In a nutshell
From 31 January 2020, the United Kingdom formally ceases its membership of the European Union. After this there will be a transitional period until the end of 2020 as longer-term trade and immigration arrangements are worked out. During this transition the existing provisions around free movement of people and goods will remain as before Brexit but businesses should start taking steps to plan for and support their workforce.
What are the risks?
The transition period only lasts until the end of 2020 so it is wise to be as prepared as possible and to take steps to protect your business.
Key steps to manage this issue
This page outlines the steps you can take to prepare for the following issues:
- Impact of ‘sterling volatility’ on salaries and other payments
- Risk of reduced labour needs due to higher tariffs and delay of goods
- Ensuring continued operations in the EU
- Managing business relocations
- Supporting EEA nationals in the UK
1. Sterling volatility
Currency fluctuations occur daily, based on traders' analysis of several factors, such as monetary policy, price inflation, confidence and sentiment, economic growth (GDP) and the balance of payments.
If you have employees working in EU countries then the fluctuations in currency could affect your pay bill considerably. Buying Euros every month to make payments to suppliers and pay salaries in the EU could cost you more, unless you purchase Euros in advance through a forward contract with a foreign currency specialist. It is advisable to ensure that your chosen foreign currency specialist is regulated by the Financial Conduct Authority for the services you wish to purchase. A currency specialist will buy you Euros in advance at the best rate available to ensure you are not affected by future sterling volatility in the exchange market.
Be aware though that paying salaries in Euros could also mean you are breaching the contract of employment by decreasing the employee’s salary through the fluctuations in sterling currency. Make sure that you agree in advance with the employee the contractual clause regarding how and when and in what currency their salary will be paid.
Jill is a GB citizen employed by your company at your Paris office. Her statement of particulars says that her salary is paid in Euros on the last working day of each calendar month. Her salary is €2500. In June, the Euro is worth 0.81p, thus Jill’s salary is paid into her account for this amount and the exchange rate means that the employer transaction cost was for £2025 (£0.81p x €2500=£2025) . In July, the Euro is worth .90p increasing your transaction to £2250, costing you an additional £225 this month. In August, the Euro is worth 1.06, costing you £2650, costing you an additional £400 this month.
If you have several employees paid in Euro each month, fluctuations in currencies can result in significant increases to your pay bill. By using a forward contract with a foreign currency specialist, you could save on the fluctuations and pay £2025 per month at the exchange rate of 0.81p being the date you signed the contract with the exchange specialist.
If you cannot afford to pay out large sums of money in advance, you can still purchase currency at a fixed rate through a forward contract specialist but for a much shorter timescale.
2. Reduced labour needs
Changes to immigration checks for goods and people entering the UK from the EU could mean that you need to reduce your workforce as you have no goods to sell or materials to manufacture your goods. This could be for a short period of time or it could be for longer.
The contract of employment (and specifically the written particulars) is an important document in allowing you flexibility as an employer to deal with reduced labour needs as and when required. Ensuring that you build agility into the contract will save you time later on deciding what payments and options are available to your employees.
There are four options to consider as follows:
- Short-time working
- Scaling down on agency and temp workers
You can ask your employee(s) to stay at home or take unpaid leave if there is not enough work for them. Your contract of employment needs to stipulate whether an employee will receive full pay on a lay-off day, reduced pay, or whether they will be entitled to a guarantee payment.
A guarantee payment is £29 per day (and is a statutory rate as of April 2019), but to be entitled to this payment, an employee (with employment status) must have been employed by you for at least one month, and not receive full or reduced pay from yourself. If the employee(s) does not earn £29 per day, based on their salary, then their guarantee payment will be whatever they earn per day below £29. Guarantee pay is only available for 5 days over a three-month period.
Failure for you, as the employer, to make a guarantee payment to an employee with at least one month’s service is an unlawful deduction and the employee(s) can make a claim against you in the Employment Tribunal.
It is unlikely that employees would be able to manage financially with long periods of lay-off at £29 per day, so the fact that lay-off pay is capped at 5 days means that this option will be useful to you on the occasion when planned work has to be rescheduled due to late deliveries, for example. It cannot become a regular occurrence and from an employee motivation point of view, employees would look for alternative work if they felt that lay-off periods would become regular. Therefore it is advisable that you consider other options as longer term fixes.
You can ask your employee(s) to reduce their hours of work for a period of time. Should this mean that their daily pay falls below £29 per day for 5 days in a three-month period, they may be entitled to a guarantee pay to bring their daily pay up to £29.
Bella has been working for her employer for two years and today her employer has notified Bella that, due to the fact that there has been a delay to a shipment of goods, they do not have any work for her for the next two days. The shipment has been delayed for 48 hours.
Bella earns £100 per day and her contract of employment states that in the event of a lay-off period, she will be entitled to the statutory rate of lay-off (currently £29 per day as of April 2019). This means that if Bella is laid off for 2 days, instead of receiving £200 for two days, she will only receive £58 for the two days. As this is a drop in money of £142 over the two days, Bella will be in financial difficulty. She asks her employer to seek other options.
Her employer meets Bella and explains the situation in more detail:
- Bella has signed a contract of employment stating that she accepts that statutory lay-off pay will be paid if a situation arises whereby the employer has no work to give Bella.
- The contract states statutory lay-off pay and this is currently £29 per day as of April 2019.
- The contract does not offer a higher rate than the statutory rate of lay-off pay as the employer will suffer financial loss for the delay of the shipment and therefore they cannot offer a higher rate of pay.
