Full Redundancy & Notice Pay for Furloughed Employees

The Department for Business, Energy & Industrial Strategy announced this morning that it is to change the law to ensure that all furloughed employees receive statutory redundancy pay and statutory notice pay calculated by reference to their normal pay, rather than a reduced furlough rate.

The changes will also apply to the calculation of:

  • statutory remuneration for time off to look for employment or arrange training;
  • compensation for failure to provide written reasons for dismissal;
  • basic awards for unfair dismissal and
  • compensation for failure to comply with an order for reinstatement or re-engagement.

The new rules are to be effective from tomorrow, 31 July. The full statutory instrument is here.

All of the above payments are calculated by reference to “a week’s pay”, as defined under employment legislation.

In very basic terms, a week’s pay in the case of employees who are salaried or otherwise normally entitled to fixed basic pay is a normal week’s pay as if they were working full hours (so 100% of normal pay), whereas in the case employees with fluctuating hours/earnings (and no core, normal minimum pay), it is based on the average of their pay during the last 12 weeks during which at any time they worked.

Prior to the introduction of flexible furlough, the average pay of the latter group would be affected by furlough only to the extent that furlough commenced or ended part way through a week within the 12 week reference period, as entire weeks spent on furlough would not affect the average pay calculation. However, since the advent of flexible furlough from 1 July, there has been more scope for the calculation to be adversely affected.

Under the new rules, for the purpose of calculating a week’s pay, time spent on furlough is to be treated as time spent working at the full rate of pay.  

The statutory minimum notice periods that employees are entitled to in the event of dismissal (other than in the event of gross misconduct or some other fundamental breach of contract ) is, after the first month of employment, 1 week until the employee has been employed for 2 years, then a week for each complete year of service up to a maximum of 12 weeks. Employee’s are entitled to be paid not less than “a week’s pay” for each week of statutory minimum notice unless their contractual notice is at least a week longer than the statutory minimum.

For example, an employee with 12 or more complete years’ service who is entitled to 12 weeks’ notice will be entitled to full pay for the duration of their notice period, even if they are furloughed. However, this entitlement will not apply if their contractual notice entitlement is 3 months – in which event they will be entitled only to any reduced furlough pay.