Control staffing costs when cash is tight – have you considered lay offs or short time working?

Belt squeezing piggy bank - control staffing costsDoes your employment contract contain a Lay Offs Clause? Does your contract include a Short Time Working Clause? And would you even know how to use such clauses? This HR Blast takes a look at a few of the options you have to keep your business stable during turbulent and uncertain times.

With employees generally being the greatest cost to a business, it is no wonder that Companies often look to reduce their payroll in times of hardship. But what has been widely reported too is that despite financial uncertainties, most companies are also very mindful of the need to engage and retain their good employees given how difficult it is currently to attract and bring in good staff.

Traditionally, redundancies were the only thing that came to mind in most businesses when considering cost savings, assuming employee benefits had already taken a hit, but are redundancies really your only option?

When did you last consider temporary Lay-Offs or Short-Time Working?

Surprisingly, in recent years very few of our clients used temporary Lay-Offs or Short-Time Working as a means to save on costs and this may be the reason a fair few employment contracts we get to see don’t even contain a clause that would allow for this to happen. Or, if they do, the HR team isn’t really on the ball about using them. So, are we missing a trick?

It is important to note that Lay-Offs and redundancy are not the same thing, although they both may come about as a result of similar circumstances. The key difference is that Lay-Offs are temporary and do not result in a dismissal, unlike redundancies which are a permanent termination of the contract. You cannot though do a temporary lay off if your contract does not include the relevant clauses allowing you to – unless of course all your employees agree to being laid off without pay!

Furthermore, temporary Lay-Offs differ from Short-Time Working, with Short-Time Working resulting in the continuation of work for the employee, albeit with a reduction in either number of days per week or number of hours per day for a temporary duration. To be clear, with temporary Lay-Offs there is no work provided and no salary paid.

Using Lay Offs Clauses

Not only can temporary Lay-Offs or Short-Time Working be used as a temporary cost saving exercise, they can be useful in many circumstances, such as work shortages, power failures, severe breakdown of machinery, interrupted or shortage of raw materials or any other unforeseen circumstance beyond the Company’s control.

In relation to Brexit consider whether they might be useful if your supply chain breaks down, if your customers fail to pay on time due to their own cash flow difficulties, if your sales funnel takes a hit due to business attention being focussed elsewhere etc.

A permanent Lay-Off, more commonly known as redundancy, sends the public message that the Company is in serious financial difficulty. Even though often this is not true as you may well be trimming or realigning in order to better position the business, rather than deal with a financial crisis. In contrast to redundancies, temporary Lay-Offs, if properly managed, can provide a bit of breathing space to manage your costs and cash flow whilst retaining valuable employees.

There is though still the risk that your employees may find alternative employment during the temporary Lay-Off period or request to apply for redundancy if a few weeks lay off extends to months. But by giving yourself the option of a temporary interim measure and by ensuring your employees feel engaged and well communicated with, you may find you can retain that all important talent that you have so heavily invested in.

It is important to note that whilst temporary Lay-Offs or Short-Time Working can provide a short-term solution to retain valued staff, it isn’t a solution for long term problems where redundancies may be necessary. If you are looking at making redundancies, we recently wrote an HR Blast on the subject, which provides useful pointers – redundancy risks, what you need to know.

Things to consider when introducing Temporary Lay-Offs or Short-Time Working

Clause in the contract – First step is to check if there is a specific clause in the contract of employment that allows for temporary Lay-Offs or Short-Time Working. In the absence of a clause, it isn’t possible to introduce a period of temporary Lay-Offs or Short-Time Working as this would be deemed a breach of contract – unless of course you put it to consultation and got agreement from your workforce.

If you don’t have such a clause, through consultation and obtaining employees’ consent, it is possible to incorporate such a clause into the contract. We recommend to our clients that they carry out an annual review of their Employment Contract and Employee Handbook to ensure they are kept up to date with any legislative changes. Wrapping this additional clause within a suite of changes to the Employee Handbook would go some way to reduce the effect of the clause being seen as a negative message.

It is important to highlight to employees that an expressed clause around temporary Lay-offs provides a level of protection for staff. By having the option of having a temporary cessation of work, they are provided with continuity of employment with the flexibility that they are still able to seek alternative work and thus reduces the possibility of dismissal for reasons of redundancy.

Using your Lay Offs Clauses or Short time working clause

When you become aware that it is necessary to introduce a period of lay-off or short-time working, you should commence consultation with the affected employees to discuss and explore options. There is no minimum consultation period but it is best practice to allow a reasonable amount of time for employees to come to terms with the temporary Lay-Offs and have an opportunity to discuss what this means to them.

