The Government has introduced new laws, set out in the Employment Rights Act 1996 (Coronavirus, Calculation of a Week's Pay) Regulations 2020 SI 2020/814, designed to protect employees who are currently furloughed and to prevent them from being short-changed in a redundancy situation and to protect their statutory entitlements.
The legislation, which will come into force today 31 July 2020, will ensure that those employees who are made redundant and having been previously retained under the Coronavirus Job Retention Scheme are entitled to a statutory redundancy payment based on their pre-furlough wages.
Employees with more than 2 years’ continuous service would be entitled to a statutory redundancy payment which is calculated based on length of service, age and weekly pay, up to a statutory maximum currently £538 per week. Average weekly pay is usually worked out on the pay received over the 12 previous weeks up to when the employee is notified of the redundancy. The new regulations ensure that employers, when carrying out the calculation, treat any weeks where an employee has been paid a reduced furlough amount within that 12-week period, as instead the employee having been working at a full 100% rate of pay.
The changes will also apply to the calculation of a week’s pay for the purpose of a basic award for unfair dismissal, for statutory notice pay (after one month of employment, one week per year of service up to a maximum of 12 weeks), compensation for failure to provide a written statement of reasons for dismissal, remuneration for time off to look for employment or arrange training, compensation for failure to comply with an order for reinstatement or re-engagement, and the assessment of whether an employee is to be taken to be kept on 'short-time' for a week in accordance with S.147(2) ERA.
This is welcome news to clear up the uncertainty for employers and to give protection to employees, who will not be disadvantaged by calculations on reduced pay rates. Given that more redundancies are, unfortunately, expected in the coming months, the clarification from the Government is timely.
Please note this article reflects our understanding of the law as at 31 July 2020. We highly recommend consulting us before making key decisions, as this is a vastly developing area and it may well have changed. If in doubt, contact our team.