Furloughed employees to receive redundancy and notice pay based on full not furlough pay

The Government has published the Employment Rights Act 1996 (Coronavirus, Calculation of a Week’s Pay) Regulations 2020 which come into force on 31 July. The Regulations ensure that employees who have been furloughed receive statutory redundancy pay, statutory notice pay, unfair dismissal compensation and certain other statutory payments based on their normal wages, rather than a reduced furlough rate. However, the statutory cap on a week’s pay of £538 still applies.

There are different methods for calculating a week’s pay depending on whether an employee has normal working hours or no normal working hours.

For employees with normal working hours, where remuneration does not vary with the amount of work done, a week’s pay is the amount payable in respect of normal working hours under the contract. The effect of the Regulations is that the amount payable in relation to any period during which the employee is furloughed is calculated disregarding any reduction as a result of furlough, on the basis of what the employee earned pre-furlough, where the calculation date is on or before 31 October 2020.

Where there are normal working hours and remuneration varies with the amount of work done, or according to the time of work, or there are no normal working hours, a week’s pay is calculated as an average over a 12 week reference period. The effect of the Regulations in these cases is that if the employee was receiving reduced pay due to being furloughed during any part of that 12 week period, the reduced earnings are disregarded and substituted with what the employee would have earned if not furloughed (the calculation is slightly different in each case but this is the effect).