Short-time working: the most important facts for employers and employees

There are countless reasons why businesses may face financial difficulties – from new products flopping, productions being halted due to a fire at the factory, to staff striking or weather conditions impacting a business. Labour costs make up a significant share of business operating costs. That’s why employers generally have three options: lay-offs, temporary leave or furlough, or short-time working.

Where an employee is put on short-time working due to a lack of work available, jobs for qualified staff can be saved and costs can be reduced. In this article, we’ll discuss the concept of short-time working, under which conditions employers can apply for it, and what the financial consequences for staff are.

What is short-time working? Definition and impacts

Definition: short-time working

Short-time working is an approach initiated by companies to avoid lay-offs or redundancies during economic downturns. Staff are required to work contractually agreed fewer hours or alternatively are laid off. Short-time working only applies where an employee’s renumeration is reduced to less than half a week’s pay. As a consequence, staff wages are reduced, but employers are legally required to pay statutory guarantee pay for days during which staff do not work, and employees can apply for unemployment benefits to make up for some of the losses.

Short-time working is a means for businesses to retain staff during economic crises or hardships. Far from altruistic, the measure makes economic sense: without short-time working, companies would be laying off qualified staff only to rehire new employees once the business recovers – a process that incurs considerable expenses.

Entire departments or all staff at a company can be asked to work short-time as long as certain conditions are met.

Note

Short-time working is not the same as job sharing. During a job share, a full-time role is usually shared between two or more employees. Short-time working refers to the reduction in work load and wages.

Prerequisites: when can an employer order short-time working?

Generally, a company would set out any arrangements of short-time working programs in an employment contract. However, to qualify for short-time working compensation through statutory guarantee pay, certain conditions need to be met by the employer and employee. These broadly involve the following:

  • The lack of work needs to have economic reasons or be caused by issues beyond a company’s control, for example, natural catastrophes or government instructions.
  • A company should have considered all the alternatives to minimise the lack of work, for example, by reducing overtime.
  • The shortage of work is temporary and it’s predicted that employees will return to a normal work schedule at some point in the future.
  • Short-time working must be specified in an employment contract (or alternatively can be added in certain industries later on).

Typically, employees should not be kept on short-time working for more than three months and statutory guarantee pay only covers that amount of time. Where staff are kept on short-time working for longer, it can be considered a redundancy.

More extensive information on lay-offs and short-time working arrangements in the UK can be found on the government website.

Short-time working during the coronavirus crisis: what are the specialties in place?

Because of the wide-ranging work shortages causes by the coronavirus crisis, the UK government pledged a relief package of £330 billion to support businesses and entrepreneurs stay afloat during these times. As part of the grant, employers can claim 80% of normal pay for furloughed employees at a £2,500 cap. Many companies have also opted for short-time working schemes during this time of crisis to avoid making staff redundant once lockdown provisions come to an end. Importantly, the grant does not cover short-time workers.

UK employees generally must meet the following criteria to qualify for the government’s work retention scheme:

  • Be put on temporary leave and notified of this in writing. In other words, the scheme does not cover short-time working employees.
  • Be employed (full-time or part-time) and have been with the same employer since February 28, 2020.
  • Be instructed by the employer to cease all work.
  • Be furloughed for 21 days or more.
  • Employers can only claim the grant for furlough initiated as a consequence of the coronavirus.

What short-time working compensation is available?

Employees on short-time working programs will have their hours and consequently their wages reduced. Legally, employers are required to pay their staff the same amount for their hours worked. In addition, they must pay statutory guarantee pay over a period of time (no longer than three months) as set out in an employment contract.

Employees only qualify for short-time working if they have been continuously employed by a company for at least one month. They must be available to work and not be refused reasonable alternatives for work. Short-time working also does not apply to lay-offs because of industrial actions.

As such, the following are excluded

  • Leased employees
  • Intermittent employees
  • Temporary employees
  • Seasonal workers
  • Corporate officers or stock holders in a company

How to apply for short-time working benefits?

Whether an employer can put staff on short-time working or not is stipulated in an employment contract. This would also typically contain a clause on how long such measures would be in place for. During these times, statutory guarantee pay must be paid in addition to the reduced normal wages.

In addition, employees may be able to apply for other government benefits such as Universal Credit and jobseeker’s allowance.

What is the compensation rate for short-time working?

In addition to a reduced wage depending on the hours you

agree to continue to

  • work as part of short-time working, employers must pay statutory guarantee pay. This is set at £30 per

day for five days over a total of three months.

An employee is entitled to a maximum of £150 per week. Employees may also get less if their daily rate is below £30.

For part-time workers, statutory guarantee pay is worked out based on their part-time hours per annum.

Tip

If your employer no longer has any work available, you would be eligible for regular unemployment benefits. Any paid leave taken during an employee’s work sharing time counts as normal hours worked and benefits are paid in the usual manner.

How long can an employee remain on short-time working?

Usually, short-time working agreements are meant to cover short dry spells in available work. They are not designed to keep staff on reduced hours for much longer than three months. Statutory guarantee pay is restricted to three consecutive months (i.e. five days per week). In other words, short-time working is an emergency measure during times of financial and economic hardship and shouldn’t be abused to retain staff on part-time hours.

Employers can also interrupt short-time working if, for example, a large contract job requires urgent help.

How does work sharing affect the paid leave entitlement of employees?

Most businesses will usually aim to avoid putting their employees on short-time working programs. This includes advising staff to take unused paid leave instead. Where a holiday has already been planned, employers can’t force staff to change their plans. For paid leave taken during a short-time working period, employees will continue to receive the same benefits and wages agreed.

Where an employee goes on holiday having used up all their paid leave, no benefits will be paid. It is unlikely that an employer will continue to pay wages in this case, but it’s best to check with your boss or employment contract for the specifics.

Does short-time working affect my tax rate?

If you’re being asked to work short-time, your pay will usually be cut in half or less. A drop in your income will result in lower taxes. In some cases, employees can claim tax refunds.

Where an employee is laid off, they can claim tax refunds by the end of the tax year.

Can employees be made redundant while working short-time?

Yes, if workload does not return to normal, employers can make staff redundant after the agreed period on short-time working.

Where an employee earns less than half of their normal wage, they can argue they’ve been made redundant and receive redundancy pay if:

  • They were working for a company for two years
  • They were short-time working or laid off for more than one month continuously
  • Or they were short-time working or laid off for six weeks over a period of 13 weeks

Please note the legal disclaimer relating to this article.


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