Furloughed employees entitled to redundancy and notice payments based on full pay

The Government has announced it is bringing in legislation to ensure that from tomorrow furloughed employees will be entitled to redundancy and statutory notice payments based on their full rate of pay, not their furlough rate of pay.

Notice payments

Statutory provisions require employers to pay employees during the statutory minimum notice period where they are ready and willing to work but no work is provided – so this will apply to furloughed employees. However, the statutory provisions only apply where the contractual notice the employer has to give is the same as the statutory notice period or less than a week longer.

When the statutory provisions do not apply, i.e. the employee’s contractual notice period is at least one week longer than the statutory minimum, notice pay will be calculated in accordance with the employment contract.

Statutory redundancy payments

Employees with two or more years’ service at the date the employment terminates are entitled to statutory redundancy payments, calculated by reference to their age, length of service and a week’s pay, subject to a statutory cap.   

Calculating payments

The way that the statutory payments are calculated can be complicated and depends on whether employees have normal working hours and on whether they have fixed or variable pay.  

Where an employee has normal working hours and a fixed salary, the payments are based on the salary for working those normal working hours. The legislation clarifies that normal working hours includes furloughed hours and that when calculating the payment you ignore any reduction to pay as a result of furlough.

Where an employee does not have both a fixed salary and normal working hours, essentially the payments are calculated based on an average of their remuneration over the previous 12 weeks, ignoring weeks when there was no pay. This calculation results in statutory notice and redundancy payments for furloughed employees being less than had they been working normally. The legislation changes this to ensure that employers treat any weeks an employee spent on furlough over the 12-week reference period as if they were working and on full (100%) pay.  However, for employees who do not have normal working hours (such as those on zero hours contracts), the legislation requires the employer to use the employee’s reference salary under the coronavirus job retention scheme for the calculation (i.e. the higher of their wages earned in the corresponding calendar period in the 2019/20 tax year and the average wages payable in that tax year).

Other payments

The legislation also applies to other statutory payments calculated by reference to a week's pay, including the unfair dismissal basic award and additional award (for failure to reinstatement or reengage) and  a payment awarded for failing to provide written reasons for dismissal. 

This is a complex area and the correct amount of notice and redundancy pay needs to be worked out on a case by case basis.  If you would like to discuss this, please get in touch with your usual Doyle Clayton contact or email info@doyleclayton.co.uk