What do we already know?
As explained in our April Newsletter All Things Furlough – FAQS and what we know so far, the Coronavirus Job Retention Scheme (‘CJRS’) has been a temporary scheme funded by the Government to create an alternative to implementing redundancies, lay-offs, unpaid leave or other measures employers might otherwise need to instigate during the current crisis.
We updated you in our July and August Newsletter Furloughed employees and Redundancy that the Government introduced new rules for the CJRS from 31 July 2020, to ensure that statutory payments for furloughed employees (of particular importance being statutory redundancy pay) are based on their normal pay, rather than their reduced furlough pay.
We provide more detail of this legislation and how to calculate such payments below:
Calculating Redundancy Pay:
- For employees with normal working hours where pay doesn’t vary with the amount of work done, the new rules only apply where the calculation date for redundancy falls on or before 31 October.
- For employees whose pay varies with the amount or time of work done, such as piece workers, shift workers or those with no fixed hours, their redundancy pay is averaged out over the 12 weeks before the calculation date for redundancy. Under the new rules, when calculating an ‘average week’s pay’, employers must treat any weeks an employee spent on furlough as if they were working on their pre-furlough wage.
- The Regulations apply to the basic statutory redundancy pay (SRP) and do not affect any enhanced redundancy payments scheme that an employer may provide.
- These rules will not apply to employees whose employment terminated for redundancy before 31 July, except if their statutory notice would have expired on or after 31 July if full statutory notice was given.
- These rules do not affect the statutory maximum on a week’s pay for SRP purposes, which is currently £538.
Where employers need to make redundancies during furlough leave, the CJRS can continue to be used to fund employees’ notice pay where they are serving out their notice still in employment. However, the CJRS cannot be used to find the redundancy payment itself. Nor can it be used to fund any payment in lieu of notice. Employers making redundancies amongst furloughed staff should therefore chose carefully between opting for notice being served out in employment (on furlough) or paid in lieu, since the financial ramifications are very different.
Calculating Other Statutory Entitlements:
The Regulations are not limited to statutory redundancy pay, as the new law also impacts other employment rights which are calculated based on an ‘average weekly pay’ including:
- Statutory Notice Pay (when served after 31 July 2020): under the Regulations, an employees’ notice pay must be based on their normal wage, rather than any reduced furlough wage. For employees who are entitled to contractual notice of at least one week more than the statutory minimum, the new rules do not appear to apply. However, our advice is always to pay full pay to any employee serving notice (or being paid in lieu) since we view the existing (pre-pandemic) law as already requiring temporary pay reductions not to count for the purposes of notice pay. In this respect, the new regulations merely confirm this on a statutory footing.
- Unfair dismissal awards: the new Regulations ensure that basic awards for unfair dismissal claims are calculated based on a furloughed employee’s full wage, rather than any reduced furlough wage. Again, we consider this a statement of the (pre-existing) obvious, although it is helpful to have it confirmed in statute.