Covid-19: New legislation for redundancy and notice pay of furloughed employees

The government has announced new legislation to ensure that furloughed employees who are made redundant will receive a statutory redundancy payment based on their normal rate of pay and not their reduced furlough pay. The same will apply in respect of notice payments for furloughed employees.  The new legislation is to come into force today (31 July). For any employees whose employment is terminating on or after 31 July, employers will need to review the notice and redundancy payments being made.

Furloughed employees who receive a fixed salary that is currently capped at 80% (or £2,500 per month) will be entitled to notice pay and statutory redundancy pay based on their normal 100% rate of pay. Furloughed employees whose hours of work and rates of pay fluctuate (for example hospitality staff who work a different number of hours week to week) will be entitled to notice pay and statutory redundancy pay based on their average earnings. Average earnings are calculated over the 12 week period leading up to the notification of redundancy. The new legislation ensures that employers treat any weeks that an employee has spent on furlough leave over the 12-week reference period as if they are working and receiving full pay, instead of capping their average earnings at 80%.

When calculating the statutory redundancy payment for any employee with 2 years’ continuous service or more, the statutory cap of £538 on a week’s pay still applies.

The Regulations are complex and we recommend that you take legal advice on your specific circumstances if you are in the process of making redundancies. Please do not hesitate to get in touch if we can be of assistance.