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New law to ensure furloughed employees receive full redundancy payments

Posted on 13 Aug 2020 - News

Coronavirus

On 31 July the Government introduced a new in law to ensure furloughed employees receive statutory redundancy pay based on their normal wages, rather than a reduced furlough rate.

The new legislation, which comes into effect from 31 July 2020, aims to protect workers and ensures all furloughed employees who are being made redundant receive their full entitlement.

Employees with more than 2 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.

The new legislation will ensure that pay received in relation to statutory redundancy pay is calculated based on an employee’s normal pay, rather than furlough pay (potentially 80% of their normal wage).

Calculating statutory redundancy pay for employees relies on inputting average weekly pay, alongside other factors such as length of continuous service and the employee’s age. Average weekly pay is usually worked out by adding the pay received over the 12 weeks up to when the employer notifies the employee that they are being made redundant, and dividing by 12 to get the average. This legislation ensures that employers must treat any weeks an employee spent on furlough over the 12-week reference period as if they were working, and on full (100%) pay.

The legislation does not impact any enhanced redundancy pay that may be stipulated in the terms and conditions of an employee’s individual employment contract, but applies to basic statutory redundancy pay entitlements

The legislation also covers other employment rights that rely on average weekly pay, including notice pay, unfair dismissal and short-time working.

The 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.

Other changes coming into force will ensure that basic awards for unfair dismissal cases are based on full pay rather than wages under the CJRS.

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