May 20, 2020
HMRC have made it clear that contractual benefits will not be covered under the Coronavirus Job Retention Scheme (CJRS), therefore employers who have furloughed their staff to protect jobs can be left with significant bills to pay for non-working employees.
Typical benefits include car allowances, enhanced employer pension contributions and some commission payments, some of which can be extremely costly to businesses, especially when revenue for many businesses is significantly impacted by the effects of COVID-19.
Because these are contractual benefits, even though an employee is furloughed and not doing any work, they remain an employee and therefore entitled to the benefit. The only way to safely get out of this obligation is to gain agreement from the employee to vary their terms and conditions. Employees are unlikely to agree, especially if they have car loan repayments or lease payments to make and have been reduced to 80% salary during this time, or are not prepared to accept a reduction in payments to their retirement pot. So where does that leave employers?
Some financial businesses are allowing customers to have repayment holidays – simply taking a few months’ break before repayments resume, with the repayment term being extended by the length of the repayment holiday. This may be enough to sway some employees to give up their contractual entitlement on a temporary basis, but employers may need to offer further incentives such as agreeing to ‘top up’ furlough pay to 100% if the employee agrees to forfeit the car allowance.
Less scrupulous employers may think about replacing these financial benefits with an increase in base salary in the hope of claiming an increased amount under the CJRS, but the Government have thought about that by linking claims to salaries as at 1 March 2020 (or other historical reference periods for those with less than 12 months’ service or irregular pay).
In our experience reasonable employers have worked with their employees to find a temporary solution, and realised that a ‘one size fits all’ approach will not work due to employees being at different life stages with different priorities.
Another interesting conundrum that has been raised is employees in their probationary period who become eligible for enhanced benefits on successful completion of the probationary period. If those employees have been furloughed, they will not be having their probationary review until they return to work. That review could be deferred by the amount of time the employee has been furloughed. If that employee is waiting on the probationary review for an uplift in salary, access to private medical insurance, an enhanced pension contribution and so on, and the only reason those benefits have not been made available to them is the fact that they have been furloughed, could those employees claim that they have been unfairly treated or subjected to a detriment? They could try, but they are unlikely to win such claims, but as with all claims, it depends on the facts of the case. Perhaps more likely is that employees may feel disgruntled and want such benefits to be backdated to when the review should have happened. Most contracts will make it clear that such benefits only come into effect on successful completion of the probationary period which means that employers have discretion to determine when the probationary period has been completed, but we would recommend checking the wording of such clauses carefully to determine whether contractual benefits apply after a certain time (e.g. 3 months) or on completion of an event (the probationary period being passed).
Should you request further information regarding flexible working, including assistance to review or to draft a suitable flexible working policy for your business, please contact Fiona Sinclair.
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