The government has passed the Employment Rights Act 1996 (Coronavirus, Calculation of a Week’s Pay) Regulations 2020 which come into force on 31 July 2020. The new regulations will ensure that furloughed employees who are made redundant receive statutory redundancy and notice pay based on their “pre-furlough” rate of pay.
Under the furlough scheme, many employees agreed to reduce their pay to the amount covered by the government grant under the Coronavirus Job Retention Scheme. This means that the amount of a “week’s pay” for many furloughed employees is lower than it was pre-furlough.
The government announcement regarding the new regulations noted that it had “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” and that “the majority of businesses have done so, however, there are a minority who have not.”
The introduction of the regulations means that where the calculation date for statutory redundancy pay or statutory notice pay falls on or before 31 October 2020 (the date on which the Coronavirus Job Retention Scheme is due to come to an end) and employees have normal working hours, a week’s pay for the purpose of calculating a statutory redundancy payment must be based on what a week’s pay was before an employee went on furlough. If contractual notice is not at least one week more than statutory minimum notice, this rule will also apply. However, where contractual notice periods exceed the statutory minimum by at least one week, the new regulations do not prevent employers from paying a lower rate of pay for the contractual notice period.
Where employees have no normal working hours, or whose pay varies with the amount of or time of work, pay is normally averaged over the last 12 weeks. Where this period includes at least one week during which the employee was furloughed, the new regulations will apply so that the averaging is based on full rather than reduced pay.
A week’s pay for the purpose of calculating a statutory redundancy payment is currently capped at £538 (the equivalent of earning £27,976 per annum). This change will only affect statutory redundancy payments and not more generous contractual schemes.
The new regulations do not have retrospective effect so any redundancy or notice payments already made before 31 July 2020 will not be covered.