The Government announced on 30 July that a new law (the Employment Rights Act 1996 (Coronavirus, Calculation of a Week’s Pay) Regulations 2020 (SI 2020/814)), was coming into force to ensure furloughed employees receive statutory redundancy pay and statutory notice pay based on their normal wages, rather than a reduced furlough rate, if they are dismissed.
The Regulations, which came into force on 31 July 2020, ensure that various statutory entitlements will not be reduced for employees who have been furloughed under the Coronavirus Job Retention Scheme. These actually extend beyond just statutory redundancy pay and statutory notice pay, to also cover compensation for unfair dismissal, failure to provide a written statement of reasons for dismissal, failure to comply with an order for reinstatement or re-engagement and remuneration for time off to look for employment or arrange training. These statutory entitlements are all calculated using a prescribed calculation for a week’s pay which is modified by the Regulations for furloughed employees.
The provisions for calculating a week’s pay are complex and depend on whether the employee has ‘normal working hours’ and if so, whether remuneration ordinarily varies with the amount or timing of work done. Sometimes a 12-week averaging calculation will need to be done.
Now, under the Regulations, when calculating a week’s pay employers must disregard any reduction in the amount payable as a result of an employee being furloughed. The Government believes it was only a minority of employers who weren’t doing this anyway but it wants to ensure that employees are not “short-changed” during this challenging time by legislating to force the minority of employers to also “do the right thing”.
Employers should be aware that the statutory limit on a week’s pay (currently £538), which applies to certain of these calculations, still applies to furloughed employees in the same way as it applies to the rest of the workforce.
As employers continue to consider how to handle the effect that coronavirus has had on the economy and their organisation, they are likely to be considering the liabilities they may face in terms of termination payments should they decide to make redundancies within their workforce. The Regulations provide clarification to employers in respect of redundancies and termination payments. However the Regulations only apply to statutory payments and therefore employers will need to consult their contracts, policies and procedures in terms of any enhanced payments they are required to give on termination of a furloughed employee’s contract.
For further information or advice in relation to the Regulations and assistance in how to calculate a week’s pay for furloughed employees, please do not hesitate to contact a member of the team.