If your business is experiencing reduced demand, you might need to temporarily ask staff to stay at home. Although temporary layoffs are typically only used by employers as a last resort, they offer a temporary reprieve and more preferable alternative to making workers redundant.
There are, however, risks associated with laying off staff. There is also typically a legal obligation to pay employees a minimum amount of money for any day that they don’t work.
The following guide for employers looks specifically at the rules relating to statutory guaranteed pay, including how this is calculated and the potential pitfalls when laying off staff or failing to pay them what they’re legally entitled to. We also look at best practice procedures for employers when it comes to layoffs and statutory guaranteed pay.
What is statutory guaranteed pay (SGP)?
Statutory guaranteed pay, also known as statutory guarantee pay or statutory layoff pay, is the legal minimum an employer must pay an employee if they’re laid off work. It’s essentially the amount payable to an employee who isn’t provided with work on any day that they would normally have worked under their contract of employment. In this way, statutory guaranteed pay provides some basic income guarantee for employees during temporary downturns.
The right to statutory guaranteed pay is set out under the Employment Rights Act (ERA) 1996. Section 28 of the ERA provides that employees are entitled to be paid by their employer an amount in respect of any “workless” day, in circumstances where the employee is not provided with work by reason of either a diminution in the requirements of the employer’s business, or any other occurrence that has affected the normal working of that business, in relation to work of the kind that the employee in question is employed to do.
By law, an employer can lay off an employee if it’s either included in the employee’s contract of employment or where you have clear evidence that this is custom and practice within your workplace, although it’s always best to negotiate a temporary change to an employee’s contractual pay, even when responding to a short-term situation. Layoffs could also form part of a collective agreement with a recognised trade union, or a national agreement for your industry, although these types of agreement are only enforceable if they’re expressly incorporated into the employee’s contract.
If an employee is laid off they should still get full pay, unless their contract allows for unpaid or reduced pay layoffs. It’s in these circumstances, where an individual’s employment is temporarily suspended but they’re not contractually entitled to any pay, that they may still be entitled to statutory guaranteed pay for any day that they would usually work but there is no work available for them to do.
Who is entitled to statutory guaranteed pay?
Under section 29 of the ERA, an employee will be entitled to statutory guaranteed pay provided that they meet the following criteria:
- They’ve been employed by you continuously for at least one month
- They’ve not been laid off because of industrial action
- They do not refuse any reasonable alternative work, including work not in their contract
- They reasonably make sure they’re available for work.
The rules relating to layoffs and statutory guaranteed pay include both full-time and part-time employees, although the right to minimum pay applies only to employees, not to workers such as contract or agency workers. It’s also only available in respect of full working days lost, where an employee cannot claim pay for any day that they undertake some work.
How is statutory guaranteed pay calculated?
The way in which statutory guaranteed pay is calculated is set out under section 30 of the ERA. This provides that the amount payable to an employee in respect of any workless day is the sum produced by multiplying the number of normal working hours for that day by the guaranteed hourly rate. The guaranteed hourly rate is the amount of one week’s pay divided by the number of normal working hours in a week for that employee.
However, under section 31 of the ERA, the level of statutory guaranteed pay is subject to a cap of £30 per day. Further, the maximum an employee can get is £30 a day for 5 days in any 3-month period, so a total of £150. If the employee usually earns less than £30 a day, they should be paid their normal daily rate, although most employees will get the daily upper limit. If an employee works part-time, their entitlement to statutory guaranteed pay should be worked out proportionally to their part-time hours.
If layoffs are a regular occurrence for your business or industry, you may have your own guarantee pay scheme. If you do have this type of pay scheme in place, it cannot be less than the employee’s statutory entitlement, although an employee will not be entitled to both contractual and statutory layoff pay. Any contractual remuneration paid to an affected employee in respect of a workless day, provided this is greater than the statutory minimum under the ERA, will discharge any liability of the employer.
What are the potential pitfalls with layoffs & SGP?
In the absence of any prior contractual arrangement permitting layoffs without full pay, or subsequent variation agreement between you and any affected employee, you may find yourself facing a breach of contract claim. Further, any failure to pay the whole or any part of a contractual or statutory guarantee payment to which the employee is entitled will be classed as an unlawful deduction from wages for which an employee could make a tribunal complaint.
