancies and information about the selection process. During individual meetings employers seek suggestions for avoiding redundancies and provide opportunity for objections to the selection criteria, suitable alternative employment and the potential redundancy packages.
Employers should have already considered all remaining government support schemes to help employers avoid redundancies.
The law provides a rarely used defence for employers who have failed to collectively consult. Employers have to prove ‘special circumstances’ which made it not reasonably practicable to comply with the collective consultation requirements set out above. Whilst unusual, the pandemic does not give employers an automatic excuse to avoid consultation.
Employers have tried to use the special circumstances defence in many critical situations, including insolvencies, for example the Thomas Cook collapse. Case law indicates that it is difficult to rely on this defence to justify failures to consult; even an impending insolvency situation on its own is not enough. In the coronavirus situation employers cannot show consultation is not practicable at all but must take all steps towards consultation that are possible. Special circumstances are more likely to be proven if there is a sudden disaster rather than a progressive decline in business.
The defence applies to failures to consult at all, failures to consult in good time or to provide the required statutory information for consultation. However, the fact that furlough applied along with the temporary suspension of wrongful trading provisions for company directors makes it harder for employers to rely on the special circumstances defence. It therefore seems unlikely that the current situation would qualify for the defence and employers should continue to comply with their redundancy consultation duties to the greatest extent possible.
Failure to consult collectively leaves the employer vulnerable to extra payments called protective awards of 90 days’ extra pay each.
Q: Can we change terms and conditions after furlough?
Employers can change terms and conditions after furlough but will need to obtain express agreement from the employees to any contractual variations.
Now that furlough has ended, employers may decide ongoing variations to contracts are necessary, perhaps affecting the whole workforce. Variations may address matters such as reduced pay and hours, or continued working from home. Changes which adversely affect terms and conditions requires a variation process with proper consultation, including formal collective consultation in certain cases.
Any agreed variation should be recorded in writing within one month of the change, with employees confirming their agreement by signing a document which can be appended to the contract of employment.
Some policy changes may be possible without obtaining agreement from the employees, but contractual changes require agreement; unilateral changes are unenforceable and usually are a breach of contract exposing employers to a claim against them.
The various ways changes may be attempted and achieved are summarised below:
- Consult the employees and hope that they will agree voluntarily.
- Offer an incentive to employees to agree, for example, a small one-off cash payment or perhaps as part of a working from home arrangement.
- If the employees will not readily agree the employer may have to impose the changes. However, this option should be used as a last resort only. If the change is fundamental, it may amount to a breach of contract entitling the employees to resign and make a number of claims including constructive unfair dismissal and breach of contract and damages for loss.
- If the employees will not readily agree the employer may have to impose the changes. However, this option should be used as a last resort only. If the change is fundamental, it may amount to a breach of contract entitling the employees to resign and make a number of claims including constructive unfair dismissal and breach of contract and damages for loss.
- the presence of a sound business reason for effecting the change
- any alternatives
- overall procedure
- the proportion of the workforce who were willing to accept the change
- the impact on the particular employees and their reasons for not agreeing to the change, and whether or not there was adequate consultation.
Consulting with employees when furloughing them did not constitute a proposal to dismiss and, therefore, the collective consultation requirements were probably not triggered. However, if the employer intends to bring employees' contracts to an end by dismissal and then re-engage those employees on new contractual terms, then the normal collective consultation requirements are triggered. These apply where an employer proposes to dismiss 20 or more employees at one establishment over a specified period. For further details on consultation during this period, CIPD members can refer to the Redundancy collective consultation Q&As.
Some employers have tried to make it easier to vary certain aspects by putting an express term into the contract which states that a particular term is variable. It is certainly helpful for employers to include such carefully drafted contractual variation clauses, at the very least, such clauses may encourage (and perhaps mislead) the employee into assuming that any changes are permissible. Express clauses do not guarantee that the employer can significantly vary all contractual terms, especially important ones.
