The January 2021 Lockdown – What support is available and what can businesses do to protect employees and costs?

Wed 06 Jan 2021

With the Prime Minister’s further lockdown announcement, it leaves many employers and their employees in difficult positions.

However, the context is very different to March 2020 given we are a year into the pandemic and the Government has already provided c.£50bn of support to protect jobs via CJRS. Additionally, with the seriousness of the rising cases across the country it is extremely important to reduce travel/physical interaction to protect lives.

So what support is available and what can be done to help manage costs, protect jobs and public health?

• Loans and Grants, including CJRS

The Government has made business loans and specific grants available to help businesses through this period. These continue to be available, with the Government going further and announcing additional one-off grants worth up to £9,000 per property for closed businesses in the retail, hospitality and leisure sectors.  Further information can be found here.

The CJRS arrangement was extended before Christmas and is currently in place until 30 April 2021 – details available here.

Whether there will now be further updates from the Chancellor (usually on a Thursday) remains to be seen. Many are speculating that CJRS could be extended into the summer/autumn 2021.  As employers look to protect workers and their businesses, alongside the added complexity the closure of schools has brought, utilising the CJRS arrangement may again be appropriate. 

Further, HMRC are allowing employers to defer tax, VAT and NIC payments to help protect jobs and their business – we have been helping businesses agree these deferments and Time to Pay arrangements with HMRC.

• Protecting public health

Provide equipment for employees to work at home – there are specific exemptions available for this. This is easier for some occupations than others.

Where working from home is not possible, provide support for employees to get to work and work safely including cycle to work schemes, electric vehicles, Covid safe workwear etc.

• Managing employment costs and employee wellbeing

Many employers are reticent to and are not looking to put employees on furlough and utilise CJRS. Therefore, alternatives are being considered. One of these has been to allow employees to “buy” extra holiday given the additional pressures on childcare etc.

This can work effectively whereby an employee on (say) an annual salary £30,000 agrees to purchase an additional 30 days leave for the period of lockdown. The employer administers this on a salary sacrifice basis, with the employee exchanging 60% of their pay for the additional leave period.

The employee then has a fixed monthly reduction taken from their pay for an agreed period. A high level example is shown below:

• £30,000/260 days = £115.38 full cost of a day’s holiday
• £115.38 x 30 days = £3,461.54
• Agreed salary sacrifice = £3,461.54 x 60% = £2,076.92 – this is to share the cost with the employee i.e. you could agree a sacrifice of any value for the additional holiday purchased.
• Monthly reduction in gross pay (if taken over 12 months) = £173.08
• Net reduction in monthly pay (after tax and NIC) = £117.69

Therefore, an employee could buy additional holiday for a 30-day period and spread the cost across the year (or longer) to minimise the monthly impact.

In this example, it means the employee agrees to a reduction in gross pay of c.7% for the year. This may be a preferred alternative to furlough as:

• It can provide greater comfort, flexibility and clarity to employees on their work and pay over a longer period;
• It may mean the employee is better off given if on furlough they may only receive 80% of their qualifying pay (or less if they earn more than £3,125 per month);
• The employer can reduce employment costs and budget over the medium to longer term more effectively; and
• It means the employer does not need to utilise CJRS anymore, reducing the time and costs in administering and managing the compliance of furloughing workers.

Alongside the above, many employers are using the pandemic to update and enhance their reward strategy by implementing Pension Salary Sacrifice, Green Energy / Vehicle sacrifice and assessing EMI, Bonus and other pay / non-cash reward elements.

Additionally, many are also looking at regional pay bandings, particularly given that location is becoming less important in an increasingly virtual world.

How we can help

We are having lots of discussions with organisations on what steps can be taken and will be very happy to talk further on these aspects. Please do get in touch by contacting Employment Tax Partner, Ian Goodwin at Ian.goodwin@mazars.co.uk.