Provided the tribunal is satisfied that you have failed to make a layoff payment due, you will be ordered to compensate the employee for any outstanding sum. In most cases, the level of any award is likely to be relatively low, although the cost of dealing with a tribunal claim can still be significant, not least in terms of your time. A successful tribunal claim against you can also seriously impact your employer brand. Employees may be reluctant to work for an employer who not only regularly uses layoffs to make cut-backs, or even worse, unauthorised layoffs, but one who has failed to honour an employee’s basic statutory or contractual rights.
By laying off employees for prolonged periods, you also run the risk of employee’s resigning and claiming redundancy pay. There’s no legal limit for how long an employee can be laid off, although an employee with 2 years’ service can apply for redundancy and claim redundancy pay if they’ve been laid off for a period of:
- 4 or more consecutive weeks
- 6 or more weeks in any 13-week period.
To claim redundancy, an employee would need to write to you within 4 weeks of the last day of the layoff. You will then have a period of 7 days to either accept the employee’s redundancy claim or give them a written counter-notice. If you fail to provide the employee with a counter-notice, you can be treated as having accepted their claim.
A counter-notice means that you expect work will soon be available, although this work must commence within 4 weeks and last at least 13 weeks. If it subsequently turns out that work will not be available, you can withdraw your counter-notice in writing.
If an employee then resigns, they will be entitled to a redundancy payment, which could be extremely costly to your business. However, the timing of any resignation is crucial here, where the employee will have just 3 weeks to hand in their notice, starting from:
- 7 days after they gave you written notice, if you did not give a counter-notice
- the date you withdrew your counter-notice.
To avoid a redundancy scenario, and prevent redundancy payments falling due, you will need to provide employees with work within a period of 4 weeks.
Best practice advice for employers
Before laying off employees, you should first create a plan so you can approach the requirement respectfully and in accordance with their employment rights. It’s important to bear in mind that laying off an employee, even for the occasional day, can be extremely demoralising for them. You should therefore think carefully about who you may need to lay off and whether there are any viable alternatives. In some cases, employees may be happy to use some of their annual leave entitlement or even consider a reduced working week.
However, if laying off employees seems to be the only or best option for your business, either now or once the CJRS comes to an end, you will need to consider what to say. Informing members of staff that they will need to be laid off can be a difficult conversation to have, where emotions may run high. You should sensitively explain to any affected employees the reasons for laying off. You should also provide the employee with a letter detailing what’s happening and why, reassuring them that this situation is only temporary and outlining what pay they will receive during this difficult time.
For some employees, any decision to reduce the number of days that they’re required to work can have a significant impact on their ability to makes ends meet, such that you may find staff looking for alternative work. It’s important to let employee’s know of their right to take on a second job during any period of layoff, unless their contract expressly prohibits this. However, by being flexible here, provided you make it clear that employees must be available for their original job once their layoff ends, this could help to relieve some of their financial concerns. They should also be advised of their potential right to benefits, such as Jobseeker’s Allowance or Universal Credit, once any entitlement to statutory guaranteed pay has been exhausted.
Clear communication is essential throughout this process to keep employees fully informed of what’s going an and where they stand. This is likely to be a challenging time for everyone involved, so by clearly explaining the situation this will help to prevent the loss of valuable members of staff and maintain a good working relationship on their return.
In the current climate, most employers will continue to rely on the financial support made available by the government through the CJRS. However, as things stand, this support will only be available until the end of September 2021, at which stage your business may still be struggling. Seeking legal advice from an employment law specialist to pre-empt any potential employment rights issues that you may encounter can help you make informed decisions to help best meet the needs of your workforce and your business.
Statutory guarantee pay FAQs
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Legal disclaimer
The matters contained in this article are intended to be for general information purposes only. This article does not constitute legal advice, nor is it a complete or authoritative statement of the law, and should not be treated as such. Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its accuracy and no liability is accepted for any error or omission. Before acting on any of the information contained herein, expert legal advice should be sought.
Author
Anne Morris is the founder and Managing Director of DavidsonMorris. A highly experienced lawyer, she is recognised by Chambers & Partners and the Legal 500 UK as a trusted adviser to multinationals, large corporates and SMEs, delivering strategic immigration and global mobility advice. Anne is also an active commentator on UK immigration and HR matters.