If consultation is new to you, why not ask us at Jaluch to give you a bit of guidance or even come in to talk to your staff for you?

Guaranteed Payments

If, after consultation, you decide to introduce a period of temporary lay off or short time working then eligible employees are entitled to a Guaranteed Payment. To receive a Guaranteed Payment, the employee must have been employed continuously for at least one month, have not refused any reasonable alternative work and not have been laid off because of industrial action. There is a daily limit set by the government of £28 and it can be paid for a maximum of five days in any period of three months.

Applying for redundancy

Whilst some employees will agree to temporary lay offs, others will prefer to seek a redundancy payment ahead of finding alternative work. However, in order for an employee to apply for redundancy they must have been laid-off or put on short-time working either for four consecutive weeks or for a total of six weeks (no more than three being consecutive) in any period of 13 weeks. In order for the employee to exercise their right to apply for redundancy, they must give notice within four weeks of the last of the weeks of Lay-Off or Short-Time Working.

Be aware of the legal risks that can result in time absorbing grievances or costly Tribunals!

  • Failure to follow a proper process, whether that be redundancy, TUPE or Lay-Offs can result in costly legal claims.
  • A lack of paperwork and record keeping is a common failing. It makes it much harder to demonstrate a fair process and justify your business decisions when there is a lack of paperwork to back it up.
  • Remember that any significant change to Terms and Conditions means you are required to consult and gain consent from your employees. This would be the case for incorporating temporary Lay-Offs and Short-Time Working as an express clause in the contract of employment.
  • If an employee is wrongfully laid off or put on short-time working, they may be able to resign and claim constructive dismissal.
  • Failing to pay Guarantee Payments is an unlawful deduction of wages so if you are looking to lay off some of your staff, make sure you know their rights and pay them accordingly.
  • Always be mindful of your timescales for response – If an employee, who is eligible for redundancy, exercises their right to apply for a redundancy payment you have 7 days to accept the claim for redundancy or give a counter notice. Don’t stick your head in the sand and miss important deadlines!
  • Decreased morale and reduction in productivity can cause harm to your business when employees feel the negative effects of poorly managed restructuring and downsizing programmes. When employees have concerns over job security and taking on extra responsibility for no additional remuneration this can have a huge impact on their individual performance.
  • Last, but not least, business reputation is paramount, so doing Lay Offs right is essential!

So how can you minimise these risks?

Workforce planning – This is key for anticipating a downturn in the business and is an important tool to ensure the right levels of resourcing for your business.

Plan, Plan and Plan – Serious preparation and planning is required when looking to make redundancies or temporary Lay-Offs. Not only could there be alternative options to mitigate the Lay-Offs, such as internal transfers, that you may not have considered if you rush the process but proper planning can help mitigate risks.

Open Communications – A carefully thought out communication plan is essential to ensure any announcement is timely, effective and ensures employees aren’t left unsettled or unsure of their position. Ensuring all employees, wherever they are in the organisation, receive the same message is also key.

Show compassion – Employees may not necessarily know their specific employment rights but they will always have a view on whether they feel fairly/unfairly treated. Showing compassion to your people in difficult times can have a huge positive impact on their views of your business and your reputation.

Upskill Line Managers – Ensure your line managers have the knowledge, skills and confidence to effectively manage complex employment activities such as TUPE, Redundancy and Temporary Lay-Offs. Managers are not born – they need to be made – by you! So train them, coach them, support them, show them, mentor them and then, in turn, they will become great managers for your valued staff.

How can we help?

Here at Jaluch we provide a range of HR support and guidance to hundreds of clients. No contract required. No need to sign anything in blood! Trusted and well established, we ensure a more personal, tailored support service to our clients than you will probably find elsewhere:

  • So you can stay focussed on revenue and delivery, why not ask us to resource your consultation, redundancy or lay offs project? We can also investigate or chair your grievances and disciplinaries to free you up for other business sensitive matters.
  • In need of template HR letters, contracts or policies? Get in touvh!
  • If your managers need to upskill and develop in areas such as restructuring, TUPE or Temporary Lay-Offs, we have a whole suite of management training material that you can purchase to deliver yourselves or alternatively have one of our experienced trainers deliver the training on your behalf. Take a look at
  • Need ad hoc HR advice, or require extra resource for a project without having to sign up to monthly payments or an annual contract? We can offer an alternative and would be happy to discuss this in more detail.

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