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Statutory Layoff Pay (Guide for Employers)

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In the current climate, where the coronavirus crisis has forced the closure of many UK businesses, or resulted in a significant downturn in profits, employers may be looking to temporarily suspend workers’ employment.

To avoid use of layoffs and redundancies, the Government has introduced the Coronavirus Job Retention Scheme, which reimburses employers employment costs such as wages.

Layoffs however remain a tool available to employers managing a workforce in difficult times. Below we look at the rules relating to layoffs and short time working, including statutory layoff pay, from who is eligible to how much this is.

 

What are the rules on laying workers off?

In times of economic crisis laying off staff can often help to avoid redundancies, thereby helping employees retain their jobs while helping employers retain their workforce for the future – but your staff have to agree to this first.

It may be that a layoff agreement has already been reached. This could be contained within an employee’s contract of employment. It could also form part of a national agreement for your industry, or a collective agreement between you and a recognised trade union, although these types of agreement can only be enforced if they are expressly incorporated into the employment contract.

This means that unless an employee’s contract allows for unpaid or reduced pay layoffs, they should still receive their full pay if their employment is temporarily suspended. In limited cases you may be able to lay off a worker where you have clear evidence that this is custom and practice within your workplace, although it is still best to negotiate a temporary change to an employee’s contractual pay, even when responding to a short-term situation.

In the absence of any prior contractual arrangement or variation agreement permitting layoffs without full pay, you may find yourself facing a breach of contract claim. It is also important to remember that even where agreement can be reached to respond to the immediate economic needs of your business, this does not automatically extend your power to do so again without consent.

If you have expressly agreed a permanent change to the contract of employment, you must confirm this in writing within 1 month of the change. If it is only a temporary change, you should still confirm the agreement in writing to avoid any uncertainty or confusion at a later date.

 

How long can you lay off a worker?

A layoff can be for a fixed or unspecified period of time, where there is no upper limit on how long an employee can be temporarily suspended from work. It will depend on what has been agreed in the employee’s contract of employment, or any subsequent agreed variation to that.

However, an employee may be able to resign and apply for redundancy pay if they have been laid off and the layoff has lasted for:

  • 4 or more consecutive weeks in a row, or
  • 6 or more weeks in a 13-week period, where no more than 3 are in a row

You do not have to make any redundancy payments if the employee will return to normal working hours within 4 weeks. Any eligible employee must also give you written notice in advance that they want to make a claim.

To claim redundancy an employee must write to you within 4 weeks of the last day of the layoff. You then have 7 days to accept their claim or provide a written counter-notice. A counter-notice means you expect work will soon be available, where any such work must start within 4 weeks and must last at least 13 weeks.

If you do not provide a counter-notice, this can be treated as you accepting an employee’s redundancy claim. In some cases, however, you may want to withdraw your counter-notice, although you must do so in writing.

To be eligible for redundancy pay, the employee must formally resign by handing in their notice. They will have 3 weeks to do this, starting from 7 days after they gave you written notice, where you did not serve a counter-notice, or the date you withdrew your counter-notice in writing.

 

What is statutory layoff pay?

Employees should get full pay during layoffs, unless it is expressly agreed otherwise or their contract already allows unpaid or reduced pay. In cases where an employee has no contractual entitlement to be paid during a layoff, by law they will still be entitled to a minimum guarantee pay. This is often known as statutory layoff pay.

An employee is entitled to statutory layoff pay in circumstances where you do not provide them with a full day’s work during the time they would normally be required to work. This means that they are only entitled to pay for days they do no work at all. The rate and length of statutory layoff pay is as follows:

  • The maximum payment is currently £30 for any workless day for 5 days in any 3-month period, ie; £150 (as from April 2020)
  • If an employee usually earns less than £30 a day, they will get their normal daily rate
  • For part-time workers, the rate is pro-rated, ie; reduced in proportion to their part-time hours

If you do not provide the minimum statutory layoff pay to an individual who is entitled to it, or apply the correct calculation, they could take you to an employment tribunal to recover what is owing to them. By not paying this guarantee pay, this will count as an unlawful deduction from wages.

If you already have your own guarantee pay scheme, this cannot be less than that required by law. If the employment contract, or any agreement to vary its terms, allows you to lay workers off without pay, any eligible employee must still be paid the statutory minimum. You cannot pay them less, although they will not be entitled to statutory layoff pay in addition to any contractual entitlement.

 

Who is eligible for statutory layoff pay?

To be eligible for statutory layoff pay an individual must satisfy all of the following requirements:

  • Be continuously employed by you for at least 1 month, including part-time employees
  • Reasonably ensure they are available for work
  • Not refuse any reasonable alternative work, including work not in their contract of employment
  • Not have been laid off because of industrial action

An employee will not be entitled to statutory layoff pay for any day that they do some work. The right to statutory layoff pay also applies only to employees, not to workers such as contract or agency workers, or the self-employed.

