Furloughed employees to receive full statutory redundancy and notice pay
In an amendment to the law, which came into force on Friday, if a furloughed employee is made redundant and is entitled to a statutory redundancy payment (‘SRP’), this payment must be based on their normal wage, not their furlough rate of pay (which could be 80 per cent of normal pay). The same entitlement also applies to statutory notice pay. We have explained the amendments in more detail below.
Statutory redundancy pay
As a reminder, an employee is entitled to a SRP if they have more than two years’ continuous service with their employer. If entitled, the amount is calculated using a formula based on their age, weekly pay and length of service. There is a statutory maximum cap on weekly pay of £538.
The change in the law ensures that employees who are made redundant following a period of furlough will not receive a lower SRP. The amendment to the legislation provides a mechanism by which SRPs should be calculated. In summary:
— Where an employee has normal working hours, if the “calculation date” for redundancy is on or before 31 October 2020 (the last day of the Coronavirus Job Retention Scheme), they will be entitled to their normal pay, disregarding any reduction in pay due to them being furloughed.
— Where an employee does not have normal working hours or their pay varies, you should continue to calculate their weekly pay by using their average pay over the last 12 weeks. However, where any of those 12 weeks have been spent on furlough, these should be disregarded and earlier weeks should be taken into account to bring the total number of weeks up to 12, from which you then calculate the average weekly pay.
Statutory notice pay
The amount of statutory notice pay an employee is entitled to depends on how long they have worked for their employer. Where an employee has been employed for more than one month but less than two years, they are entitled to at least one week’s statutory notice. Thereafter, an employee is entitled to one week’s statutory notice for each year of continuous employment up to a maximum of 12 weeks’ notice.
Where an employee’s contractual notice exceeds the statutory minimum notice by at least one week, the rules have not changed. This means an employer could still pay the lower furlough rate of pay.
However, if an employee is only entitled to statutory notice, the amendment to the law means that the employee must be paid their normal salary for their notice period, not their furlough rate of pay.
These are important, but complex changes to be aware of and implement in your business. Our team can help. Please get in touch if you require advice.Back to Legal Updates →