Furloughed Workers and Redundancy Payments

Employees with more than two years’ continuous service who are made redundant are usually entitled to a statutory redundancy payment that is based on length of service, age and pay, up to a statutory maximum.

The government said throughout the pandemic, it has urged businesses to do right by their employees and pay those being made redundant based on their normal wage, rather than their furlough pay, which is often less.

However, while the majority of businesses have done so, there are a minority who have not.

The new legislation, which comes into force on 31 July, will ensure that pay received in relation to statutory redundancy pay is calculated based on an employee’s normal pay, rather than furlough pay (potentially 80% of their normal wage).

Calculating statutory redundancy pay for employees relies on inputting average weekly pay, alongside other factors such as length of continuous service and the employee’s age.

Average weekly pay is usually worked out by adding the pay received over the 12 weeks up to when the employer notifies the employee they are being made redundant, and dividing by 12 to get the average.

This legislation ensures that employers must treat any weeks an employer spent on furlough over the 12-week reference period as if they were working, and on full (100%) pay.

The legislation does not impact any enhanced redundancy pay that may be stipulated in the terms and conditions of an employee’s individual employment contract, but applies to basic statutory redundancy pay entitlements.

It also covers other employment rights that rely on average weekly pay, including notice pay, unfair dismissal, and short-time working.

Alok Sharma, business secretary, said: ‘We urge employers to do everything they can to avoid making redundancies, but where this is unavoidable it is important that employees receive the payments they are rightly entitled to.

‘New laws coming into force today will ensure furloughed workers are not short-changed if they are ever made redundant – providing some reassurance for workers and their families during this challenging time.’

These changes will also apply to statutory notice pay, which is where employees must be given a notice period before their employment ends, varying from at least one week’s notice up to 12 weeks’ notice, depending on how long they have worked for their employer. During this notice period, employees must be paid.

The legislation ensures that notice pay is based on normal wages rather than reduced wages under the coronavirus job retention scheme (CJRS).

Other changes coming into force will ensure basic awards for unfair dismissal cases are based on full pay rather than wages under the CJRS.

‘Many employers will have been computing for these purposes at normal rates of pay but some, that are not well-resourced and frankly struggling, will have sought to capitalise on any residuary doubt around this issue. It is right to close this uncertainty down.’