There are many commentators who have been quick to question the commercial sense for employers who are considering the new JSS. I am no mathematical genius, but I think that some of the commentators may be jumping to conclusions without looking at the bigger picture.
The shadow economic secretary to the Treasury Paul McFadden is correct, to a point, in saying that the JSS puts most of the burden on employers and that it would be cheaper to take one person back full time under the plan than take two people part time and that the measures will not be enough to stop a big increase in unemployment. But I think that JSS may still be worth considering.
I have looked at one reasonably straightforward example. Take an employer who has 3 full time employees who all do the same type of work and who are currently all on furlough. The normal pay for each employee is £500 a week. The total wage bill (excluding NI and pension contributions) is £1500 a week. What should this employer do? It is concerned for its economic viability over the winter months with a second wave of the coronavirus and restrictions hitting its business. It is hopeful that 2021 will be a better year (could it be any worse?)
As things stand the employer believes that it has enough work of this kind for one full time employee as it tries to rebuild its business. It is, therefore, faced with the option of making two employees redundant or keeping all three, with each working a third of their normal hours.
If the employer makes no redundancies and brings all three employees back on a part time basis and claims JSS it will cost the employer £833 a week (give or take). One third of the normal weekly wage bill is £500 and one third of the shortfall on normal pay for all three is £333. In these circumstances the employer will only be receiving the benefit of 1 FTE. Instinctively you might think that it would be commercially more attractive to dismiss two employees and to bring one employee back on a full-time basis. That would only cost £500 a week. You might be right, but the employer should consider everything when making its decision.
There are costs and risks associated with making redundancies. The employer will need to pay notice (if it acts quickly it may be able to get some contribution from the furlough scheme) and it will need to pay redundancy payments for those employees with more than two years’ service. It also needs to ensure that it follows a fair and non discriminatory procedure when selecting which two employees to dismiss. The costs and liabilities can be significant where employees have long service. The employer will also lose out on Job Retention Bonuses for the two employees it dismisses. It would receive an additional £2,000 (less tax) if it kept all three employees in post until the end of January 2021.
So, whilst keeping three employees until the end of January will cost and additional £4,329 (13 weeks) it will forgo a £2,000 bonus and it will be required to pay notice and make redundancy payments. If the employer is optimistic about 2021 then the JSS, along with the Job Retention Bonus may just about make commercial sense for the time being with the employer considering its options again in the New Year.
This is not legal advice. There are many other considerations to take account of. These will include employer NI, tax and increasing the notice and redundancy liability by extending service. Employers are well advised to consider all the circumstances and to make the best commercial decision.