Q: If an employer has been attempting to change terms and conditions by a dismissal and re-engagement process, is that dismissal classed as a redundancy?
There are many methods to attempt changing terms and conditions of employment. Changing terms by unilaterally dismissing staff and offering to re-engage them on revised terms and conditions is one of the riskier methods and certainly has an adverse impact on staff morale. Sometimes employers deem this approach essential. In most coronavirus-related dismissals if an employers’ need for staff has already reduced or is expected to diminish there will either be a dismissal by reason of redundancy, or it may be a dismissal for some other substantial reason (see below).
There can be a number of scenarios:
Dismissals that happen in the course of attempting to impose revised terms and conditions: this will often be an unfair dismissal. The reason will be an attempted SOSR dismissal (see below) or an unfair dismissal by reason of redundancy rather than a properly handled redundancy dismissal. The compensation payable would be unfair dismissal compensation rather than notice and redundancy pay.
Dismissals that happen after revised terms and conditions have been fully agreed: this still can be a fair dismissal by reason of redundancy if full redundancy procedures are followed. The employer must be able to show that even after the reorganisation and altered terms and conditions, any dismissals are wholly or mainly attributable to the fact that:
- the employer is ceasing carrying on the business where the employee was employed;
- the employer is ceasing carrying on business in the place where the employee was employed;
- the needs of the business for employees to carry out work of a particular kind are expected to cease or diminish; or
- the needs of the business for employees to carry out work of a particular kind in the place where the employee was employed are expected to cease or diminish.
For employees who refuse to accept changes to terms and conditions and are dismissed, employers can try and demonstrate that they had a genuine business need for making the essential changes. This may be ‘some other substantial reason’ (SOSR) for the dismissal, which is another potentially fair reason for dismissal as an alternative to redundancy. If employers can prove their sound business reasons, and that they have followed a fair procedure, any unfair dismissal compensation may be relatively low. Reasonableness depends on if there was genuine consultation, clear explanation of the impact of the pandemic and need for the changes, consideration of employee objections, consideration of alternative jobs or locations if any. The overall fairness will be evaluated by considering if a majority of staff accepted the changes and the disadvantages to the employee resulting from the changes and the advantages to the employer of implementing them.
If 20 or more staff are being dismissed and re-engaged the employer will have had a duty to consult with union or employee representatives and to notify the Secretary of State by completing Form HR1.
This is because the definition of collective redundancy consultation covers any dismissal for reasons not related to individual employees. If an employer needs the same number of staff but dismisses and re-engages them on new terms, the employees will be dismissed for reasons unconnected with them as individuals. There will be a redundancy for collective consultation but does not lead to redundancy pay.
If redundancies are proposed after a consultation about terms and conditions, the consultation and notification process will need to be completed again. Failure to comply with the collective consultation obligations leads to employers paying up to 90 days' actual pay to each affected employee, and a failure to notify the Secretary of State is a criminal offence.
Q: Should an employer consult on changes to terms and conditions if it’s a temporary change (eg 3 months’ salary reduction)?
Employers should consult employees individually even if there is only a temporary change to terms and conditions. This is because employees’ agreement is needed to implement a salary reduction. Collective consultation may, or may not, apply and this is dealt with below.
The numerous ways of attempting to change terms and conditions are set out in our Terms and Conditions Q&As. The methods that are most relevant for a temporary pay drop are:
- Consult the employees and any unions and hope that they will agree voluntarily, explaining the proposed changes to the employees and the reasons behind the change, which will include how the pandemic has affected the business. Employees should be able to raise concerns and put forward suggestions as an alternative. There may be some negotiation. Any agreed changes should be confirmed in writing.
- Offer an incentive to employees to agree. Whilst one-off cash payments or increases at the next annual pay reviews are not financially feasible for many employers at the moment, employers may be able seek agreement to a pay reduction now, in return for later incentives when business picks up.
