New national lockdown – what next for employers?

For many in England, a ghostly Halloween ended with the ghastly prospect of weeks in lockdown. 31 October marked a dramatic U-turn by the prime minister with his announcement of a national lockdown for England, expected to last from 5 November until 2 December 2020 (although this could be extended).

Barely 24 hours earlier, the government had published extensive guidance on the Coronavirus Job Support Scheme (JSS), which in fact comprises two schemes – JSS Open and JSS Closed. These had been expected to replace the Coronavirus Job Retention Scheme (aka the furlough scheme) with effect from 1 November 2020. Employers and their advisers had spent much of Halloween getting to grips with the new schemes only to find their work largely redundant, as the announcement of lockdown was accompanied by the extension of the furlough scheme to the beginning of December (and the postponement of the JSS).

Implications of furlough scheme extension

The extension of furlough is highly welcome as it will be more generous and extensive in scope than the replacement JSS, providing greater support for employees. Nonetheless, many employers will be looking ahead with trepidation and facing similar challenges and questions to those that arose during the first lockdown earlier this year. Once again, they will need to review their workforce and weigh up the options.

Naturally we hope the new lockdown has its desired impact and the restrictions can be lessened from 2 December, as the government says it hopes and expects to happen. If all goes to plan, the delayed JSS will from that date accompany the return to the tiered regional approach to restrictions in England, but extending lockdown beyond 2 December is clearly a distinct possibility.

For many employers, the continuation of a furlough scheme back at the levels of support provided in August - without the employer contributions required in September and October - will provide enough respite to retain staff on their books for the time being. Furloughing on this basis is not, however, cost-neutral as employers will be liable for employer’s national insurance and pension contributions (unlike the earlier months of furlough when these were covered by the government). In addition, paid holiday normally accrues during furlough.

It should also be remembered that furloughing an employee requires their agreement. Back in the early months of the scheme, employees were in our experience almost invariably prepared to do this. With months ahead on reduced furlough and then JSS pay looming, more employees may now prefer the option of redundancy and notice pay calculated on full pay – particularly longer-serving employees or those entitled to enhanced redundancy payments. Faced with the alternatives of topping up furlough or proceeding with redundancies, some employers will be stuck between a rock and a hard place if the cash-flow implications of making redundancy payments are unsupportable.

Another factor to weigh in the balance in this context is the Job Retention Bonus, the current terms of which provide that employers who bring workers back from furlough and retain them in employment until the end of January 2021 will qualify for a £1,000 bonus. However, it is not yet clear how the extension of furlough will interact with this or whether the government will now decide to change the bonus scheme.

The situation when the Job Support Scheme takes over

Once furlough finally ends, agreement will be again be necessary for employees moving onto the open or closed JSS. Payment under those schemes will be less generous than furlough, so employers will need to factor in the possibility of employees refusing to agree to the pay reductions. Bear in mind especially that the pay-cut for higher-earning staff accepting furlough or JSS is greater - the government contribution to furlough pay is 80% of pay up to £2,500 per month, and only 67% of pay up to £2,100 per month under the JSS.

While many affected businesses will hopefully decide to keep going on this basis, some will undoubtedly look ahead and conclude that they would only be postponing the inevitable and need to act now to reduce costs.

As indicated above, the JSS caters for two situations. JSS Closed applies where businesses are obliged by law not to trade and covers 67% of employees’ pay up to a cap. JSS Open is for businesses where employees are able to work at least 20% of their normal hours, effectively replacing flexi-furlough but with a higher cost to the employer and a lower payment to the employee.

Crucially the JSS does not cater for those businesses with no work for some or all of their people but who are not obliged by law to close. Many businesses, including in the entertainment sector, come into this category under the tiered local scheme in England that the new lockdown will temporarily replace.

Implications for planning redundancies

Employers who fear that job cuts may be inevitable at some point in the coming months will need to consider the implications of taking steps towards redundancies under the various schemes. Under the furlough scheme (until 2 December 2020 unless extended): redundancy consultation can take place; notice of redundancy can be given; notice can be worked; and employment can terminate by reason of redundancy. Notice pay during furlough must be topped up to normal pay and redundancy pay must also be based on normal pay.

However, once JSS replaces furlough, consultation can still take place while employees are being paid under that scheme, but employers can no longer claim under the scheme once an employee is put on notice or made redundant. In practice, this means that there will be no government contribution to notice pay if the notice is worked once furlough has ended.

Varying impacts on different types of business

Employers impacted by the pandemic divide into three broad categories:

• Those who foresee a rapid return to something close to normality once Covid-19 rules on trading are relaxed. This is, for example, likely to include many hairdressers and gyms and those in the retail, hospitality and tourism sectors.

• Those who will not be able to trade at all or at anything like normal levels for many months, even once restrictions are relaxed for economic or health-related reasons, but who expect to return to something akin to normality eventually. This might include businesses such as airlines, sports clubs and those in the entertainment sector. It will also include many businesses less directly impacted by Covid-19 but which are impacted by the economic downturn. For example, spend on advertising is down significantly in recent months, putting jobs in that sector under pressure.

• Those for whom the impacts of the pandemic are likely to be permanent. Inevitably, some jobs will disappear permanently with changing personal and work behaviours, such as increased home working and online shopping. This might include jobs serving city-based office workers and high street retail jobs.

For employers in the first category, it is hoped that the combination of the furlough extension and the JSS will be enough to preserve jobs. In contrast, businesses in the second and third categories need to assess the potential implications of restrictions on trading in the months ahead, understand the details of the government’s job support schemes, and devise a plan to navigate the choppy waters ahead.

The prime minister might yet succumb to pressure to maintain the furlough scheme beyond lockdown, perhaps targeted at certain sectors, rather than face the likely negative impact on jobs caused by the less generous JSS replacement schemes. It seems clear that the reduced support from the replacement schemes will change the equation for some employers.

Another factor is that the national lockdown applies only to England, whereas the furlough scheme and JSS apply throughout the UK. Negative reaction from the devolved nations was quick to surface once the details became clear of the economic support for employers being aligned to the national restrictions in England, but which have not and would not be available for lockdowns in Scotland, Wales or Northern Ireland. Northern mayors were also quick to highlight the generous support now available for businesses forced to stop trading in London and the south of England, which was not provided for businesses forced to close when their regions were placed in tier 3. For employers planning ahead, the national and regional political dynamics provide a further reason to be cautious about predicting the extent of government support over the coming months.