Furloughed employees to receive redundancy pay based on 100% of normal wage costs!

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30 July, 2020

The Department for Business, Energy & Industrial Strategy has announced this morning (Thursday 30 July 2020) that it is bringing in a new law to ensure that all furloughed employees will receive Statutory Redundancy Payments calculated based on 100% of their normal pay, rather than their furlough pay.

The Employment Rights Act 1996 (Coronavirus, Calculation of a Week's Pay) Regulations 2020, which can be found on https://www.legislation.gov.uk/uksi/2020/814/made was published today, which will come into force tomorrow (31 July 2020).

Throughout the pandemic, the government has urged businesses to do right by their employees and pay those being made redundant based on their normal pre-furloughed wages, rather than their furlough pay, which is often less. The majority of businesses have done so, however, there are a minority who may not have done this, in order to save on costs. For this reason, the government felt it necessary to introduce legislation to protect workers' rights in this regard.

Employees with more than two years' continuous service who are made redundant are usually entitled to a statutory redundancy payment that is based on length of service, age and weekly pay, up to a statutory maximum of £538.

Alok Sharma, Business Secretary said:

"We urge employers to do everything they can to avoid making redundancies, but where this is unavoidable it is important that employees receive the payments they are rightly entitled to."

There may however still be some issues for employees with fluctuating hours/earnings as their redundancy pay will be calculated based on the average of their last 12 weeks' pay - which, if they've been furloughed in some parts under the flexible furlough scheme, is likely to be less than 100%.

However, in those cases, the amount of weekly pay that should be taken into consideration is the amount that would have been payable if the full amount of the employee's wages had been used and the 80% cap or £2500 cap did not apply. Any weeks where there was no pay should be disregarded and earlier weeks should be taken into account to bring this up to a full 12-week average. These rules are somewhat similar to the rules on calculating holiday pay, albeit the reference period does not coincide with the new 52-week reference period for holiday pay.

These changes will also apply to Statutory Notice Pay, which is where employees must be given a notice period before their employment ends, varying from at least one week's notice up to 12 weeks' notice, depending on how long they have worked for their employer. During this notice period, employees must be paid. This legislation will also ensure that notice pay is based on normal wages rather than their wages under the Coronavirus Job Retention Scheme.

For more information contact Trishna Modessa-Parekh in our Employment & HR department via email or phone on 01772 220215. Alternatively send any question through to Forbes Solicitors via our online Contact Form.

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