Legal

The pros and cons of the job support scheme

9 Oct 2020 By Annabel MacKay

Annabel Mackay examines the government’s new attempt to preserve jobs amid the coronavirus pandemic 

The announcement of the job support scheme acknowledges the challenges that employers and employees continue to face in light of the Covid-19 crisis. It provides some relief for businesses whose focus is on retention of talent, but has a materially reduced short-term need for such a level of support. However, it is unlikely to assist the majority of companies that are faced with longer-term reductions in customer demand. Those employers may decide to forgo the government's contribution in return for greater flexibility in their staffing response. 

The rules

The scheme is a short-time working arrangement whereby if an employee works at least 33 per cent of their normal working hours, the government will make a contribution towards the cost of the unworked hours. It runs from 1 November 2020 until 30 April 2021. 

The government's contribution is limited to a third of the cost of the unworked hours, subject to a cap of £697.92. This contribution is made in arrears as a reimbursement. On top of the payment for hours worked, the employer must still meet a third of the costs of the unworked hours. Class 1 employer NICs and pension contributions remain payable. 

The scheme is primarily aimed at small and medium-sized enterprises, with the expectation that businesses will be unable to top up the remaining third of unworked hours. Larger employers will need to show that their turnover is lower now than before the Covid-19 crisis, and will not be able to make capital distributions while participating. 

The change to the employee's pay and hours must be agreed in writing with the employee. The company will be prevented from giving notice of or effecting redundancies for any employee in respect of whom it is claiming a job support scheme grant. 

Advantages

The scheme provides an option for employers faced with short-term reduction in demand. It is flexible as employees can cycle on and off the scheme, subject to seven-day minimum claim periods. 

There is no requirement for an employee to have used the furlough scheme previously to participate. They just need to have been on the payroll on or before 23 September 2020.

Disadvantages

The scheme is not an attractive solution for businesses where the impact of the crisis is sustained. If workload is genuinely reduced to 33 per cent of normal working hours, an employer is effectively paying a higher hourly rate for that contribution. In return for the government's (capped) contribution, they are subject to restrictions on dismissals. They are also 'expected' not to undertake certain corporate actions such as dividend distributions, and yet many large employers, particularly publicly traded ones, are trying to navigate a delicate balance of long-term business viability and continued shareholder confidence and investment.

There are also a range of employment liabilities to navigate. For example, how does an employer determine which employees access the scheme? In normal circumstances, a reduction in work would lead to a redundancy selection process being undertaken from a pool of employees. 

Companies will need to take an objective approach, failing which they may encounter challenges from employees who continue to work normally while their colleagues' wages are supplemented. Conversely, employees who are asked to go on to short-time working may prefer to remain at work and object to the reduction in pay and hours. The way in which employers determine access to the scheme will be key to mitigating the risk of discrimination complaints. 

Nor is this an arrangement that can be imposed unilaterally. To qualify for the scheme, employers will need to communicate the reasons for their proposed use of it to employees (and their representatives), with a view to seeking consent to participate. Employees may want reassurances about how long the arrangement will continue before they accept the change. 

Unknowns

There are also a number of uncertainties associated with the scheme:

  • Can collective redundancy consultation take place while claiming the grant?
  • Under the current guidance, dismissal and re-engagement on new terms would be possible. But will the anticipated fuller guidance adopt a broader definition of redundancy?
  • Will there be any other restrictions that limit employers’ flexibility, such as a ban on external recruitment?
  • Will businesses have to demonstrate that they have exhausted other options before accessing the scheme?

Given the limited nature of the government's contribution and the restrictions on dismissals, employers may prefer to exhaust other avenues for reducing costs, such as giving notice to require employees to take annual leave, exploring voluntary periods of unpaid leave, restructuring to move people permanently on to more flexible hours contracts, or going through a process to effect temporary or long-term pay reductions.

Annabel Mackay is a senior associate in the employment and benefits practice at Baker McKenzie

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