Resourcing for 2021: Immediate options for employers

The Covid-19 pandemic affected practically every aspect of our lives in 2020. Many businesses were subject to forced closures and most that stayed open faced a reduction in business and profits. Almost all employers had to look at cost savings to protect their businesses and see themselves through the initial storm. 

In contrast to the recovery after the 2008/9 recession, this time there are changes to the labour market that could make resourcing harder as we look ahead to future recovery. For example, Brexit will make it more expensive to hire workers from the EU, there is increasing scrutiny and regulation of flexible and ad hoc working models, and IR35 reforms will make it more burdensome to recruit freelancers.

While this is a challenging time for many, it is also a moment to reassess traditional models of working. Necessity being the mother of invention, the pandemic has revealed opportunities for more flexible and agile working arrangements, including permanent homeworking and remote overseas working. These models can benefit employers as well as employees.

Above all, there are opportunities for employers to be proactive. In this series, we will look at some of the resourcing issues to consider over the coming months to help protect the future health of your business following the pandemic and Brexit, making it sufficiently adaptable to weather whatever is coming next.

Our first article focuses on some of the more immediate options for employers, including making use of the furlough scheme, restructuring, changing terms and alternative contracting options. We also highlight some of the emerging trends.

Making use of government support packages

The main government support package for employers is the Coronavirus Job Retention Scheme, more commonly known as the furlough scheme. This launched in March 2020 and is currently set to close at the end of April 2021 but may be extended again (for more information on the scheme, see our FAQs on the furlough scheme). 

The furlough scheme has had a huge take-up. As of the middle of December 2020, it was estimated that £46.4 billion had been claimed by employers and 9.9 million jobs had been furloughed at some point since March 2020.

The closure of schools saw a significant increase in employees requesting furlough and created a particular tension in businesses who would not otherwise have intended utilise furlough or who did not have a reduced workload (and would have needed to backfill furloughed parents).

As highlighted by the tensions over working parents, furlough is not cost-neutral for employers. Currently, the government pay 80% of wages (up to a cap of £2,500) and employers must contribute employer NICs and pension contributions. Company benefits still need to be maintained, unless agreed otherwise, and there is holiday accrual to consider.  Meanwhile, HMRC has stated that it will publish the names of companies using the extended scheme, alongside the amount claimed, and it has started writing to employers that it believes have overclaimed. HMRC has considerable powers to impose penalties for overclaims and we expect investigations and disputes to continue throughout 2021.

We are also starting to see wages claims from furloughed employees who are unhappy about the way in which their employer calculated their furlough payment. The calculations were notoriously complex and employers are bound to have made mistakes.

At the same time, businesses that made large payments to shareholders or saw a quick bounce-back in trading conditions are coming under pressure to justify their decision to rely on government support and potentially to repay. The spotlight is also likely to fall on the pay of senior executives in companies that benefited from furlough payments. Until now, private companies have been relatively immune from close scrutiny of executive pay, but that becomes more challenging if taxpayer funds have been used to support them.

In conclusion, the furlough scheme has provided a much needed lifeline for resourcing throughout 2020 but 2021 is likely to be the year of furlough-related litigation.  We can also expect a surge in ethical debates about when and whether furlough should have been utilised and where repaying the grant should rank as a priority in distributions as a businesses start to see profits rise again. 

Redundancies and restructuring

Many companies will still need to downsize or restructure during 2021 and some have started doing so already - for example, to expand in profitable growth areas and contract in those that have become less viable.

If we see a long tail to the economic impact of Covid-19, with government support no longer being available, there are several options employers can consider in addition to redundancies or as alternatives. These include reductions in pay and/or hours, job sharing, unpaid leave, sabbaticals, recruitment freezes, limits on overtime, cutting use of agency and other flexible staff, and redeployment into other roles. Many employers have started to examine whether they can save costs and retain jobs by revisiting historic or overly generous benefits schemes (see further below). 

