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PH COVID-19 Client Alert Series: Unprecedented Government Help for U.K. Employers

Information, guidance, and the potential response to COVID-19 are changing rapidly. The below reflects the position and related guidance as of March 20, 2020.

This communication constitutes the next instalment of our Client Alert series considering the legal and business impacts of the 2019 Novel Coronavirus (“COVID-19”), commonly referred to as the “Coronavirus.” This communication focuses on those issues facing U.K. employers with respect to their workforce. For issues involving other operations in the U.S., please contact Elena Baca.

Today, the U.K. Government has announced an unprecedented intervention to help U.K. employers, and the most stringent measures to date to enforce its social distancing strategy. The announcement will have an immediate impact on the U.K.’s hospitality and leisure sectors and on the steps that U.K. employers are considering right now to manage and/or reduce their payroll costs to ensure the on-going viability of their businesses.

The specifics of the U.K. Government’s actions are as follows:

  • The creation of the “Coronavirus Job Retention Scheme”. It will apply to all U.K. employers irrespective of size, including charitable and non-profits. It will enable them to designate affected employees as “furloughed workers” and notify employees of their change in status. The employers will then submit information to the U.K.’s taxing authority, HMRC, about their earnings through an online portal. HMRC will reimburse 80% of furloughed workers’ wages up to a maximum of £2,500 per month. This will apply to any permanent, fixed-term, part-time, and casual or zero-hour employees and workers on the employers’ pay-as-you-earn (“PAYE”) system. It will cover the costs of wages backdated to 1 March 2020. The Scheme will be open for at least 3 months, but could remain open for a longer period of time if necessary. There is no limit to the number of employees this scheme may support.
  • The closure of restaurants, cafes, bars, clubs, gyms, leisure centres, theatres, and cinemas. The Government has stated that it will review these exceptional measures on a monthly basis. This follows the announcement earlier this week to close all schools in the U.K., other than those for the children of ‘key workers’, by the end of today.
  • Finance will be available for all businesses of every size from banks. The Government will communicate how this will work at a later time.
  • For those individuals who are self-employed, changes include the deferral of self-assessment income payments to 2021 and the ability to claim Universal Credit at a similar rate to anyone who is unemployed.
  • Details on the position of zero-hour workers not on the payroll will follow.

While further detailed guidance will be forthcoming, there are some obvious challenges with the Coronavirus Job Retention Scheme. Firstly, the scheme is a reimbursement scheme; therefore, the employer will need to pay the wages upfront. Employers facing a short-term cash flow issue will also need to consider whether they are eligible for other support, such as a Coronavirus business interruption loan. Secondly, HMRC currently does not have a system to reimburse employers, and is working urgently to set up a system for reimbursement. Thirdly, for the better paid, this support will offer limited income. Lastly, the notification to the furloughed workers of their change of status will be subject to existing employment laws, and, depending upon the contract, may be subject to negotiation.

However, overall, today’s announcement will be welcomed by U.K. employers, particularly those in the hospitality sector, which has traditionally employed around 3 million people, given that it is reported that approximately 1 million jobs have already gone since the outbreak began. This announcement also follows a £330 billion stimulus package announced by the U.K. Government on 18 March 2020 to help the business sector survive the impact of the COVID-19 outbreak. COVID-19 Client Alert Series: UK Economic Response to COVID-19

As U.K. employers will be aware, the U.K. Government has also made emergency changes to its statutory sick pay (“SSP”) scheme in light of COVID-19. (Eligible U.K. employees are entitled to SSP at a rate of £94.25 per week, increasing to £95.85 with effect from 6 April 2020), payable for up to 28 weeks). As of 13 March 2020, SSP became available to eligible employees who were self-isolating because of COVID-19, rather than only those employees who are too ill to work. The SSP is also now applicable from the first day an eligible employee is off work, rather than after an initial waiting period of three days. The U.K. Government has already announced that controversial reforms to the U.K.’s off-payroll working tax rules—known as IR35—will now be delayed until April 2021.

Today’s announcement comes at a time when U.K. Employers are considering a broad spectrum of measures to reduce payroll costs, including:

  • Pay cuts;
  • Short time working, reduced hours or days; 
  • Eliminating costs, such as overtime, agency costs, expenses, and discretionary benefits;
  • Freezing recruitment;
  • Job sharing;
  • Unpaid leave;
  • Exercising any contractual lay-off clauses;
  • Fast tracking available payroll reductions, such as deferring or withdrawing employment offers  or dismissing employees that are under their probationary period or have less than two years’ service;
  • Voluntary redundancies; and
  • Compulsory redundancies.

As U.K. employers are aware, a significant challenge in quickly limiting their payroll costs in light of COVID-19 is the requirement to inform and consult arising under Section 188 of the Trade Union and Labour Relations (Consolidation) Act 1992 (“TULRCA”), which implements the European Collective Redundancies Directive (EC Directive 98/59). Section 188 of TULRCA provides that, if an employer proposes to dismiss 20 or more employees at one establishment within 90 days or less, the employer is required to carry out collective consultation with representatives of the affected employees. The length of consultation is a minimum of 30 days before the first dismissal takes effect, if the employer is proposing to dismiss 20 to 99 employees at one establishment, or 45 days before the first dismissal takes effect if the employer is proposing to dismiss 100 or more employees at one establishment. The employer will also have a requirement to provide advance notice of the dismissals to the Secretary of State on form HR1. The timing for the advance notice mirrors the collective consultation timeperiods. Any failure to comply with the HR1 form notification is a criminal offence and may be subject to an unlimited fine.

This announcement now brings the U.K. more in line with other jurisdictions in Europe that have already taken more stringent “lock-down” measures to try to prevent the spread of COVID-19. It is also, arguably, the greatest economic intervention in private business from the U.K. Government ever, with no limit to its total cost. It is only over the coming weeks and months that we will learn if the U.K. Government’s latest strategy to deter employers from dismissing their employees will pay off.  If not, the next steps in the UK may more closely follow the Italian example, where both individual and collective ‘economic’ dismissals are banned until 16 May 2020, and where available emergency “shock-absorber” funds are being offered on a first come, first served basis. In the meantime, we will update this alert as and when more guidance is published.

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