Employees made redundant during furlough are entitled to statutory redundancy payments and statutory notice payments based on normal and not reduced furlough pay

In this OnPoint, we report on the legislation now enacted requiring employers to use an employee’s normal unreduced pay when making statutory redundancy and other payments to those whose employment is terminated while they are on furlough under the Coronavirus Job Retention Scheme (“the Scheme”).

Claiming under the Scheme for notice payments

Employees who have been furloughed under the Scheme will be in receipt of the reduced pay recoverable under the Scheme unless their employer has decided to top up their pay. There was for a while some uncertainty about whether employers could make employees redundant and reclaim their notice pay under the Scheme. However, it was eventually made clear that, whilst pay in lieu of notice and redundancy payments cannot be reclaimed, wages paid for statutory or contractual notice can be reclaimed under the Scheme subject to its limits and other provisions. The Government guidance confirms that an employer “can continue to claim for a furloughed employee who is serving a statutory or contractual notice period, however grants cannot be used to substitute redundancy payments."

Pay in respect of termination of employment during furlough

Many employers having to make staff whom they have furloughed redundant have in practice been basing the notice and redundancy payments they then need to make to the staff affected on normal pay rather than to apply the reduced furlough pay to which the employee is currently entitled and would otherwise continue to receive prior to the end of the Scheme. However, the Government believes that some employers have been taking the view that they are entitled to calculate statutory redundancy pay and other entitlements based on reduced furlough pay. The Government has now legislated to put beyond doubt that the calculation of a week’s pay for the purposes of statutory redundancy, notice and various other statutory rights must be made using the employee’s normal pay.

The Employment Rights Act 1996 (Coronavirus, Calculation of a Week’s Pay) Regulations 2020 (the Regulations) come into force today. The Regulations require employers to calculate statutory redundancy pay, statutory notice pay and various other statutory entitlements for employees who have been furloughed by reference to the normal pay that they would receive if they were working, and not to the reduced pay payable during furlough.

A week’s pay

The Regulations adapt the detailed statutory provisions which determine the calculation of a week’s pay to deal with the position of furloughed employees. It is important to note that, as do the existing statutory provisions, the Regulations distinguish between employees:

• whose normal working hours and remuneration do not vary with the amount of work done.
• whose normal working hours and remuneration vary with the amount of work done.
• whose normal hours and remuneration vary according to the time of the work.
• who have no normal working hours.

For example, the Regulations provide that, for employees whose normal working hours and remuneration do not vary, any reduction in the amount payable as a result of the employee being furloughed must be disregarded. For employees who do not have normal working hours, the Regulations provide that a week's pay is calculated according to the individual’s full 'reference salary' for the purposes of a claim for reimbursement of furlough pay under the Scheme i.e. ignoring the cap imposed under the Scheme for the purposes of calculating what an employer can reclaim under the Scheme.

Other rights

The Regulations require normal pay to be used in accordance with their detailed provisions when calculating various other statutory employment rights referable to a week's pay. These include the basic award for unfair dismissal, remuneration for time off to look for employment or arrange training, compensation for failure to provide a written statement of reasons for dismissal, and compensation for failure to comply with an order for reinstatement or re-engagement.

Importantly, these rules established by the Regulations also apply to the calculation of pay in respect of an employee’s notice period where the employee is entitled only to statutory minimum notice or is contractually entitled to less than a week more than the applicable statutory minimum notice period.

The requirements of the Regulations do not extend to enhanced or contractual redundancy arrangements or contractual notice periods of more than a week longer than the individual’s minimum statutory notice entitlement. The treatment of employees in relation to such entitlements may need careful consideration by reference to the specific contractual position and the approach which the employer wishes to take.

Conclusion

The Regulations are complex and, whilst they may reflect common practice to make termination payments based on pre-furlough pay, need to be applied carefully. The rules that they implement need to be borne in mind along with the other issues involved in implementing restructuring exercises arising as a result of the impact of the COVID-19 pandemic.