Caroline Illing, associate in the employment team at Howes Percival, explains the legality of using the Coronavirus Job Retention Scheme to cover the cost of redundancy notice periods.
As the Coronavirus Job Retention Scheme (CJRS) starts to wind down and with increasing levels of employer contributions from 1 August 2020, many employers are now considering redundancies in light of the continuing reduced demand in business, increasing costs and the impacts on cash flow.
In order to reduce the cost of redundancies, many employers have been using CJRS payments to pay periods of notice (both contractual and statutory) to make redundancy payments for furloughed staff more manageable.
This practice was thrown into doubt following the third Treasury Direction, published on 25 June 2020, which stated that CJRS payments are to be “used by the employer to continue the employment of employees”. It has also attracted much criticism. But is it lawful?
Updated Government guidance, published on 17 July 2020, has provided clarity on the issue. Employers can continue to claim for statutory or contractual notice for furloughed employees under the CJRS if the employee is furloughed during that period of notice.
Employers should check employment contracts and any documentation issued to employees when they were placed on furlough in order to calculate the length of notice required and the level of pay.
If an employee is on furlough, and they are currently receiving 80pc of their wage, employers may need to ‘top up’ to 100pc during any notice period, in order to avoid the risk of claims for unlawful deduction of wages and breach of contract from employees. Subject though to what the employee’s contract states in respect of notice entitlement, it may be possible to pay notice at the furlough rate (80pc). This is a complex area of the law and worth taking advice on but may save employers tens of thousands of pounds.
Employees are entitled to be paid for any unused holiday entitlement at the end of their employment and, due to Covid-19, many employees have unused holiday to take. To reduce the cost to employers, they may wish to consider whether they are able to ask employees to use up any accrued but untaken holiday during their notice period. Once again, employers will need to check their contracts of employment or consider whether there is sufficient time left to give appropriate notice to employees to take holiday under the Working Time Regulations.
The amount an employer is required to pay by way of notice and whether holiday can be used during any period of notice can be significant in terms of savings, enough potentially to save your business during the lean months that may lay ahead.