Bella asks her employer what will happen if the shipment is delayed further or if this happens again.
Her employer explains that they can offer 5 day’s statutory lay-off period or alternatively ask employees to work short time. Either way, the minimum pay that Bella will be entitled to is £29 per day, and if short term working was implemented then the employer would agree with Bella at the time, how many hours a day they could afford for her to work. The employer also stated that they could not legally reduce her hourly rate, so whatever agreement they came to would be at her hourly rate.
With either lay-off or short-time working your employees are entitled to work casually for another employer, as long as they do not take work on the days/hours you require them to work for you. If you are on a part time contract then the employee can only ask you to work on the days for which you are contracted to do so. If you are on a zero hours contract or annual hours contract, then there is no exclusivity clause that prevents you from working elsewhere. If you do not want your employees to work elsewhere, then you need to stipulate this in their contract of employment, and the action that will be taken should they breach this clause of their contract. Note that you cannot have an exclusivity clause on zero hours contracts. If you cannot provide your employees with full time work at their current salary, to restrict them from looking for and taking work outside of the hours that they work for you, will seriously impact their earnings and standard of living over time, and therefore may affect your employee retention rates.
Your employers can make a claim for redundancy pay if they have been on lay-off with no pay, or short-time working with reduced hours and pay that equates to less than half of their salary, for more than 4 weeks in a row or 6 weeks or more in a 13 week period. To claim redundancy pay, the employee(s) must give you written notice within 7 days from their last day of lay-off or short-time working that they intend to make a redundancy pay claim. If, as the employer, you do not consider this a redundancy situation, you can reply to their notice with a counter-notice stating when work will resume (and this should be in the near future). If you do not reply then the employee(s) can assume that you have accepted their claim, and they then have 3 weeks to resign from your employment to claim a redundancy payment. If you do reply with a counter-notice stating that you not consider this a redundancy situation, you must state your reasons and when normal working will resume.
An employee needs to have two years continuous service to make a claim for a redundancy payment.
Scaling down on agency and temporary workers
You can scale down on the use of agency and temporary workers, and whilst employees would expect their employer to do this ahead of laying off employees, you might like to consider if this will mean extra work for employees. It is advisable to communicate and consult with your employees on any choses you make, and reducing agency and temporary workers ahead of any lay-offs or short term working is the safest option in terms of legislative risk and employee engagement.
Redundancy is an option for you, as an employer, to terminate the contract of employment for employee(s) where you do not foresee that there will be sufficient work for the employee(s). Should you choose redundancy as an option you need to ensure that you comply with the relevant legislationWhilst it will mean that those made redundant have to look for alternative work, you can offer additional support to employees in the form of interview skills, CV writing, as examples, to support them into their transition to a new role.
Review your terms and conditions of employment for clauses on pay, lay-off, short-time working and working for others during employment with yourselves.
Set up communication and consult channels to keep in touch with your employees and ensure that they are fully informed on the rationale for all of your actions concerning reducing labour.
3. Ensuring continued operations in the EU
If you have employees working in EU countries then you have a duty of care to ensure your employees know what steps they need to take to ensure they can continue to work in the EU post-Brexit. For most of the actions that your employees need to take, the onus is on them making applications and providing relevant documentation, not you as the employer, as applications must be made by the individual, save for permits and visas where you will need to support and/or sponsor the application. You should support employees though, by providing information on the relevant arrangements for the EU country in which they are based. Arrangements vary between EU countries so you should investigate the position for the relevant member state (available from the European Commission).
Employees will be able to work in the EU are they do currently up until 1 January 2021. UK nationals who are expected to work in the EU from 1 January 2021 will have to comply with EU and national immigration rules, i.e. obtain a work permit. New restrictions will also be in place for business visitors, assignees, cross border worker. Keep up to date with the latest information on immigration rules and restrictions on the Gov.UK website and the CIPD Brexit Hub.
4. Managing business relocations
You might have a need to relocate an employee to an EU country for a period of time. Terms and conditions usually specify that the employee will not be expected to work for more than 30 days outside of the UK, and indeed, there might never be a need for an employee to undertake work overseas. Where you are likely to require your employee(s) to work for more than 30 days outside of the UK or to relocate for a period of time, a specific set of contractual terms need to be drawn up, offered, considered and accepted by you and the employee(s).
The main terms that you will want to include are as follows:
- Whether there is a mobility clause within the existing contract that already covers this relocation, or whether you will offer a variation to the existing contract to the employee.
- The length of the relocation and what visa requirements will be necessary
- How salary will be paid and in which currency
- The arrangements at the end of the relocation period. Will there be a role for the employee back in the UK, and if so, will this be their previous role or a new role, or will their contract of employment end when the relocation period expires (please note that this will be a dismissal for which you must undertake a lawful process)
- Who will have responsibility for repatriation costs (if applicable) and what specifically will these include.
Draw up a policy for business relocations stating your responsibilities and payments and those of the relocating employee(s).
5. Supporting EEA national employees in the UK
A key priority for you as an employer will be workforce planning to ensure that, post-Brexit, you have the right number of people, in the right place, at the right time, at the right costs and with the right skills. The Government has introduced the EU Settlement Scheme (EUSS) to help transition from the EU free movement to a domestic system of skills-based immigration. Under the EUSS, all EU nationals (along with EEA and Swiss citizens) living in the UK have the right to register for pre-settled or settled status, which would allow them to continue living and working in the UK. You should support EU/EEA/Swiss nationals and their families in applying for pre-settled or settled status by 30 June 2021. You can find more information in the EU Settlement Scheme employer toolkit.
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