UK Job Retention Scheme – conserving take-home cash for furloughed employees

In order to best protect their businesses for the long term, many companies are making the difficult decision to furlough employees on 80 per cent of their usual salary. 

By furloughing at 80 per cent, companies will relieve the financial pressures on the business as (assuming they meet the relevant conditions) they will be able to reclaim those salaries through the Job Retention Scheme. 

However, that obviously leaves employees with a reduction in their take-home pay and so companies may want to remind employees about aspects of their benefits packages that require contributions or deductions from salary and that employees could choose to “turn off” for the duration of their furloughing.   

Any communication around these issues will need to be carefully worded to ensure that companies are not providing financial advice to their employees that they are not authorised to give. 

However, a factual update to employees should be fine provided that the information employers provide is accurate and that employees are encouraged to take into account their personal circumstances before taking any action and seek personal advice if they are unsure of the most appropriate course of action for them. 

At its simplest it could just be a list of those arrangements that employees could look to adjust, the process for doing those adjustments and the deadlines that may be relevant to ensure the adjustments take effect before the next payroll cut-off. 

Employers may also want to think about what flexibility they are able to offer in terms of the deadlines for employees making decisions that are effective before the next payroll cut-off and also for employees re-enrolling in the arrangements once any furlough period has ended.

Each company will have its own list of items that may be relevant but some common ones for UK employers are as follows:

• Pension contributions. Employees could choose to reduce (or even stop) their pension contributions for any period of furloughing. Where employees are auto-enrolled, special care must be taken as employers must not induce employees to opt out of auto enrolment. However, a simple reminder of the fact an employee can choose to do this with no active encouragement to do so should not amount to an inducement. Employees should be reminded of the potential impact on any employer contributions and also on their ultimate pension entitlement by ceasing contributions for any period.
• SAYE contributions. If employees participate in an SAYE scheme, they are able to miss contributions for up to 12 months. Any missed contributions would delay the eventual maturity of the option – but the option itself would continue.  
• SIP partnership share deductions. If employees are choosing to purchase partnership shares, they could be offered the opportunity to stop their deductions for those purchases. Where companies offer matching shares, employees should be encouraged to think carefully about whether stopping deductions is a sensible course of action. That may depend on whether the matching shares are subject to forfeiture and the employee’s own view about the future share price performance in light of the current market volatility.
• Payroll giving.  It may be appropriate to remind employees of the process for adjusting any payroll giving arrangements in place. In the current circumstances, that could either be reducing the amount or changing the recipient of the charitable giving.
• Purchase of additional holiday. In light of both reduced salary and ongoing travel restrictions, employees may favour being able to opt out of any existing salary sacrifice arrangements that are in place for the purchase of additional holiday or sabbatical entitlement. 
• Gym membership. Depending on the terms of the gym membership arrangements, employees may wish to cease paying for gym membership for so long as social distancing measures continue.
• Other flexible benefit arrangements. There may be other flexible benefit arrangements that operate by salary sacrifice and which employees would wish to cease while they are on reduced pay.