New law to ensure furloughed employees receive full redundancy payments

Alok Sharma

Furloughed employees who are then made redundant will receive redundancy pay based on their normal wage, under new laws being brought in today by the UK government.

Employees with more than two years’ continuous service who are made redundant are usually entitled to a statutory redundancy payment that is based on length of service, age and pay, up to a statutory maximum.

This legislation, which will come into force from tomorrow, aims to ensure that employees who are furloughed receive statutory redundancy pay based on their normal wages, rather than a reduced furlough rate.

Business secretary Alok Sharma said: “The government is doing everything it can to protect people’s incomes through our Coronavirus Job Retention Scheme, which is now supporting over nine million jobs across the UK.

“We urge employers to do everything they can to avoid making redundancies, but where this is unavoidable it is important that employees receive the payments they are rightly entitled to.”

These changes will also apply to statutory notice pay, which is where employees must be given a notice period before their employment ends, varying from at least one week’s notice up to 12 weeks’ notice, depending on how long they have worked for their employer. During this notice period, employees must be paid.

Ryan Russell, a partner at MML Legal, told Scottish Legal News: “I think this is the right decision and will safeguard employee rights. Similarly, employees who are paid off on capability grounds receive notice pay on what a ‘normal’ wage would be averaged out over a period of time and not based on the sick pay. In the current climate, employees should not be financially penalised for circumstances which are wholly out of their control.”

Noele McClelland, a partner at Thorntons, told SLN: “The regulations have not yet been published, but it will mean that for employees who qualify for statutory redundancy pay – those with two or more years’ service – it will be calculated at their normal rate of pay before they were placed on furlough. However statutory redundancy pay is capped at a maximum weekly wage of £538, so if an employee’s normal wages exceed this they will only get SRP based on £538 per week.”

She added, however, that the announcement “may not be quite as straightforward as it initially seems”.

“Some employers may have agreed variations to employee pay separately to them being placed on furlough. For example, the workforce may have agreed to a 10 per cent reduction in pay. It is not clear whether the regulations will provide any guidance as to whether their normal wages would be based on 90 per cent or 100 per cent in place prior to the agreed reduction,” she said.