Furloughed employees to receive full statutory redundancy and notice payments
New regulations have been brought into force to ensure that furloughed employees receive both statutory redundancy pay (SRP) and statutory notice pay (SNP) based on their normal pay, rather than on their reduced furlough pay. What’s the issue here?
On redundancy, an employee is entitled to receive the greater of their contractual notice period or statutory minimum notice. Under the Employment Rights Act 1996 (ERA), statutory minimum notice here is one week for each complete year of employment, up to a maximum of twelve weeks. If the employee has been employed for two continuous years or more, they’re also entitled to receive an SRP, calculated according to their age, length of service and their average “week’s pay”, up to a statutory maximum cap.
As the law previously stood, for those employees with no normal working hours, SNP and SRP could be calculated by averaging their pay over the previous twelve weeks in which remuneration was payable to them, and this might have included both furlough and non-furlough weeks (or indeed all furlough weeks).
The Employment Rights Act 1996 (Coronavirus, Calculation of a Week’s Pay) Regulations 2020, which came into force on 31 July 2020, have amended the ERA to provide that where a furloughed employee is made redundant, both SNP and SRP are to be calculated based on their normal pay, rather than on their reduced furlough pay. Essentially, the legislation ensures that you must treat any weeks an employee spent on furlough over the twelve-week reference period as if they were working on full pay - and for those without normal working hours, a “week’s pay” in furlough weeks is to be calculated according to their reference salary for claiming furlough pay under the Coronavirus Job Retention Scheme (CJRS), but without the CJRS cap.
In addition, the legislation covers other statutory rights and entitlements for furloughed employees that depend upon calculating a “week’s pay”. These are:
compensation for unfair dismissal
compensation for failure to provide a written statement of reasons for dismissal
compensation for failure to comply with an order for reinstatement or re-engagement
remuneration for time off to look for employment or arrange training on redundancy
the assessment of whether an employee is to be taken to be on short time working for claiming a SRP (which applies when their remuneration for the week is less than half a week’s pay).
The legislation does not, however, affect any enhanced redundancy payments, nor pay for any contractual notice period which is over and above statutory minimum notice.
Employees can still be made redundant whilst on furlough and you can use the CJRS grant towards paying for their statutory or contractual notice pay if they remain on furlough during their notice period, but you’ll then need to fund the required top-up notice pay. CJRS grants can’t be used to fund either statutory or enhanced redundancy payments.
The issue is that it was possible to calculate statutory redundancy and notice pay based on furlough pay in certain cases. The change to the law means that furloughed employees who are made redundant must now receive statutory redundancy and notice pay based on their normal wages. In essence, when doing the calculations, any reduction in the amount of wages payable to the employee as a result of their being furloughed must be disregarded.