UK Update: The beginning of the end of the furlough scheme – what next?

The government’s job retention scheme, otherwise known as the “furlough scheme”, came to a close on 30 September 2021.

The furlough scheme saved millions of jobs throughout the UK and according to government figures, there were still around a million people on furlough when it ended.

So what do the employers of these employees do without the furlough scheme to rely on? What happens when an employer has no work for its employees at present, but knows there is the potential for work to come in the future? If the retention of experienced staff is key to winning work in the near future how does an employer navigate the economic impact of salary/benefit packages in the absence of a government funded furlough scheme?

Many employers in the energy service sector are facing these issues at a time when there are signs of a recovery and contract awards but perhaps not in the immediate future. Unfortunately, there is no clear cut and satisfactory solution.

If the employees have a temporary layoff provision in their contract, the employer may be able to make use of this and lay employees off without pay for a particular period of time. However, due to the low amount eligible employees can claim from the Statutory Guarantee Fund during a period of lay off (maximum of £150 in any 3 month period), and the fact that employees can still claim for a statutory redundancy payment after 4 consecutive weeks of lay off, this is unlikely to be a viable option in most cases. It may also alienate employees who may then look for work elsewhere and diminish the retention of important skills at a time when there is already a skills shortage in the energy sector.

The other option is to make redundancies and then rehire when the new work comes in. However, this will involve a significant amount of management time in terms of following a redundancy process, significant cost in terms of redundancy payments, notice and holiday pay, and there is no guarantee that the employees will be available or wish to return to undertake the new work when it becomes available. It may also be a negative to obtaining customer contracts if maintaining a stable experienced workforce is important at the tendering stage.

The third potential option is continuing to pay the employees until the new work comes in. However, if this is uncertain or some time in the future, this is unlikely to be economically viable.

An alternative approach to consider here may be to introduce an “internal furlough scheme” within the employer’s organisation. This would involve agreeing with employees to reduce their salary for a particular period of time and for them to remain at home on standby until further work is available. As this will essentially be a variation to employees’ terms and conditions of employment, employees will be required to consent to this.

Employers looking to introduce such a scheme will require to consider a number of different factors including:

• The structure of the scheme – would it follow the Government’s furlough scheme or a different mechanism (e.g. a standard percentage reduction in salary across the board or variable based on job grade or salary)?
• How will the scheme be communicated to employees to encourage them to consent to their terms being varied?
• How long will the scheme operate for? Will it be for a defined period of time or based upon a particular event?
• Does the employer wish to retain discretion to take employees back early?
• Will there be a minimum level of take up required for the scheme to be worthwhile?
• What will happen to employees who refuse to become part of the scheme?
• Should employees be permitted to obtain other additional temporary work and if so, what restrictions/notifications should be put in place?
• What consultation processes should be followed?

A number of businesses in the energy service sector are facing these issues and are currently considering introducing such a scheme.

By Gillian Harrington, Burness Paull LLP, Scotland, a Transatlantic Law International Affiliated Firm.  

For further information or for any assistance please contact ukscotland@transatlanticlaw.com

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