The essentials for SMEs considering lay-offs or short-time working.

If your business is going through a difficult period then you may consider a lay-off or short-time working for staff rather than redundancy and risk losing skills permanently. However, simply telling an employee not to come to work doesn’t always get you off the hook. Some employees may be entitled to guarantee pay even if they aren’t working.

If a reduction in business activity is likely to be temporary, as an alternative to redundancy, you may wish to reduce your employees’ hours for a short period until business improves. The following three steps are critical.

Check that you have the right to reduce hours

Check the employee's contract of employment to see if there is a clause that allows you to lay them off or put them on short-time. If there is no such clause, you will need the employee's express agreement. Agreement may be obtained following consultation with the individuals concerned. If the situation is explained, employees may be prepared to accept a lay-off or short-time working as an alternative to redundancy. However, their consent must be informed.

They must understand fully the likely duration of the lay-off or short-time working and the implications for their pay. If they do agree to the lay-off or short-time working, confirm the agreement in a letter to each employee affected. Include a section in the letter where the employee can sign to indicate their agreement and ask the employee to return a signed copy of the letter to you for your records.

Consider the employee's entitlement to a guarantee payment

Where employees are legitimately laid-off work, in accordance with their contract of employment or by agreement with you, they may be entitled to a guarantee payment.

Guarantee payments are made only for complete working days lost. To qualify for a guarantee payment, the employee must have been continuously employed for at least one month. The maximum guarantee payment is currently £23.50 a day or a normal day's pay, whichever is the lower.

Any contractual pay paid to the employee during the lay-off can be offset against the guarantee payment. Guarantee payments are limited to five days in any three month period. If the lay-off days do not follow on immediately from each other, the three months is calculated separately for each day of lay-off.

The employee loses their entitlement to a guarantee payment if:

•    the lay-off is as a result of industrial action by your own workforce;
•    the employee refuses your offer of suitable alternative work for the day in question; or
•    the employee refuses to remain on standby during the lay-off.

Consider the employee's entitlement to statutory redundancy pay

It is possible for employees who are laid-off or put on short-time working to claim a statutory redundancy payment.

To qualify for a statutory redundancy payment, an employee must have two years' service or more and have been laid-off or kept on short-time working for more than four consecutive weeks or for a total of six weeks in any period of 13 weeks. The employee must give you written notice of their claim within four weeks of the last week of lay-off or short-time working and give you notice to terminate the contract of employment. There is a strict timetable for this procedure.

You can contest this by giving written counter notice. The matter must then be settled by an employment tribunal. The tribunal will only decide in your favour if you can show that, on the date the employee gave notice of the claim, there was a reasonable expectation that the employee would enter into a period of at least 13 weeks' continuous employment (with no lay-offs or short-time working) beginning within four weeks of that date.

Finally, if you chose to opt for a lay-off or short-term working, it is vital that employees are treated fairly and consistently. The fact that you have followed a fair procedure will be an important factor should there be any subsequent tribunal claims.