The summer of discontent?
What comes to mind when you hear the word "summer"? The unbridled joy of no more school for 6 whole weeks? Buckets, spades and wind-swept beaches? Perhaps the call of a sun-soaked tropical island? For most, summer means taking some time out to recharge and switch off.
But this is summer 2020. And, as we all know, there really is nothing usual about 2020.
This summer, employers are dealing with a holiday season like no other. Leadership teams are grappling with all manner of novel complexities alongside business as usual (whatever that means right now). By way of our contribution to your holiday reading (you're welcome), here are some of the key issues we are currently helping employers to work through.
Employees who do not want to take any holiday
One side effect of the lockdown and other public health restrictions has been a reduction in annual leave being taken. Furloughed employees may not have booked their usual level of holiday days. Even employees who have continued to work may be reluctant to use precious annual leave entitlement when their travel options are so severely curtailed. This has created a number of challenges.
By carrying a disproportionate level of accrued, untaken holiday a business is often storing up a resourcing challenge for later months of the holiday year. There is, also, a direct financial cost where an employee leaves the organisation (particularly relevant given the anticipated increase in redundancies) with a bundle of untaken holiday that triggers a right to payment in lieu. And, of course, the broader concern of how to effectively support the health and wellbeing of a workforce in circumstances where holidays are not serving their usual function, including by not being taken. After all, holiday entitlement is, first and foremost, a health and safety measure. Not to mention, learning lessons from the last recession, the governance imperative of holiday as a risk management control, giving others the opportunity to review the work of individuals and teams that are away. With these interests in mind, some employers are looking at requiring employees to take holiday, even if that is by compulsory holiday notice.
When a two-week holiday becomes a month away from work
What of employees who do take holiday, only to find themselves quarantined for a further 14 days on return from their destination? Last week's removal of Spain from the exemption list caused ripples of chaos across the HR landscape. Exam questions a plenty arise here like:
- Is statutory sick pay payable to an employee quarantining who can't work from home? Our (slightly contrary) view is that the SSP legislation (as drafted) arguably does cover this situation but, the government has categorically said it will not pay SSP and so we anticipate any loophole will (at some point) be closed.
- Regardless of SSP, is full salary in fact payable? The answer is: perhaps. It depends on many factors including the terms of the contract, when the holiday was booked, the employer's policy and what was communicated to the workforce. There is no one size fits all answer here.
- Can an employer stop an employee from foreign holidays where quarantine may result? Despite ministerial placations, and with the same caveat that this is very much situation specific, the fact remains that there will be occasions where employers can lawfully deduct pay and take disciplinary action in these situations.
When is working whilst on holiday, or working from 'home' outside the UK, risky for the business?
Whether it's due to taking an extended holiday abroad (planned or otherwise) or simply retiring to a holiday or family home outside of the UK to work remotely during lockdown, potential tax issues should not be overlooked.
Assuming that the time spent working outside of the UK does not change the employee's tax residence status (a topic all of its own) then income tax and national insurance contributions should continue to be deducted by the UK employer. The employer should also continue to account for employer national insurance whilst the employee is working outside of the UK.
Longer periods spent working outside of the UK could result in risks that:
- the UK employer is treated as having a "permanent establishment" in the country in which the employee is working. This would typically be of greatest concern if the relevant employee is habitually exercising an authority to conclude contracts in their employer's name, whilst physically present in the other country. Some tax authorities (such as HMRC) have issued guidance on the risks of Covid-19 related travel arrangements giving rise to permanent establishment issues; and/or
- the employee has tax and social security obligations in the local country in which they are working. Relevant double tax treaties, if in place between the UK and the particular country, may assist here to ensure that no such local income tax arises (or, at least, that credit can be given for such tax so that the income is not subject to double taxation). As a result of the UK's extensive network of tax treaties, short stays in many jurisdictions should not give rise to any local employment income tax charge. The position for social security contributions is slightly different. Provided certain conditions are met (and certificates obtained) employees carrying out duties in the EEA and Switzerland should not trigger local country social security charges, at least until the Brexit transition period expires at the end of this year. The position outside of the EEA and Switzerland will depend upon the terms of any social security agreement between the UK and the relevant jurisdiction.
In any of these cases it really is important to consider the local tax and social security rules in the relevant country in which the employee is (temporarily) working, and also whether an applicable double tax treaty assists.
Finally, the physical location from which directors take strategic decisions can affect the tax residence of an employer company. In this regard, companies should be extra vigilant this summer as to where directors meet, or dial-in, to take part in board meetings.
Preparing for redundancies
It is an inescapable reality that workforce stability is always a casualty of any financial crisis. In the UK we are already seeing mass redundancy programmes implemented by a number of businesses ravaged by the impact of coronavirus. As the support provided by the furlough scheme tapers off and, at the end of October, comes to a close, we will inevitably see more job losses.
For some businesses, the financial cost of redundancies will be more than they had anticipated. From 31 July, new legislation is in force which changes the calculation of a week's pay for employees who have been furloughed. This is important for working out various payments including statutory notice and statutory redundancy pay.
Many companies will become better versed in the strict legal requirements which are triggered where collective redundancies are proposed. These requirements dictate the timetable for any programme of this kind and require timely and careful planning. This summer does not provide a break for the many organisations which will very shortly, if not already, need to begin those information and consultation processes. An important word of warning: don't forget the additional obligation to inform the Secretary of State of these proposals via form HR1. This obligation, if breached, can result in criminal liability, also attaching to individual directors.
Getting the house in order
Is it just us or does everyone else make sure their house is clean and tidy before going on holiday? Maybe it's the domestic equivalent of wearing clean pants in case you get run over but here it's the horror of a burglar breaking in and recoiling at the dusty bookshelves.
For organisations which have made use of the Coronavirus Job Retention (furlough) Scheme, this summer is a critical opportunity to tidy and organise the furlough cupboards.
On each of 1 August, 1 September and 1 October, changes will come into effect which increase the amount of financial contribution employers must make to the wages of their furloughed employees. In turn, the amount of government funding will taper off in corresponding proportions.
Finally, new legislation is now in force which provides employers with a short window in which to check their processes and self-report any errors they identify were made in their furlough claims. The window is only open for 90 days from 22 July. It presents an important risk management opportunity. Because if HMRC do come knocking, no business wants to have to open their doors to reveal a messy house and a pile of post-holiday washing. And bear in mind that if HMRC does not visit this year, they may do in a few years' time. For this reason, furlough records must be preserved.
It's summer; but not as we know it.