Furlough: New law to stop redundancy pay cut

Posted on Thursday, 13th Aug '20

Anthony Wolny by Anthony Wolny

Some businesses have been giving lower redundancy payments to staff who were furloughed, then later laid off, the Government says.

Although it describes them as ‘the minority’, Ministers have sought to stop this happening by introducing a new law, which has now taken effect.

Why has it happened?

Some employers have been making redundancy pay-outs based on the furlough rate – meaning those staff have lost out on their full entitlement.

Many of the UK’s 9.5 million furloughed workers have reportedly been paid just 80% of their normal wage under the Coronavirus Job Retention Scheme.

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

Does the law change also affect Notice Pay?

Yes, it does affect Statutory Notice Pay (SNP). It will ensure this is based on normal wages rather than the furlough rate, officials say.

SNP is where employees 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.

What other details are worth noting?

A few other points made by the Government include:

  • The law change “does not impact any enhanced redundancy pay that may be stipulated in the terms and conditions of an employee’s individual employment contract”.
  • It also covers other employment rights that rely on average weekly pay, including unfair dismissal, and short-time working.

How many people are affected by redundancy?

One estimate of how many furloughed staff could be made redundant by the time the scheme ends in October has come recently from The National Institute of Economic and Social Research think tank.

It estimates that the end of furlough could lead to 1.2 million Britons being unemployed by Christmas, pushing unemployment to 10% of the workforce.

What does the Government say?

Business Secretary Alok Sharma said: “We urge employers to do everything they can to avoid making redundancies, but where this is unavoidable it is important that employees receive the payments they are rightly entitled to.”

He said the new law “will ensure furloughed workers are not short-changed if they are ever made redundant”.

What’s next?

For help with compliance, Staffology’s fully integrated HR and Payroll Management system is ready to assist.

Book a demo here to find out how.

Anthony Wolny, August 13th, 2020

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