Our Employment Law Director, James Tamm, shares his initial reaction to the Chancellor's new Job Support Scheme.
For today’s announcement, watch the video on the right.
Contrary to some news reports, the Chancellor’s Job Support Scheme – coming into effect from six months from 1 November – is NOT a scheme that will top wages up to full pay. It’s a promise that if someone works at least one-third of their normal hours, the government and employer will, between them, make up two-thirds of the shortfall in hours.
To give a very simple example, an employee that works a 30-hour week would work for 10 hours and be paid for another 13.2 hours (two-thirds of the 20 hours not worked). Half of the payment for that 13.2 will come from the government and half from the employer.
The above means that there is potentially a flaw at the heart of the scheme. Let’s say you have two employees earning £500 per week for 40 hours’ work each (80 hours in total). Due to a drop in demand, you decide you only need 40 hours in total moving forward. There are then two ways to achieve that: make one redundant or ask them both to take a 50% cut in hours/pay. If you agreed a 50% pay cut to £250 per week, you the employer would be liable to pay one-third of the remaining salary of £250 per week, another £83.33. So, the total cost to the employer of keeping them both employed would be £666.66. In this scenario, it would be cheaper to make one redundant, where the ongoing costs would only be £500 per week.
In response to a question from his Labour counterpart, the Chancellor said that employers would not be permitted to make anyone on the scheme redundant. Further detail has confirmed that the scheme can’t be used for any employee on notice of redundancy. That’s the exact opposite position to the furlough scheme, where that grant can be used to pay employees’ notice.
We need further clarification but it would appear that employees can be placed on the scheme initially but then removed at a later date if the employer wants to make them redundant, rather than there being a six-month bar on making someone redundant if they ever used the scheme.
Eligibility for large employers
The Chancellor has said the scheme will not be available to “large employers” unless their turnover has been affected. This raises a couple of questions: what constitutes a “large” employer? How do you quantify “affected”?
Where consultation has begun…
The timing of this is really unfortunate. In order to comply with their obligation to collectively consult, any employer planning to make 100 or more redundancies to coincide with the end of the furlough scheme would have had to start that consultation in the middle of September. What do these employers do now?
One of the things to consult about is ways to avoid redundancies, and clearly the package of measures announced today present businesses with financial assistance they did not know existed last week. Are employers now obliged to pause that consultation or at least take account of these announcements before confirming redundancy plans? I think the answer to that may be yes but there is so little detail currently available that employers will find it very difficult to make decisions based on so little information.
A lifeline, but not a fix-all solution
The government contribution to the new scheme is capped at £697.92 per employee per month. When furlough started, the government contribution was up to £2,500 per month. Even in its reduced state from 1 October, the government grant will be £1,875 per month. This therefore represents a huge reduction in the financial support previously on offer.
The Chancellor was at pains to say that this support is only for viable jobs and that not all jobs can be saved. Whilst that is undoubtedly true, there are millions of jobs that in normal times would be perfectly viable, especially those in the hospitality and leisure sector. By continuing his one-size-fits-all approach, the Chancellor is not diverting enough help to where it is truly needed.
We await further guidance for finer details. In the meantime, the government has now released an initial four-page fact sheet outlining how the scheme will work, who’s eligible and how to claim.