Mohamed Mavani, Partner at Moore Chartered Accountants looks at the options available to employers once government support from the Job Retention Scheme comes to an end
As lockdown restrictions are lifted, and staff slowly start to return to work, employers may find that it takes some time for workloads to return to full normal levels again.
Employers who have taken advantage of the furlough scheme have, effectively, managed to delay making longer term financial decisions. With the furlough scheme due to end (at time of writing, at the end of October 2020), organisations need to start considering the options available to them for when furlough ends.
Continue furlough with no government support
Employers can consult with employees to remain on furlough for a longer period of time. They may elect to reduce the 80% salary cap to a lower amount. While furlough is a relatively new addition to employment law, lay-off is not.
As such, employers could look at historic lay-off legislation and work within these guidelines if they wanted to explore this possibility.
Where firms wish to see all their employees return but do not have the workload to occupy them at this time, they may elect to consider short-time working. This is a reduced working schedule and could take several different forms.
Firms may ask employees to work fewer days per week, reduced hours but still do a five day week, or even some form of rotation, such as working one week on and one week off.
This is always an option when cash flow reduces and employers want to retain all their employees. The severity of the proposed pay cut depends on the level of saving the company requires.
Asking everyone to continue to work full-time and reduce their pay by, say, 5% is going to be much easier to influence than asking them to accept a 25% reduction. Additionally, 5% for one employee may be a relatively small amount but significant for others. The length of the pay cut is also a factor. If employees see it is only for a few a months, they are more likely to agree, whereas more permanent arrangements may be less favourable.
Similar to pay cuts, employees agree a reduction in their salaries for a period time but get the reduced amount returned to them in the future. Some employers may not wish to offer this unless they are sure business will return to normal. Firms with limited cash flow but full order books are most likely to consider this option.
Employers really do not want to consider this, however, many may have to, unfortunately. If the firm is not able to administer any other alternative, redundancies may be the only option. Employers should consider the timing for this. There is a consultation period and this could be done during the furlough period to allow employers to reduce their costs earlier.
For further advice, please contact the team at Moore on 01733 397300 or visit www.moore.co.uk