The FSB has called on the Government to help the small business community which is buckling under the burdens of Brexit uncertainty, business rates hikes, pension contribution increases, Making Tax Digital for VAT and the late payment crisis.
The Government has recognised that the issue of late payments is a major concern for small employers. In June 2019 it announced a new set of measures aimed at protecting smaller businesses from late payments. The Government’s announcement follows the FSB’s successful Fair Pay Fair Play campaign and work with the government to create a whole-board approach to late payment within the UK’s large companies, and to empower Audit Committees to look after the supply chain.
When customers fail to pay businesses on time, SME employers are more likely to experience cash flow problems than larger employers, which may in turn impact on the employers’ ability to pay their staff on time. An unexpected fall in sales or loss of a key client can cause the same issues. Faced with this situation, employers should consider their best course of action. A failure to pay staff on their contractual pay date is a breach of contract and employers may face a claim for any financial loss that staff suffer as a result, such as compensation for employees’ bank overdraft fees, or compensation for interest on payday or bank loans taken out. It also exposes employers to the risk of unlawful deduction from wages claims, constructive dismissal claims (where a failure to pay wages on the promised pay date amounts to a breach of trust and confidence), as well as causing financial hardship and anxiety to staff.
Where there is going to be a short delay to payment, employers should communicate with their staff in advance in writing, explaining the reason for the delayed payment and to indicate, if possible, when wages will be paid. This does not prevent staff bringing tribunal claims or raising complaints, however, staff should always be kept informed so they can put alternative plans in place for meeting their own financial commitments, and to maintain trust and confidence. Where cash flow is more severe, employers may choose to temporarily “lay off” staff for a short period of time until cash flow improves. Where there is reduced work available, or the employer can manage the existing workload with less staff, lay-offs and short-time working are frequently used by employers as a useful way of handling temporary work shortages and adverse trading conditions without having to resort to making redundancies and losing staff.
Where an employer does not provide work for an employee on a day when they would normally work, because there is a reduced requirement for them to carry out the work they are contracted to do, then the employee is ‘laid off’.
Where the employee works for some of the week but they are laid off for the rest of the week, they are classed as put on ‘short time’ working.
Where an employee’s contract of employment contains an express contractual right for the employer to impose a lay-off or short time working on that employee, then this is binding on the employee. However, to maintain trust and confidence, employees should be warned of a lay-off in advance in writing, the reasons for the temporary lay-off and the anticipated length of this. Where there is no contractual right to take this action, the express consent of the employee is needed and, for the avoidance of doubt, any consent should be obtained in writing.
Most employees are entitled to a statutory guarantee payment for any complete day of lay-off, for up to 5 days of lay-off (those payments are currently capped at £29 per day). Unless employees’ contracts prohibit or restrict secondary employment, employees may be able to take on another job on a temporary basis whilst laid off or placed on short-time working, provided they are available for their original job once the lay-off or short-time working ends. Alternatively, employees may be able to apply for Jobseeker’s Allowance while on lay-off or short-time working, where they qualify for this.
Please refer to our further guidance on dealing with late payments and information on the FSB Debt Recovery service which is available free of charge for FSB members.
As always, if you have a legal query please get in touch with the FSB Legal Helpline on 0345 0727727 and we'll be happy to assist you.