New law ensures furloughed employees made redundant don’t miss out on correct pay

The past few months have been difficult for both employers and employees with many struggling financially. In response to the Coronavirus outbreak legislative change has happened at a faster rate than ever before and last week saw the introduction of a new law to ensure employees who have been furloughed and are then made redundant receive the pay they are entitled to. 

Despite government support, increasing numbers of employers are faced with making redundancies, however the way some employers have calculated statutory redundancy pay has meant that furloughed employees have lost out. Some employers have made staff redundant whilst on furlough and have calculated their weekly wage as the furloughed wage i.e. 80% with the £2500 per month cap and not the actual pre-furlough wage i.e. 100% of their salary. 

A new law introduced on 31st July aims to ensure employees furloughed under the Coronavirus Job Retention Scheme receive redundancy payments at 100% of their normal pay, rather than a reduced furlough rate. 

Employees with more than 2 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 new Employment Rights Act 1996 (Coronavirus, Calculation of a Week’s Pay) Regulations 2020 aim to make it clear to employers how redundancy pay for furloughed employees should be calculated to ensure that employees receive the payments they are rightly entitled to.

Under the new legislation, for employees who have normal working hours that do not vary, employers must treat any weeks an employee spent on furlough over the 12-week reference period as if they were working, and on full (100%) pay. The weekly cap of £538 per week still applies. 

For employees furloughed who do not have normal working hours under their contract of employment, the weeks wage for redundancy will be calculated as the amount that would have been payable to the employee in accordance with the Coronavirus Job Retention Scheme i.e. the actual income on the furlough scheme. 

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

For more information about redundancy read our article ‘Making staff redundant – key steps you must follow’.