The COVID-19 lockdown has negatively affected many UK businesses, but SMEs are particularly vulnerable. Business owners are being forced to review spending. This may result in the consideration of cost reduction methods, such as opting for employee layoffs.

What does it mean when you lay off an employee?

If an employer chooses to lay off a staff member, they are asking the employee to stay at home or take unpaid leave for at least one day. This may arise if paid work is temporarily unavailable or the employer just needs to reduce day-to-day operational costs.

While it can help to avoid staff redundancies, it is important to note that laying off an employee is a short-term solution.

To initiate unpaid or reduced pay staff layoffs, employee contracts must allow for this. If they do not, the employer must continue to provide their full pay.

How long can you lay off staff for?

There is no legal limit to how long you can lay off someone. It could last for days or weeks and can be for a fixed or unfixed period.

The length of the layoff will normally depend on the terms in their contract or what, if anything, has been subsequently agreed between the employee and employer.

If the employee has 2 years of service and is laid off for 4 or more consecutive weeks (or 6 or more weeks within a 13-week period), they may be able to claim redundancy.

Do employers have to pay anything to laid off employees?

If the employee’s contract states that they may be laid off without pay or on reduced pay, then no. However, there is a statutory layoff scheme, which applies if there is a relevant lay off clause in an employee’s contract of employment.

Statutory layoff pay

When the statutory scheme applies and an employee has no contractual entitlement to be paid during a layoff, they will still be entitled to a minimum pay guarantee, known as statutory layoff pay.

Statutory layoff pay only covers days an employee does not work at all. At the time of writing (July 2020) pay rates are as below.

• The maximum payment is £30 for any workless day, across 5 days in any 3-month period, i.e. a maximum of £150 per quarter.
• 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-rata, i.e. reduced in proportion to their part-time hours.

Who is eligible for statutory layoff pay?

Employees must satisfy the following conditions:

• Been continuously employed for at least 1 month, including part-time employees.
• Be available for work.
• Must not refuse any reasonable alternative work, including work not in their contract of employment.
• Not have been laid off because of industrial action.

The right to statutory layoff pay does not apply to contract workers, agency workers, or the self-employed.

Planning layoffs

Any lay off situation requires careful consideration and should form part of an overall recovery strategy. The approach an employer takes will depend on:

• the contractual arrangements in place with employees
• the state of employer/employee relations
• anticipated and current work demands
• how much money the business needs to save.

Employers should start with a thorough review of the financial situation so that a detailed picture of the business’ current and projected performance emerges.

Check the employee’s contractual terms

Staff contracts of employment should include a lay-off clause. Alternatively, a national industry-wide agreement may exist; or it may be possible to demonstrate that laying off is a practice that is widely accepted within the business. In some cases, the employer may be party to a collective agreement with a recognised trade union (although this should be included in the contract of employment).

Discussing layoffs with individuals

Employers should discuss the situation with employees before they are laid off. Willingness to enter discussion demonstrates understanding, and also presents the opportunity for employees to suggest alternative ways to help the business.

Once employees have been selected, they should be notified in writing. It is good practice for the employer to invite affected employees to a meeting. This can be used to discuss the matter further and agree some of the details.

If a layoff clause is not present in employees’ contracts, it may still be possible to agree a lay off with a member of staff. Should a change to contractual terms be agreed, this must be confirmed to the employee in writing.

Seeking assistance with layoffs

As a small business, the option to lay off staff can be an important way of avoiding redundancies and saving costs. If your business has been adversely affected by COVID-19, you may also be entitled to government assistance. Various schemes are available for different circumstances.

If you would like more information on how to legally lay off staff, or other alternatives to redundancies, our experienced employment solicitors are ready to help. Get in touch today for a consultation.

For further knowledge and advice on meeting the challenge of business redundancies, you can also refer to our series of related articles on this topic.