When employers seek agreement to temporary changes the employer doesn’t know if 20 or more employees will refuse to agree to the change. If the employer intends to back up the plan by dismissing and re-engaging more than 20 who don’t agree, then collective consultation with either a recognised trade union or elected employee representatives will be needed. This is why many employers collectively consult on changes from the beginning. Collective consultation should take place as early as possible and at least 45 days before the first dismissal takes effect if the employer is proposing to dismiss 100 or more employees within a period of 90 days or less, and at least 30 days before the first dismissal if the proposed number of dismissals is between 20 and 99.
Employees can receive awards of up to 90 days’ pay if the employer fails to comply with the obligation to consult.
Q: I’ve heard about short-time working and lay-offs? What are they and should I implement them?
Lay-offs and short-time working are rarely used legal provisions that cover situations where there is not enough work for employees to do.
Lay-offs are when the employer asks an employee to stay at home and not attend work or be paid for a temporary period.
Short-time working refers to when the employer requires their employee to work less than their regular contractual hours, for example, a three-day week.
Employers can only implement lay-offs or short-time working if there are express, correctly drafted clauses in their contracts. Employees affected may be able to claim redundancy pay. Employers can also implement lay-offs or short-time working if they get consent to a period of lay-off or short-time working at the relevant time. Employees may agree to this if they feel their only alternative is redundancy.
Employees who are laid off as a result of the pandemic who have at least one month’s service and who fall within the criteria will be entitled to a small fixed statutory guarantee payment to partially compensate them for the reduction in salary. Employees who are laid off but affected for longer periods may be entitled to redundancy pay. The employees must resign with written notice of their intention to claim this. Employers can avoid redundancies if they guarantee employees 13 consecutive weeks of work within four weeks of receiving the employee’s notice.
Lay-offs and short-time working may give employers greater flexibility to achieve savings on salaries during subsequent temporary closures if the required clauses are already in the employees’ contracts or if they consent subsequently. Clauses should reserve the right to reduce pay according to the reduction of work. Obviously, such plans are likely to have a detrimental effect on morale and this impact should be considered alongside other potential options.
Q: How did holidays and furlough and reference periods work for zero-hour employees?
Zero-hour employees who accrued holiday during furlough should have holiday calculated in essentially the same way as before and after furlough. Holiday pay during furlough should be calculated using the 52-week reference period (instead of the previous 12-week reference period).This is because the reference period increased to 52 weeks from 6 April 2020 and applies to all workers including those on zero hours. This period operates in the same way as the previous 12-week period.
Workers are entitled to 5.6 weeks’ annual leave (calculated pro-rata for part-time employees). For full time staff that equals 28 days per annum and can include the UK bank holidays. The Working Time Regulations do not specify how to calculate this entitlement for zero-hours workers. However, there is some government guidance. Employers can calculate average days or hours worked each week based on the reference period.
Zero-hours workers employed for a full leave year are entitled to 5.6 weeks’ statutory leave or 28 days. Problems can arise where workers work only part of a leave year, in which case statutory holiday entitlement will be calculated by multiplying 5.6 weeks by the number of months the employee has worked in the holiday year divided by 12 eg 5.6 x (X ÷ 12). The government guidance explains more on how to calculate this.
For example, a zero-hours contract worker who has been furloughed for 6 months before the end of the holiday year would have an annual leave entitlement relating to the furlough period of: 5.6 weeks x (6 ÷ 12) = 2.8 weeks holiday or 14 days.
It can be simpler for some zero-hours workers to have their holiday calculated in days.
A worker on furlough should have holiday pay based on their normal rate of pay (ie their pre-furlough wage). The calculation of holiday pay is based on earnings, not hours worked. The average pay from the employee’s last 52 weeks of earnings is used as a reference period to calculate the holiday pay. Unpaid leave or other periods where no earnings are received are ignored.
The reference period for calculating holiday pay changed to 52 weeks in April 2020. This was planned before the coronavirus pandemic and is nothing to do with the furlough scheme. However, furloughed employees’ holiday pay can be calculated using the same reference period as for non-furloughed employees.