 

Can employees take on extra work during a layoff?

An individual worker can take a second job during any layoff period, unless their contract of employment expressly prohibits this.

In some cases, there may be no express prohibition against taking on extra work during a layoff, but the employment contact will still often prevent an employee from working for a competitor. If an employee undertakes work for one of your competitors during a layoff, they could be in breach of contract.

Your employees should also ensure that they are available to work for you once the layoff ends, otherwise again risk being in breach of contract to you for which you may want to take disciplinary action on their return.

That said, given the difficult financial circumstances an employee may well have faced by being laid off, this is unlikely to justify any harsh disciplinary sanction.

 

What is short time working?

Short time working is similar to a layoff, but rather than providing an employee with no work, the employer provides some, albeit reduced, work.

It is essentially when an employee’s normal working hours are cut, where less than half a normal week’s work and pay will trigger the statutory short time working protections for employees, subject to eligibility requirements.

These protections mirror those available for layoffs in relation to redundancy. This means that if an employee is put on short time working for either 4 weeks in a row or 6 weeks out of 13, where eligible, they can resign and claim redundancy pay. An employee does not have a right to a redundancy payment unless they have been continuously employed for a period of at least 2 years.

By law, employers can lay off employees or put them on short time working if:

  • This is permitted in the employee’s employment contract
  • There is a national agreement for the industry
  • There is an agreement between your workplace and a trade union
  • There is custom and practice in your workplace, with clear evidence
  • An agreement is reached with any affected employee to vary the terms in their employment contract to include layoffs or short time working

Where permissible, both layoffs and short time working can be used to avoid redundancies, but either option must only be used as a last resort. You should consider all other options first, for example, agreeing with employees to take any outstanding paid holiday entitlement.

 

Layoffs and short time working be used during the coronavirus crisis

If you are unable to operate or no longer able to provide your employees with work due to the coronavirus crisis, layoffs and short time working may be just two of the potential options available to you.

However, you can also access significant government financial support for furloughed workers under the Coronavirus Job Retention Scheme. A person is furloughed if they are still employed but not undertaking any work without pay.

The scheme enables employers who furlough workers during the COVID-19 pandemic to ask the government to pay up to 80% of their wages, capped at £2,500 per month. The purpose of the scheme is to incentivise employers to retain employees on paid temporary leave, rather than making them redundant or forcing them to take unpaid leave.

The scheme is open to all UK employers, including any businesses, charities, recruitment agencies and public authorities that were operating a PAYE payroll scheme on or before 28 February 2020. The scheme also applies to all kinds of workers, as long as they were on your PAYE payroll by this date.

To be eligible while on furlough, your staff must not undertake any work for you. Both you and each individual worker must also agree to participate in the scheme. The scheme will be backdated to 1 March 2020 and will initially run for a period of 3 months, subject to review and a possible extension.

It is important to note that if you decide to furlough some but not all of your workforce or, alternatively, you are looking to negotiate an agreement with your staff for layoff or short time working, you should always adopt a fair selection and/or negotiation process to avoid exposure to any potential legal claims.

Seeking legal advice from an employment law specialist at this stage can help you make an informed decision to help best meet the needs of your workforce and your business during these difficult times.

 

Need assistance?

When dealing with workforce issues, it is important to consider the full legal risks and rights of your workers. DavidsonMorris’ employment lawyers are on hand to help you assess the circumstances and understand the options that are in your best interests, not least to avoid unwanted tribunal claims and damage to reputation.

As employment law specialists, we can assist if you have any queries relating to layoffs, furloughing under the JRS, settlement agreements or making redundancies, particularly large or complex situations. Speak to our experts today for advice.

 

Statutory layoff pay FAQs

What is statutory layoff pay?

Statutory layoff pay is the minimum amount that employees should be paid when they are temporarily laid off. This is also known as statutory guarantee pay (SGP). An employee is entitled to SGP in circumstances where they are not provided with a full day’s work when they would normally be required to work.

How much is layoff pay?

Statutory layoff pay is £30 a day for 5 days in any 3-month period (as from 6 April 2020). This means the maximum an employee is entitled to for a workless period is £150. For employees who earn less than £30 a day, they will get their normal daily rate. If employees work part-time, their rate will be pro-rated.

Is statutory layoff pay taxable?

An employer should pay statutory layoff pay as they would an employee’s normal pay. This will still be subject to tax and national insurance contributions, although any reduction in income will mean an employee will pay less tax and NICs. This means they may be eligible for a tax refund.

How long can employees be laid off for?

A layoff can be for a fixed or unspecified period, where there is no upper limit on how long an employee can be laid off. This will depend on what has been agreed in the employee’s contract of employment. However, an eligible employee may resign and claim redundancy pay if the layoff has either lasted 4 weeks in a row or 6 weeks in a 13-week period.

 

Last updated: 1 April 2020

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