Lay Off Pay: Guide for UK Employers

Lay offs are often used as an alternative to redundancy, allowing businesses to retain their workforce while managing short-term downturns or financial difficulties. During a lay off, employees are not provided with work for a period of time but remain employed, meaning their contract of employment is not terminated. Statutory lay off pay is the legal entitlement for employees who are temporarily laid off or put on short-time working due to a reduction in work.

Eligibility for statutory lay off pay depends on factors such as length of service and earnings. Payments are subject to a maximum weekly limit, which is set by the government and reviewed annually. Employers should also be aware that employees who experience a lay off period of four consecutive weeks, or six weeks within a 13-week period, may have the right to claim redundancy pay.

As such, employers must carefully consider the legal requirements when implementing lay offs to avoid potential disputes or claims. Key risks include failing to meet statutory obligations, which could lead to claims for unlawful deductions from wages or constructive dismissal. It is essential to clearly communicate the terms of lay off and short-time working to employees, ensuring they understand their rights and entitlements.

Below we look at the rules relating to layoffs and short time working, including statutory layoff pay, from who is eligible to how much this is.

 

Rules on laying off workers

 

Laying off is a temporary measure used by employers when there is not enough work available for employees. In times of economic crisis, laying off staff can often help to avoid redundancies, thereby helping employees retain their jobs while helping employers retain their workforce for the future – but your staff have to agree to this first.

In today’s economic climate, several factors may lead employers to consider lay offs as a short-term solution, including:

 

• Economic Uncertainty: Fluctuations in market conditions, such as rising inflation, interest rate changes, and economic slowdowns, can affect business confidence and demand, leading to temporary reductions in workload.
• Supply Chain Disruptions: Global supply chain issues, driven by factors such as geopolitical conflicts or transportation challenges, can hinder the availability of materials and resources, forcing businesses to scale back operations temporarily.
• Seasonal Demand Changes: Certain industries, such as retail, manufacturing, and hospitality, may face seasonal downturns, requiring businesses to adjust their workforce during quieter periods.
• Energy Costs: Rising energy prices have placed pressure on businesses with high operational costs, making temporary lay offs a way to manage expenses while maintaining the workforce for future recovery.
• Technology and Automation Advancements: Businesses investing in new technologies may experience short-term disruptions as they transition, potentially leading to temporary lay offs.

 

Employers must carefully assess whether a lay off is the best option, balancing short-term financial pressures with long-term workforce retention strategies.

It may be that a layoff agreement has already been reached. This could be contained within an employee’s contract of employment. It could also form part of a national agreement for your industry, or a collective agreement between you and a recognised trade union, although these types of agreement can only be enforced if they are expressly incorporated into the employment contract.

This means that unless an employee’s contract allows for unpaid or reduced pay layoffs, they should still receive their full pay if their employment is temporarily suspended. In limited cases you may be able to lay off a worker where you have clear evidence that this is custom and practice within your workplace, although it is still best to negotiate a temporary change to an employee’s contractual pay, even when responding to a short-term situation.

In the absence of any prior contractual arrangement or variation agreement permitting layoffs without full pay, you may find yourself facing a breach of contract claim. It is also important to remember that even where agreement can be reached to respond to the immediate economic needs of your business, this does not automatically extend your power to do so again without consent.

If you have expressly agreed a permanent change to the contract of employment, you must confirm this in writing within 1 month of the change. If it is only a temporary change, you should still confirm the agreement in writing to avoid any uncertainty or confusion at a later date.

 

How long can you lay off a worker?

 

A layoff can be for a fixed or unspecified period of time, where there is no upper limit on how long an employee can be temporarily suspended from work. It will depend on what has been agreed in the employee’s contract of employment, or any subsequent agreed variation to that.

However, an employee may be able to resign and apply for redundancy pay if they have been laid off and the layoff has lasted for:

 

• 4 or more consecutive weeks in a row, or
• 6 or more weeks in a 13-week period, where no more than 3 are in a row

 

You do not have to make any redundancy payments if the employee will return to normal working hours within 4 weeks. Any eligible employee must also give you written notice in advance that they want to make a claim.

To claim redundancy an employee must write to you within 4 weeks of the last day of the layoff. You then have 7 days to accept their claim or provide a written counter-notice. A counter-notice means you expect work will soon be available, where any such work must start within 4 weeks and must last at least 13 weeks.

If you do not provide a counter-notice, this can be treated as you accepting an employee’s redundancy claim. In some cases, however, you may want to withdraw your counter-notice, although you must do so in writing.

To be eligible for redundancy pay, the employee must formally resign by handing in their notice. They will have 3 weeks to do this, starting from 7 days after they gave you written notice, where you did not serve a counter-notice, or the date you withdrew your counter-notice in writing.

