Furloughed employees entitlement to full statutory payments protected under new law

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A new law introduced today (31 July 2020) will ensure that furloughed employees who are subsequently made redundant receive 100% of their notice and statutory redundancy pay, rather than it being based on their reduced furlough rate. In practice, this is only relevant to those employees with variable earnings, as those with fixed salaries should receive redundancy payments based on normal pay in any event.

The changes will also apply to other statutory payments, including basic award for unfair dismissal, statutory notice pay and remuneration for time off to look for employment or arrange training.  

The Regulations modify the calculation of a ‘week’s pay’ as defined by the Employment Rights Act 1996 for the purposes of statutory redundancy pay and other statutory payments. The application of the new provisions will depend on whether the employer has ‘normal working hours’ and, if so, whether remuneration ordinarily varies with the amount or timing of work undertaken.

For those with normal working hours, any wage reduction incurred due to being furloughed must be disregarded. If normal working hours do not apply, then a week’s pay will be calculated according to their ‘reference salary’ used for claiming furlough pay under the Coronavirus Job Retention Scheme, but without the cap imposed by the Scheme.

Employees with more than two years’ continuous service who are made redundant are normally entitled to a statutory redundancy payment based on length of service, age and pay, up to a statutory maximum.

Support provided by the Government to businesses through the furlough scheme will be tapered from August with companies being asked to contribute to payments made to staff. The scheme is set to close entirely by 31 October.

If you have any questions about the application of these new rules or any other employment issues then please do not hesitate to contact the team.