This change in vacation schedule could result in more costly layoffs
It has been widely reported that many companies are expecting layoffs in late April when the vacation program ends.
However, many smaller businesses may not be aware that the Coronavirus Job Retention Scheme rules were changed in December. The vacation allowance can no longer contribute to the termination compensation.
This will be a major challenge for some small businesses who are already holding on to their fingernails about their prospects of surviving this crisis.
Especially where the laid-off workers have long service – this is likely because they are the most experienced and have been the most expensive last year to be laid off and stay on vacation – the coming costs could put pressure on businesses.
Unprepared small businesses examining the prospect of layoffs in the coming weeks and months may find themselves in one of two extremely problematic scenarios.
Scenario one – you are not aware of your employees’ right to terminate and fire
The employer has employees on vacation who are likely to need layoffs, but he or she is unaware of their termination and layoff rights and how they are calculated.
The myth circulates that the notice periods are one month and provided by the employer. It is not true. For example, an employee with ten years of service is entitled to a statutory notice period of ten weeks (the notice period is 12 weeks). The discharge allowance, meanwhile, is accounted for by age and is likely to have additional cost implications.
Such employers need to be aware of this and prepare now as time for consultation processes and the time and cost of legal dismissal need to be considered in order for layoffs to take place.
Scenario two – you used vacation to cover the 2020 notice period but you don’t know the rules have changed
An employer made some layoffs last year and used the vacation allowance to cover the notice period to top up the remaining 20 percent of full wages.
Employers may not realize that that 80 percent termination pay contribution cannot be made again. From today’s perspective, changes to the vacation rules mean that the employer cannot use the vacation allowance and has to pay the termination in full. without government support.
In both cases, understanding the rules and obligations for employers provides options rather than limitations.
What can I do now?
Struggling, low-income companies may well choose not to take employees off vacation in order to pay the notice period in full, especially if there is an alternative to continuing to take vacation and “wait and see”.
Regardless of whether the vacation period is extended beyond the end of April or not, the reality of this crisis will make itself felt at some point. Any business that crosses the line between doom and swim should be aware of the situation in order to make an informed decision.
The Chancellor could of course change the rules so that the vacation allowance can contribute to the termination compensation again, as was the case last year.
In this case, employers could potentially start the layoff process now and use the vacation allowance as a contribution to termination pay. If the situation turns out to be less bad than expected, they simply keep the employee and end the notice period – at no additional cost to the company or the taxpayer. If the redundancy still has to take place, a large part of the termination costs has already been covered.
It wouldn’t cost the government anything extra – the treasury is already on vacation during this time. Given the rapidly approaching reality of layoffs, this move would allow small businesses to make those decisions now, so we can avoid a multitude of bankruptcies later.
Otherwise, there is a serious risk that companies that delay the layoff process until the end of the vacation period will incur significant costs, especially for long-term employees.
These could bring the whole business to a standstill as the government pays all layoff costs through the National Insurance Fund. It is not a profitable situation for everyone involved – the company or the employees in particular, as well as the taxpayer and the government itself.
Jill Bottomley is the director of human resources.
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