Redundancy pay and notice pay – New laws for furloughed employees

Last week, the government passed new regulations to ensure that furloughed employees receive statutory redundancy payments and statutory notice pay calculated in accordance with their normal wages and not the wages they were receiving whilst on furlough.

The Employment Rights Act 1996 (Coronavirus, Calculation of a Week’s Pay) Regulations 2020 (the Regulations) came into force on Friday 31 July 2020.

When calculating statutory redundancy payments or statutory notice pay, employers must refer to the calculations for a “week’s pay” set out in the Employment Rights Act 1996.  The Regulations act so as to amend these calculations in the case of an employee who is or has been furloughed.

How to calculate a “week’s pay” under the Regulations

The calculations for a week’s pay under the Regulations are complex and vary depending on the pattern of work/ pay.  In broad terms, the calculations are as follows:

• Normal working hours and amount of pay does not vary with amount of work done – If the calculation date falls on or before 31 October 2020, the amount which is payable by the employer under the employee’s contract of employment for the employee’s normal working hours disregarding any reduction in the amount payable as a result of the employee being furloughed.
• No normal working hours or where amount of pay varies with the time of or amount of work done – Pay is averaged over the last 12 weeks disregarding any weeks when there was no pay and disregarding any reduction in the amount payable as a result of the employee being furloughed.

Application of the Regulations

As already stated, the Regulations apply to the calculation of statutory redundancy payments and statutory notice pay.  They also apply in relation to other claims which are based on the “week’s pay” principles, such as:

• Remuneration for time off to look for employment or arrange training;
• Compensation for failure to provide a written statement of reasons for dismissal;
• Compensation for failure to comply with an order for reinstatement or re-engagement; and
• Basic awards for unfair dismissal.

The calculations will also apply to contractual notice pay where the contractual notice is not at least a week more than the employee’s statutory minimum notice entitlement.  The position is less clear where the employee’s contractual notice period is at least a week more than their statutory minimum notice entitlement and we would recommend advice is sought where employers are considering paying employees less than their normal pre-furlough remuneration for a period of notice.

For more information on this article contact a member of the Employment team.