 

What is lay off pay?

 

Lay off pay refers to payments made to employees who are temporarily unable to work due to a shortage of work, but who remain employed by their employer. It can take different forms, depending on whether it is statutory or contractual.

In the UK, statutory lay off pay is the minimum amount an employer is legally required to pay eligible employees during a period of lay off. Employees are entitled to statutory lay off pay if they have been employed continuously for at least one month and are available for work. The amount payable is set by the government and applies for up to five workdays within any three-month period. If an employee normally earns less than the statutory rate, they are entitled to their usual daily earnings instead. Beyond the statutory entitlement, there is no obligation for an employer to provide additional payments unless specified in the employment contract.

Some employers may offer contractual lay off pay, which provides payments beyond the statutory entitlement. These arrangements can include higher amounts or longer periods of payment, depending on company policies and industry practices. Contractual lay off pay terms must be clearly outlined in an employment contract or collective agreements.

If an employee is laid off for an extended period, they may have the right to request redundancy pay. Lay off pay is designed to provide short-term financial relief while ensuring that employees remain available for work when business conditions improve.

 

What is statutory lay off pay?

 

Statutory lay off pay is typically used when businesses experience temporary downturns that reduce the need for staff, but redundancy is not yet a necessary step.

Employees should get full pay during layoffs, unless it is expressly agreed otherwise or their contract already allows unpaid or reduced pay. In cases where an employee has no contractual entitlement to be paid during a layoff, by law they will still be entitled to a minimum guarantee pay. This is often known as statutory layoff pay.

An employee is entitled to statutory layoff pay in circumstances where you do not provide them with a full day’s work during the time they would normally be required to work. This means that they are only entitled to pay for days they do no work at all. The rate and length of statutory layoff pay is as follows:

 

• The maximum payment is currently £38 for any workless day for 5 days in any 3-month period, ie; £190 (as from April 2024)
• If an employee usually earns less than £38 a day, they will get their normal daily rate
• For part-time workers, the rate is pro-rated, ie; reduced in proportion to their part-time hours

 

If you do not provide the minimum statutory layoff pay to an individual who is entitled to it, or apply the correct calculation, they could take you to an employment tribunal to recover what is owing to them. By not paying this guarantee pay, this will count as an unlawful deduction from wages.

If you already have your own guarantee pay scheme, this cannot be less than that required by law. If the employment contract, or any agreement to vary its terms, allows you to lay workers off without pay, any eligible employee must still be paid the statutory minimum. You cannot pay them less, although they will not be entitled to statutory layoff pay in addition to any contractual entitlement.

 

Who is eligible for statutory lay off pay?

 

To be eligible for statutory layoff pay an individual must satisfy all of the following requirements:

 

• Be continuously employed by you for at least 1 month, including part-time employees
• Reasonably ensure they are available for work
• Not refuse any reasonable alternative work, including work not in their contract of employment
• Not have been laid off because of industrial action

 

An employee will not be entitled to statutory lay off pay for any day that they do some work. The right to statutory layoff pay also applies only to employees, not to workers such as contract or agency workers, or the self-employed.

 

Employee rights during lay off periods

 

Employees who are placed on lay off retain several legal rights designed to protect their employment status and financial wellbeing. One of the key rights is the entitlement to statutory guarantee pay if they meet the eligibility criteria. This provides employees with a limited financial safeguard during periods when their employer is unable to provide work. Guarantee pay is subject to a government-set maximum amount and is payable for up to five days within any rolling three-month period.

In situations where lay offs extend beyond a reasonable period, employees may have the right to claim redundancy pay. If they have been laid off for four consecutive weeks or a total of six weeks within a 13-week period, a request for redundancy may be made. The employer then has the option to either offer a return to work or proceed with redundancy.

Employment rights, such as protection against unfair dismissal, continue to apply during a lay-off period. Employees cannot be dismissed without a fair reason and due process, even if they are temporarily out of work. The period of lay off also counts towards continuous employment, meaning that employment rights such as redundancy pay calculations and notice periods are unaffected.

Employees have the right to seek alternative employment during a lay-off, provided their employment contract does not include exclusivity clauses that prevent them from working elsewhere. If restrictions exist, seeking the employer’s permission may allow temporary work elsewhere without breaching contractual obligations.

It is important that employers communicate clearly with staff regarding the reasons for the lay off, expected duration, and any financial entitlements available. Uncertainty can lead to dissatisfaction and claims of constructive dismissal if employees feel their rights are being undermined. Access to advice from ACAS or trade unions can provide employees with guidance on their rights and available options during this period.

