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New notice and redundancy pay rights for furloughed employees

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The Government is not only using the Job Retention Scheme bonus as a means to persuade employers to retain their furloughed employees, last week it also introduced new legislation to prevent employers paying reduced termination payments to furloughed employees.

The Employment Rights Act 1996 (Coronavirus, Calculation of a Week’s Pay) Regulations 2020 came into force on 31 July 2020 having only been published 24 hours earlier. 

The speed of its implementation was partly due to the risk that some employers may have sought to avoid the new protective measures by serving notice on their employees early. 

Now in force, if furloughed employees are given notice of redundancy both their statutory notice and redundancy pay will have to be based on their full ‘normal’ wages and not their reduced furlough wage. 

How does the act work to protect employees?

This has been achieved by amendments to the statutory provisions that regulate how a ‘weeks pay’ is to be calculated. Essentially employees with normal hours of work shall have their notice and redundancy pay entitlement calculated by reference to the rate they would have received had they been working and not on furlough.

Whilst employees with variable hours shall have their notice and redundancy pay entitlement calculated by reference to the pay rate used to calculate their grant payments whilst furloughed i.e. the employee’s average wage over the previous tax year. 

In addition to notice and redundancy payments these changes will also impact the calculation of:

  • Basic awards of compensation in unfair dismissal claims;
  • Compensation awards for failing to provide a written statement of reasons for dismissal;
  • Additional awards that have been made where there has been a failure to comply with an order for reinstatement or re-engagement; and
  • Remuneration for time off to look for employment or arrange training whilst under notice of redundancy.

The legislation also sets out how a week’s pay is to be calculated for the purpose of deciding whether an employee is taken to be on ‘short-time’ for the purposes of calculating when they might be eligible to make a claim for statutory redundancy pay. 

However, these changes do not impact the calculation of notice pay that is more generous than the statutory scheme. Where the employee is entitled to receive contractual notice that is at least a week more than the statutory minimum then the restrictions on how to calculate notice pay do not appear to apply.    

Important note

It is also important to note that these changes do not impact of the current statutory cap on a week’s pay of £538 which will still apply when calculating redundancy payments, basic awards or additional awards.  

For more guidance on the Job Retention Bonus, read our latest insight.

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