New law introduced affecting redundancy and notice pay calculations for those on Furlough
06 August 2020
On 30 July 2020, the UK Government announced the introduction of legislation with effect from 31 July 2020 to ensure that furloughed employees receive statutory redundancy pay based on their normal wages, rather than a reduced furlough rate. These changes currently apply to Great Britain only but are expected to be extended to Northern Ireland later in August 2020.
Although Government guidance had previously encouraged employers to calculate furloughed employees’ redundancy pay on their normal pay rather than their reduced furlough rate of pay, there was no legal requirement on employers to do so. It is reported that many employers took advantage of this legal loophole which has left employees arguing they have been “short changed”.
In response, the UK Government has introduced The Employment Rights Act 1996 (Coronavirus Calculation of a Week’s Pay) Regulations 2020 (the “Regulations”). The Regulations protect furloughed employees who are being made redundant by making it a legal requirement for employers to calculate statutory redundancy entitlement based upon an employee’s normal weekly pay prior to the furlough period.
The Regulations also require employers to calculate statutory notice pay using an employee’s normal pay rather than their reduced furloughed rate of pay.
Other changes coming into force under the Regulations will affect basic awards for unfair dismissal claims with the requirement to calculate such awards on the basis of an employee’s full pay rather than their reduced furlough pay.
Please note that the Regulations do not impact enhanced redundancy payments that may be stipulated in an employee’s contract of employment and the changes will apply to basic statutory redundancy pay entitlements only. Therefore, if an employee is receiving an enhanced redundancy payment beyond their statutory redundancy entitlement, it may be possible to for the enhanced payment to be calculated on the basis of their reduced furlough rate of pay however we would advise you to seek specific legal advice on this issue.
The Regulations will only apply to redundancy and notice payments from 31 July 2020 onwards to employees wholly or mainly employed in Great Britain and will not impact upon those payments which have been made prior to this date.
The Department for the Economy in Northern Ireland has confirmed that the changes being brought into effect in England, Wales and Scotland by the Regulations will be extended to Northern Ireland and come into operation in early August 2020. We will provide a further update on this expected amendment as soon as the effective date is confirmed.
If you have any questions on how this change may affect your business or if you want to know more about how to calculate normal pay for the purposes of statutory redundancy or notice pay entitlement please contact a member of the Employment Team.
*Please note that this information is for guidance purposes only and does not constitute, nor should be regarded as, a substitute for taking legal advice that is tailored to your particular circumstances.