Furloughed employees should not be ‘short-changed’ on statutory notice and redundancy pay, but the calculation is, once again, complex.
The UK Government has introduced legislation which sets out how a ‘week’s pay’ should be calculated for employees who were furloughed under the Job Retention Scheme (JRS). This legislation aims to ensure that furloughed employees entitled to certain statutory payments (including statutory redundancy and notice pay) receive payments based on their ‘normal’ wages rather than on their reduced furlough rate of pay. This legislation is in force in England, Scotland and Wales from 31 July 2020. It does not have retrospective effect and so will apply to payments and awards made on or after this date only. Northern Ireland is expected to introduce equivalent legislation at some point in early August.
Due to the way in which a week’s pay is usually calculated under employment law, there was a risk that furloughed employees would only be entitled to receive certain statutory entitlements (including statutory redundancy and notice pay amongst others) at their furlough rate of pay. This legislation aims to avoid this situation and ensure that any employee who is furloughed and then made redundant will not be ‘short-changed’ on their entitlements.
Determining employee entitlements remains difficult and the specific calculation to be used will still vary depending on whether an employee has:
In addition, calculating notice pay is subject to some nuances. In particular, the legislation is silent on contractual notice entitlements. It is possible that employees whose contractual notice entitlement exceeds their statutory notice entitlement (based on length of service), could fall outside the protection in this new legislation. This is unlikely to have been intentional and we anticipate this may be revisited by the Government but should be borne in mind pending clarification.
While the JRS legislation and other Government initiatives are focussed on limiting redundancies as far as possible, it is acknowledged that redundancies for some will be unavoidable and this legislation focusses on protecting furloughed employees in that situation. However, it remains important that employers continue to consider the effect on their reputation and brand of the decisions they make in their use of the JRS, including, any decision to make employees redundant.
See our updated Q&A for further details on the Job Retention Scheme.
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