Dealing with the Ramifications of the Furlough Scheme Ending

From 1 August 2020 the Government’s Coronavirus Job Retention Scheme (CJRS) will begin to wind down. The CJRS has enabled many companies experiencing losses due to the Covid-19 pandemic to avoid the immediate risk of insolvency and continue to trade. Now, however, from 1 August, the CJRS support received by employers will reduce on a month by month basis before ceasing completely at the end of October 2020.

So, what are the options for employers as this scheme comes to an end?

Statutory Redundancy

Unfortunately, the impact of the Covid-19 pandemic on businesses across our economy means that many employers may have to consider staff redundancies.

Redundancy costs can be significant, comprising redundancy pay, pay in lieu of notice, holiday pay and arrears.

Your employees are entitled to statutory redundancy pay if you have employed them for a continuous period of two years and they lose their job because redundancies have become necessary.

Statutory redundancy pay is based on gross pay and is calculated as follows:

• age 18 to 22 – half a week’s pay
• age 22 to 40 – 1 week’s pay
• age 41 and older – 1.5 weeks’ pay

Length of service is capped at 20 years and weekly pay is capped at £538. So, the maximum statutory redundancy payment is £16,140.

Notice period

The statutory redundancy notice periods are:

• at least one week’s notice if employed between one month and 2 years;
• one week’s notice for each year if employed between 2 and 12 years;
• 12 weeks’ notice if employed for 12 years or more.

Employers may continue to pay an employee throughout their notice period. Where this is not possible, employees are entitled to pay in lieu of notice.

Other redundancy costs

Other items that can add to the cost of redundancy include holiday pay and any arrears of pay that may be due. Employers should seek independent legal advice regarding contracts of employment as, depending on the terms of each contract, an employee’s redundancy entitlement may exceed the employer’s statutory obligations.

Insolvency

As our economy evolves from the impact of the Covid-19 pandemic, the potential cost of redundancies will be substantial. Where businesses need to reduce employee numbers, this will trigger an immediate cash outflow. A business that does not have sufficient cash resources to make redundancy payments—and/or cannot access funding—may need to consider formal insolvency options. These will either rescue the business as a going concern or enable it to cease trading and liquidate.

For more on this topic, see our recent blog on Coronavirus & Insolvency.