We reported yesterday that from today all furloughed employees will be entitled to receive redundancy payments based on 100% of their normal pay, rather than any reduced furlough rate received under the Coronavirus Job Retention Scheme (CJRS).
This follows the government’s comment on 30 June 2020 that to date it “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”. Aware that some employers had been calculating statutory notice and redundancy pay against furlough pay and that some employees were being “short-changed” as a result of this “loophole” the government has introduced these Regulations.
The new legislation, The Employment Rights Act 1996 (Coronavirus, Calculation of a Week's Pay) Regulations 2020 (“the Regulations”), comes into force today, 31 July 2020 and focuses on the calculation of a “week’s pay” under the Employment Rights Act 1996.
So, what does this mean for Employers?
Whilst the principle behind the Regulations seems straightforward, the reality is that the Regulations are complex and nuanced in their application.
The precise calculations will need to be approached cautiously and will be fact specific. However, in broad terms statutory notice and redundancy pay should be based on 100% of normal pay, and not on furlough pay. This means that employers about to embark on a redundancy programme affecting furloughed employees will need to ensure that the new regulations are followed when calculating notice and redundancy pay. Not all employers will have budgeted for this extra cost.
Some practical questions arising include:
- whether it will have retrospective effect for employees who have already been made redundant?
- do employees currently serving redundancy notice qualify for the higher payment?
- how will this work where the contractual notice entitlement exceeds the statutory minimum notice? Will the employee be entitled to the higher contractual payments?
- what if the employer can’t afford to pay the higher redundancy payments?
If you have any questions about the application of the Regulations then please contact your usual contact in our Employment team
Further information on planning a redundancy and the impact of new regulations will be available at our webinar on Redundancy and Restructuring next Thursday, 6 August 2020. For more information and to book please click here.
