Employers Guide to Short time working in the UK

Short time working is the practice of reducing some or all employees’ hours and/or paying them less. This results in them earning less than half a week of their usual pay. It is typically used during periods of lower demand or a slowdown in available work. Employees should receive full pay unless their contract allows for unpaid or reduced pay. If short time working and reduced pay are permitted, the contract will include a specific clause stating this.

Employers should explore all other options before implementing workforce hour adjustments. For example, they could offer periods of unpaid leave, ask employees to use some of their paid holiday entitlement, provide flexible hours, or encourage home working where possible.

SHORT TIME WORKING V LAY OFF

A lay-off occurs when employees are off work for at least one working day. In contrast, workforce hour adjustments involve a reduction in hours, but employees still work part of the time. Lay-offs often result in employees staying at home for a set period or taking unpaid leave.

SHORT TIME WORKING PAY 

Employees should be paid in full during reduced working hours unless an alternative arrangement has been agreed upon, or their contract allows for unpaid or reduced pay.

Some employees qualify for statutory ‘guarantee pay’ on days they do not work if they meet the following criteria:

• They have been employed continuously for at least one month (including part-time workers).
• They are available for work.
• They do not refuse any reasonable alternative work, even if it falls outside their contract.
• They have not been laid off due to industrial action.

The statutory maximum guarantee pay is £38 per day for up to five days within a three-month period, totaling £190. If an employee earns less than £38 daily, they should receive their usual daily rate.

Part-time workers’ entitlement is calculated on a pro-rata basis. Guarantee pay is not available on days when employees work for part of a day. If an employment contract includes its own guarantee pay scheme, it must meet or exceed statutory levels. Employees cannot claim both contractual and statutory guarantee pay.

If an employer does not pay guarantee pay, they may face claims for unlawful wage deductions.

CAN YOU IMPOSE SHORT TIME WORKING ON ALL EMPLOYEES?

Employers can only impose short time working if their employees’ contracts include a clause permitting it under specific circumstances. The contract must also specify how employees’ pay will be calculated during these periods.

If there is no such clause, employers should check for any national industry agreements or collective agreements with trade unions that allow short time working.

If no agreements apply, employers generally have the following options:

• Propose a temporary or permanent contract change to affected employees. Meet with employees, explain why short time working is necessary, and request their agreement to amend the contract.
• Outline the consequences of not agreeing to the change, such as potential compulsory redundancies.
• If short time working has been used before with employee consent, employers may argue it has become an established practice. However, this justification can be difficult to prove in legal disputes. It is usually better to formalize the arrangement through employee agreement and contract amendments.

SHORT TIME WORKING IMPACT

The impact of short time working varies depending on how it is implemented and managed.

Effects on Employers

• Increased administrative workload due to contract changes and documentation.
• Potential decline in employee morale if the process is not handled carefully.
• Temporary financial relief during economic downturns, allowing businesses to retain staff.

Effects on Workers

• Pensions: Employees in contribution-based schemes will contribute less, slowing pension growth. Final-salary schemes may also be affected as reduced pay lowers overall pension benefits.Tax: Employees earning less may pay less tax and could be eligible for a refund from HMRC.
• Holiday: Workers continue to accrue holiday entitlement during short time working.
• Pay: A clear negative impact is reduced pay. However, if eligible, employees will receive statutory guarantee pay.
• Benefits: Employees may qualify for Universal Credit, Working Tax Credit, or increased support through these benefits.
• Sourcing Other Work: Employees should check their contracts to see if they can take on additional work elsewhere. Employers are usually expected to allow this. However, employees must remain available to return to work when needed, or they may be considered to have resigned.

LEGAL RISKS WITH IMPLEMENTING SHORT TIME WORKING

Employers face several risks when implementing reduced working hours. If short time working is imposed without employee consent or a contractual clause, employers could face legal claims for unlawful wage deductions, breach of contract, or constructive dismissal.

There is no legal limit on how long short time working or lay-offs can last unless specified in the employment contract. However, employees can claim redundancy if they receive less than half their usual pay for:

• Four or more consecutive weeks.
• Six or more weeks within a 13-week period.

Employees must follow strict deadlines to claim redundancy. They must notify their employer in writing within four weeks after their last short time working period. The employer then has seven days to either accept the claim or issue a counter-notice stating that work will soon be available. If work is not provided within four weeks and does not last at least 13 weeks, redundancy pay must be issued.

Should the employee not serve a counter notice, the employee must resign from their post to trigger redundancy pay entitlement.

If you need assistance with any contract employment matters please contact mlplaw Employment Team