For workers on a zero-hours contract, the holiday pay received is based on their average pay over the previous 52 weeks worked.
Employers count back across the last 52 weeks that the employee has worked and received any pay for work in that week. Weeks in which no pay was received do not count towards the 52-week average. If employees have worked for less than 52 weeks, employers should use as many full weeks of work as possible to calculate the holiday pay.
Because the reference period must include the last 52 weeks for which there were actual earnings, any weeks where no work was performed are not included. So, the reference period may go further back than 52 weeks from the furlough period. Employers should not look back any more than 104 weeks. If the employee has less than 52 weeks in which they earned anything during the last 104 weeks, then the reference period is shortened to that lower number of weeks.
Contractual overtime worked during the reference period and certain other pay components should also be included in holiday pay calculations.
The government’s holiday entitlement calculator helps calculate how much holiday a worker on irregular hours or a zero-hours contract is entitled to within a current leave year.
Holidays already taken
The reference period must only include weeks for which the worker was actually paid. Any weeks in the 52-week period including hours of paid holidays are included. Weeks where workers were not paid (as they did not work) are discounted. Whether holiday during the 52 weeks of the reference period is taken into account depends on the type of worker that has been furloughed. Government guidance suggests that:
- Workers without regular working hours: for these workers, previous holiday pay weeks should be included in the holiday pay calculation to calculate an average week’s pay. This is because the holiday pay for the holiday week is remuneration which should be taken into account in the reference period for those who work irregular hours.
- Workers with regular working hours but variable pay: for these workers, previous holiday pay in the reference period should be excluded from the holiday pay calculation to calculate the average hourly pay. This is because only pay for hours actually worked is taken into account. For these workers a full week of holiday (or week in which there was no work for any other reason) is excluded from the holiday calculation.
For each week that is not taken into account the employer would then have to use an extra week counting backwards to reach 52 weeks’ worth of pay data.
Q: What happened to statutory annual leave entitlements during lockdowns and furlough?
Some workers may have accrued annual leave because they were needed to work in a critical sector during the pandemic. Others may have accrued holiday during furlough.
Carry forward of untaken leave
Those who had not taken all of their statutory annual leave entitlement by the end of 2020 due to COVID-19 can carry it over into the next two leave years. Employers’ leave years will vary; in some cases this period aligns with the calendar year, in other cases the financial year, the academic year, or the anniversary of when the employee started employment.
UK workers are usually entitled to 28 days holiday per year including bank holidays. This entitlement cannot normally be carried forward into the next leave year unless the employee:
- agrees this with the employer; or
- is on long-term sickness absence; or
- is on maternity leave and unable to take all of her entitlement as a result.
To prevent workers losing their holiday and to enable key workers to keep working, the normal rules on carrying over annual leave were modified. This was to support provision of staff in key sectors (such as food and healthcare) during the pandemic without them losing out on holiday entitlement.
Employers could allow up to four weeks (not the full 28 days) of unused leave to be carried into the next two leave years. So this will mean workers can keep carrying forward holiday into 2022, depending on how their leave years fall. The rules say that it must be ‘not reasonably practicable’ for the worker to take some, or all, of the holiday to which they are entitled due to the coronavirus. If so, they can carry four weeks forward for two years. The remaining 1.6 weeks of holiday can be carried forward by one year by agreement.
These amendments to the Working Time Regulations 1998 applied to all employees. Workers who do not have employee status such as agency workers, and some casual and zero-hours contract workers are also included (see Working Time (Coronavirus) (Amendment) Regulations 2020). The only exceptions are those covered by regulations other than the Working Time Regulations 1998 including some merchant seamen, fishermen, and civil aviation staff, some armed forces staff and doctors in training to whom special rules apply.
The normal obligations on employers to ensure workers take their statutory entitlement in one year or incur a financial penalty are also lifted.
