New legislation applies from 31 July 2020 to ensure that furloughed employees receive statutory redundancy pay based on their normal wages, rather than a reduced amount based on their furloughed pay.
Business owners who are considering their options – to bring back furloughed staff or consider redundancy – are now obliged to consider new legislation that clarifies the amount of redundancy pay is not based on any reduced, furloughed pay, but on employees basic, normal wages.
In a press release issued 30 July 2020, the Department for Business, Energy & Industrial Strategy said:
Throughout the pandemic, the government 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.
The majority of businesses have done so, however, there are a minority who have not.
Today (from 31 July 2020) the government will bring in legislation to protect workers and ensure all furloughed employees who are being made redundant receive their full entitlement.
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.
This legislation, which will come into force from tomorrow (Friday 31 July), will ensure that employees who are furloughed receive statutory redundancy pay based on their normal wages, rather than a reduced furlough rate.
They went on to say:
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.
This legislation will also ensure that notice pay is based on normal wages rather than their wages under the 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.
Employers should also note that:
• an employee will be entitled to statutory redundancy pay if they have been working for their employer for 2 years or more,
• 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
• this 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
• the legislation also covers other employment rights that rely on average weekly pay, including notice pay, unfair dismissal, and short-time working
Obviously, any decisions regarding the process to unwind the furlough scheme need to consider the wider implications for your business. We invite business readers considering their options, and who are undecided on the action they should take, to call, so that we can help you examine your choices, and if necessary, crunch the numbers to flex your existing business plans.
- Ready for tax payments next month? - June 17, 2021
- Beware bogus contacts from HMRC - June 15, 2021
- VAT Deferral Scheme deadline - June 10, 2021
- Outlook for employment - June 9, 2021
- The 7-year rule - June 3, 2021
- Tax Diary June/July 2021 - June 2, 2021
- Importing goods for the first time? - June 2, 2021
- Furlough scheme ends September 2021 - June 2, 2021