 

Can employees take on extra work during a lay off?

 

An individual worker can take a second job during any layoff period, unless their contract of employment expressly prohibits this.

In some cases, there may be no express prohibition against taking on extra work during a layoff, but the employment contact will still often prevent an employee from working for a competitor. If an employee undertakes work for one of your competitors during a layoff, they could be in breach of contract.

Your employees should also ensure that they are available to work for you once the layoff ends, otherwise again risk being in breach of contract to you for which you may want to take disciplinary action on their return.

That said, given the difficult financial circumstances an employee may well have faced by being laid off, this is unlikely to justify any harsh disciplinary sanction.

 

What is short time working?

 

Short time working is similar to a layoff, but rather than providing an employee with no work, the employer provides some, albeit reduced, work.

It is essentially when an employee’s normal working hours are cut, where less than half a normal week’s work and pay will trigger the statutory short time working protections for employees, subject to eligibility requirements.

These protections mirror those available for layoffs in relation to redundancy. This means that if an employee is put on short time working for either 4 weeks in a row or 6 weeks out of 13, where eligible, they can resign and claim redundancy pay. An employee does not have a right to a redundancy payment unless they have been continuously employed for a period of at least 2 years.

By law, employers can lay off employees or put them on short time working if:

 

• This is permitted in the employee’s employment contract
• There is a national agreement for the industry
• There is an agreement between your workplace and a trade union
• There is custom and practice in your workplace, with clear evidence
• An agreement is reached with any affected employee to vary the terms in their employment contract to include layoffs or short time working

 

Where permissible, both layoffs and short time working can be used to avoid redundancies, but either option must only be used as a last resort. You should consider all other options first, for example, agreeing with employees to take any outstanding paid holiday entitlement.

 

 

Need assistance?

 

When dealing with workforce issues, it is important to consider the full legal risks and rights of your workers. DavidsonMorris’ employment lawyers are on hand to help you assess the circumstances and understand the options that are in your best interests, not least to avoid unwanted tribunal claims and damage to reputation.

As employment law specialists, we can assist if you have any queries relating to lay offs, settlement agreements or making redundancies, particularly large or complex situations. Speak to our experts today for advice.

 

Statutory lay off pay FAQs

 

Who qualifies for statutory lay off pay?

Employees must meet certain eligibility criteria, including being employed under a contract of employment and being laid off due to a shortage of work. They must also have worked continuously for the same employer for at least one month.

 

How much is statutory lay off pay?

The amount is subject to a weekly limit set by the government, which may change annually. Employees are entitled to up to five days of statutory lay off pay within any rolling three-month period.

 

Can an employer lay off staff without pay?

Employers can only lay off staff without pay if the employment contract includes an express or implied term allowing for this. Without such a clause, employees may be entitled to their normal wages or statutory pay.

 

How long can an employee be laid off before claiming redundancy?

If an employee is laid off or placed on short-time working for four consecutive weeks, or six weeks within a 13-week period, they may be eligible to claim statutory redundancy pay.

 

Does lay off affect an employee’s rights?

Employees retain their statutory employment rights during a lay off, including the right to redundancy pay, unfair dismissal protection, and continuity of service.

 

What should employers do when considering lay offs?

Clear communication with employees is essential, ensuring they understand their rights, pay entitlements, and potential next steps. Employers should also review contracts and seek legal advice if needed.

 

Glossary

 

Term	Definition
Statutory Lay Off Pay	A government-mandated payment for employees who are temporarily laid off due to lack of work.
Lay Off	A temporary period where an employer does not provide work to an employee, but employment continues.
Short-Time Working	A reduction in an employee’s working hours due to a downturn in business demand.
Eligibility Criteria	The specific conditions an employee must meet to qualify for statutory lay off pay.
Continuous Employment	The length of time an employee has been employed without a significant break in service.
Redundancy Pay	A financial compensation paid to employees who lose their jobs due to business closure or restructuring.
Employment Contract	A legally binding agreement between an employer and employee outlining terms of employment.
Unfair Dismissal	A legal claim made by an employee if they believe they were dismissed without a fair reason or proper process.
Statutory Entitlement	A legal right granted to employees under employment law.
Maximum Weekly Limit	The highest amount an employee can receive in statutory lay off pay, set by the government.
Express Contract Term	A clearly stated clause in an employment contract regarding lay offs or short-time working.
Implied Contract Term	A term not explicitly written but understood to be part of the employment agreement based on conduct or custom.
Claim for Redundancy	The process by which an employee can seek redundancy pay if laid off for a specified period.
Workforce Retention	Strategies used by employers to keep employees engaged and employed during business downturns.