Requiring employees to take leave
Furloughed employees could be required to use up their holiday leave during furlough. Employers may already have required outstanding annual leave to be taken to reduce the amount to be taken.
Standard employment law provisions (which are not frequently used) state that employers can require workers to take holiday as long as they give twice as many days’ notice as the period of leave the worker is required to take. For example, if the employer requires the worker to take two week's annual leave at a certain time, it must give the worker at least four weeks' advance notice (or whatever is outlined in the employment contract). Employers can ask workers to take or cancel holiday with less notice but need the workers' agreement to do so.
So, an employer can require a proportion of annual holiday to be taken as long as the requisite notice is given. Insisting an employee take annual leave during travel restrictions is not without risk. Employers should consider whether any restrictions would prevent the worker from relaxing and enjoying their holiday. The employees’ agreement should always be sought initially, explaining why the employer wants annual leave to be taken.
Q: Now the Coronavirus Job Retention Scheme has ended, can employers introduce their own private furlough scheme?
Yes, employers can introduce a similar furlough model themselves if they can afford to make the payments. However, either the original contract of employment must allow for this (which is unlikely) or the employer will have to negotiate an agreed change to the contracts. If this involves many members of staff, collective representatives or a union may have to be involved as well as obtaining individual agreement to the private furlough arrangement.
Employees may agree not to work for an extended period of time, and this may be on lower pay than the furlough scheme. However, the employer is going to have to fund this privately as there will be no government help towards furlough arrangements now the scheme has ended.
Private furlough may be attractive to employees as an alternative to redundancy, especially if they can work elsewhere during any 'private' furlough period. However, there will be extremely difficult situations to handle if some staff are chosen to work and some are asked to agree to private furlough.
If employees agree to a private furlough scheme, the agreement entered into should cover:
- the hours employees will be working (if any) and the hours they will be furloughed
- the length of term of the arrangement
- the notice required to bring the arrangement to an end
- if the employee is allowed to take on other paid work
- any restrictions on working, for example for a competitor
- the temporary nature of the arrangement and, if agreed, that the employee will go back to previous contractual terms, pay and hours when the variation ends
- the employee’s agreement to the variation by signing a copy of the letter
- what happens if government guidance changes and the agreement needs to be varied
- terms involving payment as a percentage of normal pay
- deductions for tax, national insurance and any pension contributions
- if other aspects of the contract of employment will continue on the same terms as before
- entitlement to annual leave.
Obviously employers should ensure that employees chosen for private furloughed are selected fairly and that there is no discrimination in terms of sex, race, age, disability etc.
Other options for employers after the end of the Coronavirus Job Retention Scheme include redundancies, agreements over unpaid sabbaticals or other time off while remaining employed which still preserves continuity of employment. Also, by agreement, there could be reduced hours or working weeks, minimum-hours or zero-hours contracts, temporary or permanent reductions in working days for all employees, alternate week working patterns, reduced bonuses, recruitment freezes or salary reductions.
Q: What action will be taken against fraudulent furlough scheme claims?
HMRC will take action against fraudulent claims. Anyone, including employees, who suspects an employer of deliberate fraud can contact the HMRC fraud hotline service. If CIPD members in the UK or Ireland have concerns relating to furlough fraud, they can access our free confidential Whistleblower helpline, provided by whistleblowing charity Protect, for advice and support. There have already been thousands of calls about potential Coronavirus Job Retention Scheme fraud, which are then followed up with an investigation.
The furlough online system was designed to prevent incorrect or fraudulent claims being accepted, and most erroneous claims should have been rejected automatically. HMRC has been granted extra powers to investigate suspected fraud. HMRC may contact employers whose final claims look higher than expected, or where there were tip-offs or information suggesting fraudulent activity. If there is evidence of criminal activity, the fraud investigation teams will be notified.
If professional accountants come into receipt of information suggesting that a fraudulent claim has knowingly been submitted, they would need to make a ‘suspicious activity report’.