There will, of course, be some businesses for which redundancies are an inevitable consequence of the current climate. Employers need to be attuned to key questions such as:

• When they will hit the legal collective consultation thresholds: 20 or more redundancies at one establishment within a 90-day period.

• How to set fair and objective selection criteria which avoid unlawful discrimination.

• What a reasonable individual consultation exercise looks like, with proper consideration of alternatives to redundancy.

In circumstances where time is of the essence, employers need to be able assess the risks of cutting corners in processes, weighing up what an attractive redundancy package in return for a settlement agreement will mean. They will also need to adapt to the challenges of online consultation, while many workers continue to be furloughed, self-isolating or working remotely (see our FAQs on post-Covid restructuring).

Changing terms and conditions to realise cost savings and create flexibility

As we emerge into the “new normal”, there are many reasons why reviewing employment terms and conditions has become a vital priority for HR.

In people-heavy businesses in which employees are the primary cost, small changes to reduce the cost of benefits can make a huge financial difference - for example, capping the period of cover for PHI/critical illness insurance.

In other cases, employers can broach more substantial changes in order to save jobs. We are seeing this particularly in businesses where there has been a longstanding desire to remove overly generous and historic benefits (which often exclude new joiners) but it has previously been too sensitive to act. “There will never be a better time” is a useful mantra for finance directors in such situations.

Increasingly, though, it is businesses’ need for flexibility that is the main driver for reviewing benefits. People have experienced the pandemic in different ways and what they want and value from their employer will vary. For instance, the increased uptake of private medical insurance shows that this is valued highly by some, whereas others would prefer a pay increase. This may result in employers becoming increasingly flexible over the benefits they offer, allowing employees to have the benefits they personally value most.

Similarly, we are seeing a move towards changing terms and conditions as a means of achieving greater flexibility in roles and job descriptions. While job descriptions are sometimes not contractual, in many cases the expectations of a role will either expressly be part of the contract or have essentially become so through custom and practice. Many employers that have asked employees to take on different roles during the pandemic (for example, to reflect new areas of demand) may decide there is a “future-proofing” value in having a more agile workforce expected to be willing to move between different types of work.  At the same time, some companies are weighing up the advantages of incorporating lay-off and short-time working provisions. Increasing contractual flexibility too far can be unattractive to employees and deter new hires, so companies need to weigh up the pros and cons carefully.

Because employment terms are in most cases negotiated individually in the UK, employees’ personal agreement is normally required to change them. In contrast, some employees are covered by collective agreements, i.e. their employer recognises a trade union with which collectively to bargain their terms and conditions. This means the employer must seek the union’s agreement to any changes and negotiate at least until there is an impasse, or else risk punitive fines for approaching employees directly. (There is currently some uncertainty over exactly what an employer may do if an impasse arises, although the Supreme Court will be hearing an appeal on this issue in May.)

In addition, if 20 or more employees may be dismissed if they refuse to sign up to new terms, then a collective redundancy consultation process will be triggered (because “redundancy” has a wide meaning for these purposes). It will be interesting to see whether the desire for agility leads to more employers setting up a “standing body” ready to consult (an issue we will explore later in the third article in this series).

Alternative contracting options

Any economic downturn leads to an increased interest in alternative ways to staff a business, apart from using permanent employees. The main reasons for this are:

• Permanent employees are expensive. While the costs of benefits can be high, an attractive proposition remains essential for attracting and retaining key employees and skills.

• Responding quickly to fluctuating demands and workloads is difficult, because of collective and individual redundancy consultation obligations and the cost and time investment required for a standard hiring process. In an unpredictable economy, this means employers have to carry the cost of employees they need in peak times through less busy times, or else undertake labour-intensive hiring processes as soon as demand increases.

• Many large businesses impose headcount freezes during economic downturns, but that can result in a labour shortage if there is an unexpected peak in work.

