Seven ways to save money as furlough contributions rise

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Peninsula Group, HR and Health & Safety Experts

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Employers now need to pay to keep staff on furlough.

Contributions started at 10 per cent last week, before they jump again to 20 per cent in August. 

And by September 30, you need to cover every penny of all staff wages. If the cost of bringing back your workforce is too high, we’re here to help. Read on to see how to save money while contributions rise…

1. Offer flexible working

If staff want to work fewer days, you could save heaps on wages. And that can be easily arranged – in the form of flexible working.

Flexible working could help you save money if an employee asks to:

  • Move to part time work (usually by working fewer days)
  • Work compressed hours (full-time hours over fewer days)
  • Work from home
  • ‘Job share’ with another employee (two people share a role and split the hours)
  • Go on phased retirement (older employees reduce their hours as they reach retirement)

You might not have considered that your furloughed staff could want to work fewer shifts. After a lengthy spell of flexible or full time furlough, some employees might prefer their reduced workload – and could ask to continue beyond September.

In which case, flexible working suits everyone. It means your staff enjoy a healthier work-life balance, and you get to keep costs low.

Plus, if all (or a high proportion) your staff work from home or work compressed hours, you could reduce the days you open up your workplace. And if you manage to get roughly the same level of work done, this could save you heaps in costly overheads.  

Your employees might not realise they have a legal right to request flexible working. So as the furlough deadline approaches, remind staff that you’re open to any requests.

2. Freeze any avoidable costs  

There are some business costs you can avoid. And if you’re concerned about the cost of taking staff off furlough, it’s time to put those expenses on ice.

This could mean pausing:

  • Staff training courses
  • Annual pay rises
  • Staff bonuses
  • Recruitment

If any training or pay rises are contractual, you’ll need to speak to your employee and get their agreement first.

3. Temporary pay cuts

To keep costs under control, you could ask staff to take a pay cut.

Let’s say you employ ten members of staff. If they all took a 10% pay cut, the savings could be similar to an employee’s entire monthly wage. So if you have financial concerns about taking an employee off furlough, a company-wide pay cut could protect their job.

Remember, it’s illegal to reduce an employee’s pay without their written consent. And staff can refuse – so you could face pushback if you cut wages by a considerable amount.

Before you reduce wages, you need to write to your staff and ask for their response. It’s important you include:

  • Why you’re suggesting a pay cut – this needs to be a genuine business reason, like if it means you avoid making redundancies.
  • The amount you’re proposing to reduce wages by i.e. a 5% or 10% pay cut.
  • Whether the pay reduction is temporary or permanent.

If your employee agrees to the pay cut, keep their response on record.

Your staff are more likely to agree to a pay cut if it’s only a temporary fix. So if you can, try to stick to a maximum time limit or agree to return to normal wages as soon as possible.  

4. Short-time working or reduce hours

When you reopen for business, you might not have enough work for all your staff. And as a way to avoid making redundancies, you could put staff on short-time working.

This means your employee works fewer hours each week, so you pay less – as long as their employment contract covers unpaid short-time working.

Staff need to agree to short-time working before you reduce their hours. And since it’s not always a tempting offer, it’s good to provide an end-date and make it clear it’s your last resort (i.e. instead of making redundancies).

First, you need check whether your employee’s contract already covers short-time working. If it does, your employee will have agreed to this when they first signed their contract. If it doesn’t, you need to update the contract.

Alternatively, you can reduce staff hours by changing the hours in their contract. To do this, you need to have a legitimate business reason – and your employee will need to agree to their new hours first.

5. Temporary layoffs

A temporary layoff means an employee stops working for you for a while. This means you ask staff to stay home or take unpaid leave.

Unlike short-time working, your employee won’t come into work at all.

It’s important you check your employees’ employment contract first. Because unless you have a clause saying otherwise, staff are entitled to full pay during this period.

And if your contracts do allow for unpaid layoffs, bear in mind that staff are still entitled to ‘statutory guarantee pay’ for days they’re not working. This is a maximum of £30 each day for up to five days in a three-month period.

Remember, if employees are laid off or on short-time working, they can claim Universal Credit. Plus, staff can claim redundancy pay if they’re laid off for:

  • Four weeks in a row
  • Six weeks in a 13-week period

6. Adjust job roles to suit your business

With capacity limits and distancing guidelines, you might not need your entire workforce back just yet. And when your staff have little to do, covering 100 per cent of their wages could be unaffordable.

But if your business needs have changed, you could move employees into other roles.

For example, if you work in events, capacity limits might mean you need less staff on site to serve customers. However, you could use more staff managing the extra admin or marketing – especially after a long stint of being out of business.

This means you can protect jobs while getting the most out of your employees.

7. Allow staff to buy extra annual leave

As the financial impact of COVID lingers, it can take time to return to business as normal. If you’re not back to pre-pandemic levels, you could offer staff the chance to buy extra holiday.

So if staff are happy to sacrifice salary in return for more leave, it helps you save money while you get back to speed.

To do this, you’ll need to set out the terms of the arrangement in writing. Remember to include:

  • How you work out the cost of extra annual leave i.e. is it based on standard hourly wages?
  • Whether staff have to use their annual leave with a certain time frame i.e. when you first reopen for business.

Remember, redundancies are your last resort

If none of these options suit your business, you could face tough decisions about the size of your workforce.

But remember, you always need to follow a full and fair redundancy process. You should only make redundancies based on the employee’s role and whether it’s still necessary. Base your decision on anything else – like age – and you could face unfair dismissal claims.

Also, you can only make redundancies when there’s no other option left. Because without considering every last option, you’re not following a ‘fair’ process – which could mean you’re at risk of a legal dispute.

So, ask yourself whether you’ve considered:

  • Voluntary redundancies
  • Layoffs or short-time working
  • Pay cuts
  • Pausing recruitment
  • Flexible working
  • Early retirement
  • Changing job roles
  • Freezing any unnecessary costs

Whether you need advice on how to cut costs or stick to Acas dismissal guidance, our employment law experts are here to support you. To claim free advice while the furlough scheme winds down, call today on 0800 028 2420.

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