Examples of Coronavirus Job Retention Scheme fraud include:
- Furloughed employees working during their furloughed hours.
- Claiming furlough for employees who continued to work as normal.
- Claims for employees who have left.
- Failure to pass furlough payments on to the employee.
From 1 December 2020 onwards HMRC published the names of employers who claim furlough payments on gov.uk including:
- the employer name
- an indication of the value of the claim within a banded range ranging from £1 to £10,000, to above £100,000,001
- the company number for companies and Limited Liability Partnerships (LLPs).
Post payment investigations
As well as mechanisms to spot fraud and prevent money being paid out in the first place, there are mechanisms to reclaim money if HMRC suspects an issue after the payments have been made. Claims are risk assessed using data which compares existing information with the claim data. This identifies high-risk claims.
Now the furlough scheme has closed, HMRC should have contacted employers to prompt them to use the opportunity to self-correct. If employers don’t respond to these prompts, then the employer may become the subject of HMRC investigations leading to penalties and possible criminal sanctions.
HMRC can retrospectively audit any furlough claims to identify fraudulent claims. The sanctions range from recouping money through income tax assessments to penalties and criminal sanctions, for example:
- Deliberate non-compliance or claiming furlough payments which are deliberately not used for the intended costs will lead to penalties.
- Company officers who deliberately make a claim to which the company was not entitled may be jointly and severally or individually liable.
- Criminal liability may include fraud, false accounting, money laundering, cheating the public revenue and failing to prevent tax evasion.
- Accountants who are involved may face professional sanctions and charges of fraud by abuse of position.
There have been arrests in relation to suspected criminal activity for example, arrests in September 2020 of a company director and an accountant over a suspected £70,000 fraud involving the furlough scheme.
HMRC estimates that between 5% to 10% of claims could have been wrongly issued through error or as a result of fraud. The department publishes updates on statistics relating to investigations, errors and fraudulent claims and there will be a full and final report in 2022.
Genuine mistakes do happen and to avoid penalties employers must notify HMRC within the notification period which is usually 90 days after the date the employer received the grant.
If employers fail to declare that they have been overpaid within the notification period HMRC can recover the over-claimed amount by way of a tax assessment. HMRC can also apply a penalty of up to 100% of the amount of incorrectly received. Failure to tell HMRC of the overpayment within the notification period is deemed to be deliberate.
Employers should audit previous furlough payments and rectify matters, or risk serious consequences. For more on the CIPD's view, read our response to the news of HMRC's approach.
Q: What claims could employers face once furlough comes to an end?
Following the end of the furlough scheme there will still be some legacies to deal with which arose during the scheme’s operation. These are likely to fall under the following categories.
Dismissals for redundancy during and after furlough
Numerous furlough-related problems can arise during the redundancy process, a common issue is if employers took availability of furlough into account when exploring alternatives to redundancy as part of the overall procedure. For further details see Q: Are employers vulnerable to claims if they started a redundancy process when someone was on furlough? Should employers have ended their furlough first?
Pay mistakes during furlough
Common furlough scheme errors relate to pay and claim calculations. The legislation gives employers a 90-day window to repay incorrect claims without penalties. If mistakes are not notified to HMRC within that limit, HMRC can impose penalties, even if any mistakes are genuine errors rather than deliberate. Non-fraudulent mistakes include claims made on incorrect calculations, problems with reference pay for workers with variable hours, or inclusion of commission, tips or overtime claims. Other problems areas surround staff who are partly working and partly furloughed, salary sacrifice arrangements and NI and pension contributions. Employers should pro-actively review claims, to ensure they were justified and to minimise the risk of penalties. See Q: What action will be taken against fraudulent furlough scheme claims?
