Week’s pay for a week’s furlough

With many companies starting to make redundancies as the furlough scheme begins to wind down, there has been much discussion of how to calculate notice pay and statutory redundancy payments, in particular whether these should be based on the employee’s usual salary or the reduced rate that they have been receiving on furlough. On 31 July 2020 the Government introduced the Employment Rights Act 1996 (Coronavirus, Calculation of a Week’s Pay) Regulations 2020 (“the Regulations”). The aim of the Regulations is to ensure that the following payments are calculated based on the employee’s usual rate of pay and not the lower furlough rate, where applicable:

  • Statutory notice pay
  • Statutory redundancy pay
  • Compensation for their employer’s failure to provide written reasons for dismissal
  • Paid time off to look for work or arrange training as a result of being given notice of dismissal
  • Compensation for unfair dismissal
  • Additional award for unfair dismissal

Where the Regulations apply, the relevant calculation date is the date immediately before the date the employee was furloughed, which has the effect of ensuring the employee’s usual rate of pay is used and not their reduced furlough rate.

A week’s pay is calculated using similar formulae to those in sections 221 to 224 of the Employment Rights Act 1996 which have been adapted for use where an employee has been furloughed. The formulae differ in the following situations:

  • If the employee has normal working hours and fixed wages or salary
  • If the employee has normal working hours but their pay varies due to the amount of work done, for example piece work or commission -based pay
  • Where the employee has normal working hours, but their pay varies due to the time of work, for example shift work
  • Where the employee has no normal working hours

The Regulations do not change the statutory cap on a week’s pay (currently £538) which applies for:

  • Statutory redundancy pay
  • Compensation for unfair dismissal
  • Additional award for unfair dismissal

Where an employee is contractually entitled to at least one week more than their statutory notice period , it seems that the employee would not be entitled to their usual rate of pay and the employer may continue to pay the reduced furlough rate for the notice period. However, despite this situation not being included in the Regulations, the Government has indicated that all employers should pay notice pay at the employee’s usual rate of pay, and it would therefore be wise to do so even where an employee is entitled to a longer notice period.


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