Furloughed Employees Should Receive Full Redundancy Payments And Notice Pay

The Government have introduced the Coronavirus, Calculation of a Week’s pay Regulations 2020 effective from the 31st July 2020. It ensures furloughed employees receive statutory redundancy pay and statutory notice pay based on their normal pay if they were working, rather than a reduced furlough rate.

Employees made redundant with more than 2 years’ continuous service are usually entitled to a statutory redundancy payment calculated using their age, length of service and pay. The majority of employers have been paying furloughed employees statutory redundancy pay based on their normal pay, however a small minority have been using the furlough rate when calculating the average weekly pay. The government has now closed that ‘loophole’.

If the calculation date for statutory redundancy pay or statutory notice pay falls on or after 31 July 2020, the new regulations apply and any reduction in wages as a result of the employee being furloughed should be disregarded.

Where employees do not work regular hours or where pay varies with the amount of time or work done, the new regulations confirm employers will need calculate a week’s pay by reference to average earnings over a 12-week reference period pre-furlough.

The changes will also apply to a week’s pay calculations relating to:

• Compensation for unfair dismissal;

• Failure to provide a written statement of reasons for dismissal;

• Failure to comply with an order for reinstatement or re-engagement; and

• Remuneration for time off to look for employment or arrange training

Notably, the regulations do not appear to extend to any enhanced or contractual redundancy arrangements or where an employee has a contractual notice entitlement which is 7 days or greater than their minimum statutory notice entitlement. In these circumstances, it appears possible for employers to pay notice pay based on the reduced furlough rate. This is a complex area of the law and worth taking advice on.

The new regulations also do not affect the latest government guidance on using furlough grants to fund furloughed employees’ notice pay - see our previous article for more detail.

Hannah Pryce comments: 

“The new regulations provide further information to employers dealing with redundancies and notice pay for their furloughed workers. In most cases statutory notice pay and statutory redundancy pay should be paid at the employer’s normal rate of pay and not the furloughed rate. This becomes more complex where employees have variable hours and pay and where they are entitled to enhanced contractual notice pay and redundancy pay. If you require any further advice, please do not hesitate to get in touch with the team.”

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