Throughout the pandemic lockdown, the UK government has constantly encouraged employers to pay employees their full wages instead of the furlough pay alone, yet this did not always prove feasible for most organisations. Subsequently, issues arose when certain employers making redundancies calculated statutory notice on the basis of reduced furlough pay applicable at the time, and not on employees’ regular pay. On 30th July 2020, a new law regulating this matter was enacted.
The Job Retention Scheme has helped protect employees’ income and aims to discourage redundancy. Yet redundancies have nonetheless been effected due to particular operational and financial constraints on employers. A significant issue that began to arise in such situations was whether to calculate stator redundancy pay on employees’ regular wages or on their furlough pay in force at the time of redundancy.
The new law provides that, if redundancy is inevitable, employees made redundant who worked for more than 2 years, will have their statutory redundancy payment calculated on the basis of their regular salary, and not furlough pay, which may be around 80% of their normal wages. The legislation also applies to statutory notice pay entitlements and therefore, redundant employees working their notice period are guaranteed their regular full wages. However, the latter does not apply to any enhanced redundancy pay agreements already in place.
The applicability of full wages over potentially reduced furlough pay shall in future also apply to calculations relating to compensation for unfair dismissal. Whilst most employers have already been in compliance with the content of this new law prior to its enactment, one must be wary to strictly abide by its provisions as from its enactment. From information sources available at the time of writing, it appears that the new law will not have a retrospective effect on redundancies already effected.