UK – COVID-19: New law on redundancy and notice pay for furloughed employees

The UK government has introduced new rules aimed at ensuring that statutory payments to which furloughed employees are entitled, such as redundancy or notice pay, are based on their normal pay, rather than reduced furlough pay. The new rules came into force on 31 July 2020.

• Calculating Redundancy Pay:
  • For employees with normal working hours where pay doesn’t vary with the amount of work done, the new rules only apply where the calculation date for redundancy falls on or before 31 October.
  • For employees whose pay varies with the amount or time of work done, such as piece workers, shift workers or those with no fixed hours, their redundancy pay is averaged out over the 12 weeks before the calculation date for redundancy. Under the new rules, provided they have been furloughed for at least one week during those 12 weeks, their redundancy pay is based on full pay rather than their reduced furlough pay.
  • These rules will not apply to employees whose employment terminated for redundancy before 31 July, except if their statutory notice would have expired on or after 31 July if full statutory notice was given.
• Calculating Notice Pay:
  • These rules also apply to the calculation of statutory notice pay – but not where notice was served before 31 July.
  • However, for employees who are entitled to contractual notice of at least one week more than the statutory minimum, the new rules do not appear to apply.
  • That said, some employers are nevertheless choosing to pay notice at the full rate in any event.

Practical point
The new rules provide clarity on the calculation of the identified statutory entitlements.
The rules do not affect the statutory cap on redundancy pay which is based on a week’s pay capped at £538 (and subject to a maximum award of £16,140).
Factors around whether employees are entitled to pay at the full rate during notice and the calculation of notice pay can be complex so it is important to take advice if in doubt.

For more information on these articles or any other issues involving labour and employment matters in the United Kingdom, please contact Robert Hill (Partner) at Clyde & Co at robert.hill@clydeco.com or visit www.clydeco.com.