The government has announced today that it is introducing a new law which will require that redundancy pay for employees on furlough leave is based on their normal rate of pay.
The government has said that it hoped employers would pay employees’ redundancy pay based on their normal wages (rather than any reduced rate during furlough leave). However, the government’s view is that many employers are not doing this and, therefore, it is introducing legislation to remedy the situation.
All employees with at least two years’ continuous service are entitled to redundancy pay if dismissed because their role has been made redundant.
In brief, redundancy pay is based on the wages that an employee normally earns when given notice of redundancy. If pay fluctuates (which would likely be the case if an employee is on furlough leave) pay is based on average earnings over the previous 12 weeks. This means that most employees on furlough leave would receive a lower redundancy payment than if they were made redundant before being placed on furlough.
Under the new legislation, the same principles will apply to statutory notice pay, which will also be based on normal wages rather than furlough pay.
Presumably this will apply regardless of whether notice is worked or a payment in lieu of notice is made.
It does not appear that the new rules will apply to contractual notice pay. So employees receiving reduced pay whilst on furlough could have the contractual element of their notice calculated on the basis of their reduced wage.
The government has, however, stated that the new requirements will not affect any enhanced redundancy payments made under any arrangements agreed between employers and employees. So, employees’ enhanced redundancy payments, beyond the statutory scheme, can still be based on their reduced furloughed pay.
The government has also said that the calculation of a week’s pay for the purpose of the ‘basic award’ in unfair dismissal claims will be protected in a similar way. This will be based on ‘normal’ wages rather than reduced wages during furlough leave.
Legislation implementing these changes is expected shortly. We will update as further information becomes available.
You can follow our specialist employment law Twitter feed at @TLT_Employment
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at July 2020. Specific advice should be sought for specific cases. For more information see our terms & conditions.
Employment Law Focus PodcastRead more
'New' flexible furlough and phase outRead more
Scale-up Insights episode six: Employee incentivesRead more
Is employee ownership right for your business?Read more
The rise of the employee ownership modelRead more
Employee ownership is on the rise, but should your business follow...Read more
As businesses adjust to new ways of working and plan for an uncertain future, we keep track of the emerging legal and regulatory issues.Read more
Keep on top of the employment law issues that matter most to you and your business with our new podcast.Read more
Keeping you up to date with the latest guidance on regulatory change and legal impact of the coronavirus pandemic.Read more
While future trading relationship with the EU is negotiated, we will be in a 'status quo' transition period until 31 December 2020. Follow our latest updates.Read more
Our Senior Managers Regime hot topic features news and insight to help banks, building societies, investment firms and UK branches of foreign banks prepare for the new regime.Read more
The clock is ticking for firms to prepare for moving from LIBOR to sterling risk-free rates. Follow our insights and events for strategic advice.Read more
We approach a brave new world of Gigabit full-fibre fixed communications, 5G mobile technologies, data driven markets enabled by true AI, with the potential for huge commercial and social growth and benefits. Follow our...Read more
Open Banking is driving innovation in banking and customer experience but also presents new challenges around security and data protection.Read more
As the UK moves towards a carbon neutral future, electric vehicles are the new watchword. We explore what this means for the energy market and investors through a series of legal insights.Read more
We advise businesses on implementing all types of short term and long term incentive arrangements, salary sacrifice and exchange programs. We have an in-depth knowledge of employee tax, which allows us to ensure that the arrangements implemented are fit for purpose.Read more