There is talk of a “jobless recovery” in which employers recruit robots instead of people, but it remains to be seen how many employers will explore this route. Most companies are more likely to consider hiring ad hoc freelancers, agency workers and staff on fixed-term or zero-hours contracts. As employees experience a decrease in hours and pay, or even redundancy, many are turning to the gig economy or freelancing to supplement their wages. The Centre for Progressive Policy states that by spring 2020 there were already over a million people on zero-hours contracts in the UK - a rise of 80% since 2013. It also estimates that one in ten workers in the UK make up an alternative, contingent workforce as part of the gig economy, working on short-term contracts or as freelancers. 

First emerging in the wake of the 2008 financial crisis, the gig economy has been on a steadily rising trajectory since then. In addition to the courier, driver and delivery roles which constitute the stereotypical gig-economy worker, many professionals and highly skilled workers are now working on a gig or ad hoc freelance basis.

However, litigation is continuing over the employment status of individuals working through a platform model. The recent Supreme Court judgment in the Uber case does not mark the end of this debate, but instead underlines the difficulty of reconciling these new more flexible types of working with the UK statutory employment rights framework.  In another recent decision about the rights of platform workers, the High Court has ruled that health and safety rights should be extended to workers, in a case brought by the Independent Workers’ Union of Great Britain (the most prominent trade union active in the gig economy). 

Zero-hours contracts, and their abuse by some employers came under media scrutiny in the wake of the last recession and eventually became subject to tighter regulation, with the introduction of a ban on exclusivity terms in 2015. The government has decided not to implement a higher minimum wage for non-guaranteed hours, but there are ongoing calls for reform, including for an outright ban on the use of zero-hours contracts. Meanwhile, the government is currently consulting on extending the ban on exclusivity clauses to low-paid workers more generally.

The 2017 the Taylor Review into modern working practices highlighted the precarious nature of working under various types of alternative contracting model. This resulted in the government adopting its Good Work Plan, which is slowly being implemented in many respects. A new right for workers to request a more predictable and stable contract after 26 weeks' service was promised in the most recent Queen’s speech and is expected to form part of a new Employment Bill. Separately, the reforms to IR35 planned for April 2021 will make it significantly more expensive and administratively burdensome to hire freelancers.

While companies still need alternative contracting options, the new climate of tighter regulation, litigation risk and reputational hazards means that models adopted after the last recession may no longer be suitable or need updating to reflect changing circumstances. Firms may also start exploring fresh options. For example, we have seen a recent trend towards employers recruiting freelancers or agency workers for specific client projects where previously they might have hired a permanent employee with a wider remit to fill the gap. Use of intermediaries, such as agencies and umbrella companies, is also increasing in order to reduce the burdens associated with the IR35 reforms.

In larger groups of companies, we are seeing greater use of secondments to move under-resourced employees from one group entity to another that has resourcing gaps. Although such arrangements require agreement, the current climate means they are routinely accepted as an alternative to redundancy. When the Covid-19 lockdown was at its peak, we also saw companies with no group connection offering to second employees in closed businesses (e.g. shops) to high-demand industries (e.g. warehousing and logistics for online orders). It will be interesting to see whether one legacy of the pandemic will be innovation around sharing of resources outside a formal group structure.

For more guidance on the range of alternative staffing options available, see our interactive guide to flexible staffing options.

A final thought

The CEO of the New America Foundation wrote last year in the New York Times that “The coronavirus and its economic and social fallout is a time machine to the future”, with changes that many had predicted would occur over decades happening within just a few weeks.

This is a challenging time for business organisations but a chance to adapt and evolve. Resourcing through the rocky road ahead will involve dealing with novel regulatory and labour market issues compared to the last recession, yet there are opportunities to embrace arrangements and approaches that in those days would have been unthinkable as a mainstream solution. The next article in our series will address the opportunities to embrace homeworking and other flexible working arrangements, and the growing focus on wellbeing, trust and culture.