HM Insights

Furlough Redundancy – New law for employees to receive full payment

On Thursday 30 July 2020, the Department for Business, Energy & Industrial Strategy announced that new legislation was to be introduced to ensure that furloughed employees receive statutory redundancy pay (and other statutory payments that are calculated on the basis of a 'week’s pay') based on their "normal" wages, rather than a reduced furlough rate.

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Coronavirus, Calculation of a Week’s Pay

The Employment Rights Act 1996 (Coronavirus, Calculation of a Week’s Pay) Regulations 2020 came into force on Friday 31 July 2020.

The Regulations mean that all furloughed employees who receive statutory redundancy payments, and/or statutory notice payments and/or unfair dismissal compensatory awards have those sums calculated on the basis of their full, normal rate of pay rather than any reduced rate they may have been receiving while on furlough under the Coronavirus Job Retention Scheme (CJRS).

Existing Rules

Under the existing rules, the method of calculating a week’s pay differs depending on a number of factors including whether the employee in question has normal working hours or not and whether their remuneration varies depending on the amount of work undertaken, or the time spent working.

New Legislation

The new legislation addresses these different situations, and provides different methods of calculation for each situation.

As mentioned above, this new way of calculating a week's pay will affect not only the calculation for statutory redundancy payments, but also will be relevant to other payments which are calculated using a week’s pay.

Specifically, the Regulations ensure that:

  • the statutory notice pay due to a furloughed employee is calculated on their full, normal rate of pay rather than any reduced rate they may have been receiving while on furlough; and
  • the statutory maximum compensatory award for unfair dismissal for any furloughed employee is calculated on their full, normal rate of pay rather than any reduced rate they may have been receiving while on furlough

Currently, a week's pay for employees with fluctuating hours/earnings is calculated based on the average of their last 12 weeks’ pay and the new legislation ensures that employers must treat any weeks an employee spent on furlough over the 12-week reference period as if they were working, and on full pay.  The fact an employee was receiving 80% pay at this time is irrelevant for the purpose of this calculation.

As the furlough scheme begins to wind down, this legislation will be welcomed by employees who are made redundant following a period of reduced furlough pay, who may otherwise have received a lesser statutory redundancy payment.  Since the outset of the CJRS there has been uncertainty over this point and this clarification is welcomed, if not unwelcome news for employers who have financial difficulties and are having to make significant cuts, to cope.  Since the beginning of the pandemic, the Government in Westminster and the Scottish Government have urged businesses to avoid redundancies wherever possible.  

Get in touch

If you've any queries about this, or any other employment related matter that could affect your business, our team of specialist employment lawyers can assist. Please contact us to discuss further.

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