Holiday mistakes during furlough
Numerous issues can arise relating to holiday. For example, not allowing workers to carry over up to four weeks' annual leave into the next two holiday years. Issues may also arise if an employee amasses leave because they are unable to go on holiday due to travel restrictions. Other issues surround holiday pay as employers must pay normal full pay for annual leave, rather than any reduced furlough pay. Bank holidays are also complicated because if taken as annual leave employers must top up the pay or grant a day off in lieu to be taken at a different point in the holiday year. As there have been tribunal claims about holiday mistakes employers would be well advised to check arrangements carefully, taking expert advice if a dispute arises before matters escalate.
Health and safety claims and whistleblowing about lack of precautions
Employees have the right to refuse to work in dangerous environment if they reasonably believe there is a serious and imminent danger. Tribunal claims are likely to revolve around whether the claimant’s belief in imminent danger was reasonable, depending on the employer’s risk assessments and safe working practices. Similar issues arise under the whistleblowing legislation where the employee makes a disclosure or raises concerns about their employer’s safe working practices. For further information on what employers can do to prevent claims see Q: What should we do about employees who have been on furlough because they are clinically vulnerable or have caring responsibilities?
Requests for flexible working are likely to increase and employers will find it harder to justify rejecting some requests, for example working from home, when this has been shown to work effectively during the lockdowns. In addition, the new Flexible Working Bill introduced to parliament in June 2021 proposes that all workers have a legal right to 'flexible working' from day one of employment, rather than needing to have 26 weeks' continuous service. Assuming this is enacted flexible working claims are expected to further increase and employers may wish to revisit their flexible working policies and approach particularly for new recruits.
Disability and long COVID
The number of disability discrimination claims could substantially increase. Returning to the workplace after the restrictions may trigger disabled employees’ requests for home or flexible working. Other claims may surround whether the employer did enough to help employees experiencing mental ill health issues during the pandemic for example those working in healthcare or other essential services. In addition, employees with long COVID will need time off and long-term sickness management.
Q: What records should we keep relating to furlough?
Employers should keep records of the following for six years after the period of furlough ended:
- any agreement with the employee
- the amount claimed for each employee
- the claim period for each employee
- the claim reference number
- usual hours worked, including any calculations for furloughed employees
- actual hours worked for flexibly furloughed employees.
Q: What were the key terms of the furlough scheme between November 2020 and September 2021?
The key terms of the extended furlough scheme were that employers could furlough staff and claim 80% of their salaries, up to a cap of £2,500 from the government.
Employers had to pay employer NICs, pension contributions and top up holiday pay to the contractual rate.
Furlough was originally introduced at the beginning of lockdown in March 2020, and was extended four times from the original May 2020 end date. (The extensions were to June 2020, then October 2020, followed by a last-minute extension to March 2021 and then April 2021).
The final fifth extension was until the end of September 2021. Throughout most of the scheme the government contribution was 80%. However, in August and September 2021 the government contribution was been reduced to 70% and 60%. By the end of the scheme, employers had to contribute 20% for hours not worked plus NICs and pension contributions.
Throughout the scheme, the furloughed employees should have received up to 80% of their pay for hours not worked. Flexible furlough meant employees could receive their normal pay for any hours that they worked and received the grant for the remaining unworked hours.
Employees whose Real Time Information (RTI) submission notifying payment for them was made to HMRC on or before the extension was announced, were eligible for grants under the furlough scheme extension.
In the final stage of the scheme employers could claim for employees if:
- they were employed on 2 March 2021; and
- a PAYE Real Time Information (RTI) submission was made to HMRC for that employee between 20 March 2020 and 2 March 2021.
Further detail about the furlough scheme remains available on the government website for employers who have issues to resolve relating to the furlough period.
DISCLAIMER: The materials provided here are for general information purposes and do not constitute legal or other professional advice. While the information is considered to be true and correct at the date of publication, changes in circumstances may impact the accuracy and validity of the information. The CIPD is not responsible for any errors or omissions, or for any action or decision taken as a result of using the guidance. You should consult the government website for the very latest information or contact a professional adviser for legal or other advice where appropriate.
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