Furloughed employees required to receive full redundancy under new law

Published: Friday 7 August 2020

A new law has been introduced with effect from 31 July 2020 to ensure that furloughed employees receive statutory redundancy and notice pay based on their ‘normal’ wage rather than their furlough pay.

An employee is entitled to statutory redundancy pay where they have been in continuous employment with an employer for two or more years. They are also entitled to a statutory notice period where the employee has been employed for one month or longer.  This is a minimum of one week but varies depending on length of service.

Whilst being furloughed, employees will have received up to 80% of normal pay (capped at £2,500 per month) unless the employer has chosen to top this up. The Government became aware that some employers were then using this reduced pay to calculate any statutory notice and redundancy pay.

The new legislation confirms that any reduction in pay due to being furloughed must be ignored when calculating the relevant statutory redundancy or notice pay.

For variable paid employees, average weekly pay based on the 12 weeks prior to receiving notice that they are being made redundant has to be taken into account. Where this period includes at least one week of furlough, the averaging must again be based on full pay rather than furlough pay even if they have been on furlough for the full 12 weeks.

Where the employer pays enhanced redundancy pay over and above the statutory requirement this element will not be impacted by the new legislation. 

If the employee continues to be furloughed whilst on notice, it is still possible to claim furlough pay under the coronavirus job retention scheme (CJRS), however, this will need to be topped up to the employees’ full rate of pay.  It is not possible, however, to claim under the CJRS where a payment in lieu of notice (PILON) has been paid.

As the new rules only came into force from 31 July 2020 and are not retrospective, any employees who have already received redundancy or notice payments prior to that date that have been based on furlough pay, will not be able to dispute.

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Katie Williams
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