Furloughed workers entitled to full redundancy pay

30th July 2020

Ending months of uncertainty and legal argument, the government has finally announced that furloughed workers who are made redundant are entitled to receive statutory redundancy pay based on their normal wages, rather than the reduced furlough rate.

The furlough scheme started in March 2020 and is meant to end on 31 October 2020.

It has never been entirely clear what the pay position would be where a furloughed worker was made redundant. Should they be paid at the furloughed scheme level (e.g. 80% of their normal pay) or at 100% of pay? 

Legal opinion differed depending on the circumstances.

Employers have always been able to give notice of termination to workers on furlough, and the scheme's grants can still be claimed despite the employee working their notice. Employment law normally requires up to 45 days’ consultation of redundancy.

Figures from the Official for National Statistics show that workers on UK payrolls dropped by around 650,000 between March and June, although this is expected to increase significantly over the coming months as the furlough scheme winds down.

New law

The government has now made clear that any furloughed worker made redundant must receive their full pay entitlement.

Employees with more than 2 years’ continuous service who are made redundant are usually entitled to a statutory redundancy payment that is based on length of service, age and pay, up to a statutory maximum.

New legislation as a statutory instrument will come into force from 31 July 2020 to ensure that workers receive statutory redundancy pay based on their normal wages.

These changes will also apply to Statutory Notice Pay, where workers must be given a notice period before their employment ends, varying from at least one week’s notice up to 12 weeks’ notice, depending on how long they have worked for their employer. During this notice period, employees must be paid.

Other changes coming into force will ensure basic awards for unfair dismissal cases are based on full pay rather than wages under the furlough scheme.

Redundancy pay

Calculating statutory redundancy pay for employees is based on average weekly pay, alongside other factors such as length of continuous service and the employee’s age.

Average weekly pay is usually calculated by adding the pay received over the 12 weeks prior to notice of redundancy and dividing this by 12 to get the average. The new legislation ensures that employers must treat any weeks a worker spent on furlough over the 12-week reference period as if they were working and on full (100%) pay

The new rules do not affect any enhanced redundancy pay that may be contained in a worker's employment contract, but apply to basic statutory redundancy pay entitlements

Legislation also covers other employment rights that rely on average weekly pay, including notice pay, unfair dismissal, and short-time working

Job Retention Bonus

As an incentive not to make a furloughed worker redundant, the government introduced a Job Retention Bonus of £1,000 per furloughed employee who remains continuously employed through to the end of January 2021.

For further help, please check out our Business after COVID-19: Transition Knowledge Hub.

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