Furlough redundancy pay: what the government’s new law means for you
Despite the best efforts of the government’s Coronavirus Job Retention Scheme (CJRS), many businesses are struggling. From this month, employers have to pay the NI and pension contributions of furloughed workers. In September and October, they will have to top up their wages by 10% and then 20%. In November the furlough scheme ends. So, it’s little wonder than some businesses are reluctantly making employees redundant. However, if you are faced with this tough decision, you need to know about a new law about furlough redundancy pay that was introduced last week.
Furlough redundancy pay changes
On Thursday 30 July, the law changed to ensure that furloughed employees receive redundancy pay based on their normal wage. You can’t now calculate using the reduced pay they got during furlough.
Throughout the pandemic, the government has encouraged employers to calculate redundancy pay this way. And while most firms have, a number have not.
Hence this new law. If you need to make redundancies, the key things you need to know about the legislation are as follows:
- Any employee who has worked for you for 2 years or more is entitled to statutory redundancy pay
- Statutory redundancy pay must be calculated using the employee’s normal pay, not the amount (normally 80%) they have received during furlough.
- The new law applies to basic statutory pay entitlements. It does not affect any enhanced redundancy pay that might be specified in a worker’s contract.
Impact on other employment rights
The new legislation doesn’t just cover furlough redundancy pay. It also covers the following employment rights that rely on average weekly pay calculations:
- Statutory notice pay. You must give employees a notice period before their employment ends. This normally ranges from 1 to 12 weeks (depending on how long they have worked for you). During this period, you must pay workers notice pay that is based on their normal wages, not on the pay they received under the furlough scheme.
- Unfair dismissal. Basic awards for these cases are now based on full pay, not CJRS wages.
- Short-time working. This is a slightly more complex area, but again any necessary calculations need to be based on full pay.
Given the huge economic impact of the coronavirus pandemic, avoiding redundancies is often impossible. However, it is worth exploring your options before you make a final decision. For example, the Coronavirus Job Retention Bonus will pay £1,000 to employers who rehire furloughed employees and employ them continuously until 31 January.
Alternatively, the government has published alternatives you can consider before making redundancies. These include seeking applicants for voluntary redundancy or early retirement, restricting overtime, introducing short-time working and not using casual labour. ACAS also has a similar list of suggestions.
If you would like to discuss your options, we strongly recommend you talk to an employment specialist. Your account manager at THP can also help you base your decisions on up-to-date financial data, so please don’t hesitate to get in touch.
About Samantha Rowe
Sam’s title is Operations Manager, but the title itself doesn’t truly convey the variety of what she does for THP. From administrative tasks to payroll, strategic business planning, and office systems and procedures, Sam’s primary skill lies in multitasking.
Sam’s journey began as an office junior with George Nottage (now merged with THP), and she soon learned skills in payroll and bookkeeping, and then gained experience as a PA to the Directors, and as Administration Manager.
At the moment, Auto Enrolment is an area that has a key focus for Sam, and for THP as a whole. “The question I’m asked the most by clients just now is, ‘How will auto enrolment affect me?’ And the answer is, no matter how big or small you are, you will absolutely be affected by the Auto Enrolment regulations. I’d encourage you to start thinking about it now, and to look at your payroll software to make sure you’re ready.”