Government acts to clarify redundancy rules for furloughed workers

Briefing by Karen Coleman, employment solicitor. 

With the impact of coronavirus inevitably leading to job losses, the Government has acted to ensure workers made redundant do not have their payments reduced due to furlough.

Thousands of UK workers have been receiving 80% of their wages while not working, thanks to the coronavirus furlough scheme.

However, with furlough payments being gradually reduced and then phased out completely in October, more companies are consulting with staff on redundancies.

High profile job losses have been announced at companies including Airbus, Bentley Motors, EasyJet and Arsenal FC, to name just a few. As of 6 August, 2020, more than 160,000 redundancies had been announced across the UK due to the current crisis and this won’t include the many businesses making less than 20 redundancies who do not need to notify the government when doing so.

The Government has confirmed that employers must ensure that they pay redundancy pay based on their employees normal wage and not their furloughed rate.

New legislation guarantees that furloughed workers will also be entitled to receive their statutory notice pay equivalent to their normal wages, and any future unfair dismissal cases would be based on their full wages rather than pay under the furlough scheme, which can in some cases be substantially lower than an employee’s contracted pay.

Business secretary Alok Sharma said the new rules would provide “some reassurance for workers and their families during this challenging time.”

Under the job retention scheme, the government pays 80 per cent of the wages of furloughed workers up to a maximum of ￡2,500 a month. While employers are allowed to top up furlough payments, they are not required to do so, leading to many staff being furloughed on a lower wage than when at work.

From 1 August, employers will be required to start making national insurance contributions, and from 1 September the government’s contribution will drop to 70 per cent and employers will be required to start contributing 10 per cent of furloughed employees’ wages. This changes again in October, when the government’s contribution will fall to 60 per cent and employers will be expected to contribute 20 per cent.

This means that, while employers will continue to be allowed to top up furlough pay beyond 80 per cent in August, September and October, furloughed employees will still only be entitled to a minimum of 80 per cent of their normal wages.

Whilst I have been advising employers anyway to pay notice and redundancy at normal pay rather than furloughed pay, new regulations came into force on 31 July to remove any wriggle room when calculating a week’s pay for the purpose of calculating redundancy and other specified payments. 

The statutory rights, which are calculated with reference to a week's pay, include the following:

• Time off to look for work or arrange training.
• Statutory notice entitlement.
• Compensation for failure to provide a written statement of reasons for dismissal.
• Additional award for unfair dismissal.
• Basic award for unfair dismissal.
• Statutory redundancy payment.

Karen Coleman said: “HMRC has confirmed that an employee on furlough retains the same rights to redundancy payments as if they had been working normally in recent months. Any attempt to base redundancy payments on an employee’s furlough pay leaves companies open to staff raising grievances and claims at an employment tribunal.” 

It should be noted that this briefing does not constitute legal advice. 

For further information on Karen’s services and background, please follow the link www.colemanhrlaw.co.uk.