Redundancy After Furlough

What is my Weekly Pay?

As the UK emerges from lockdown, more and more businesses are beginning to make their employees redundant following a period of Furlough on the Coronavirus Job Retention Scheme (CJRS). For some employees, their weekly wage may have been reduced, either by the wage cap or a reduction from 100% to 80%. If they are now being made redundant, how should their payments be calculated for the purpose of redundancy?

Given this has been a grey area since the start of the scheme, employers and employees alike can now be certain about these payments following the Employment Rights Act 1996 (Coronavirus, Calculation of a Week’s Pay) Regulations 2020, SI 2020/814 on 29 July 2020 which came into force on 31 July 2020. 

Statutory redundancy payments are usually calculated on the basis of one weeks’ pay. This weeks’ pay is calculated by averaging the earnings per week over the 12 weeks before the day the redundancy notice was received. This calculation of a week’s pay is also used for the calculation of statutory notice pay, statutory holiday pay under the Working Time Regulations, and the statutory maximum compensatory award for unfair dismissal. 

The legislation has now clarified that, rather than including a reduction of salary due to the CJRS, that the weeks’ pay is to be calculated based on their normal wages rather than at a reduced furlough rate which is a fair outcome for the employee. There are specific calculations depending on whether the employee has normal working hours and whether the remuneration varies with that or varies (or does not vary) according to the amount of work that has been done. 

As this legislation changes the way the weeks’ pay is calculated, this means that accordingly the calculations for statutory notice pay and the statutory maximum compensatory award for unfair dismissal are also calculated on their full rate of pay rather than a reduced rate they may have been receiving for furlough. 

Unfortunately for those that have had already been made redundant following furlough but prior to this legislation, it is possible that statutory redundancy pay may have been calculated on a reduced rate of weekly pay due to furlough. These employees may have to bring an employment tribunal claim in order to enforce their rights. 

Another common change to employee’s terms at the start of the pandemic was an agreement to short-time working, meaning that they may have agreed to a drastically reduced wage in order to keep their job. As a result, statutory redundancy pay calculated under those shorter hours and therefore a reduction from their usual rate of pay, will unfortunately not be affected by this change. For those employees, there is nothing in the regulations to assist.

The legislation has at least been helpful for some and brought much-needed clarity for businesses and employment lawyers alike. If you require legal advice on your redundancy, do not hesitate to contact A City Law Firm for fixed-fee advice.