Furloughed staff guaranteed redundancy pay based on full wages under new law

30 Jul 2020 By Francis Churchill

Legislation will prevent workers being ‘short changed’, government says, but experts warn employers could accidentally fall foul of the rules

Employees made redundant while on furlough will be guaranteed redundancy pay based on their normal wage and not their furloughed rate under new legislation.

Under the change, furloughed workers would also be entitled to statutory notice pay equivalent to their normal wages, and any future unfair dismissal cases would be based on their full wages rather than pay under the furlough scheme, which can in some cases be substantially lower than an employee’s contracted pay.

Business secretary Alok Sharma said the new rules would ensure employees on the job retention scheme were not “short changed” if made redundant. In a statement, the government added that while the majority of businesses were basing redundancy payouts on normal wages, there were some that were not.

“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,” said Sharma. “New laws coming into force today [30 July] will ensure furloughed workers are not short changed if they are ever made redundant – providing some reassurance for workers and their families during this challenging time.”

Commenting on the announcement, Charles Cotton, senior performance and reward adviser at the CIPD, said it was unclear how big the problem was, or whether it stemmed from employers trying to take advantage of the current situation or a genuine misunderstanding of the complicated and constantly changing furlough rules. He compared the furlough scheme to the minimum wage rules that many employers inadvertently fall foul of.

Cotton also said the announcement raised questions about how the government planned to enforce the new rules. “Is the government going to back up its words with the resources to police this or to run an advertising campaign to educate employers?” he asked, adding that smaller businesses were more likely to struggle with understanding and complying with the rules. “It’s important for the government to let employers know what furloughed workers are entitled to,” he said.

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Under the job retention scheme, the government pays 80 per cent of the wages of furloughed workers up to a maximum of £2,500 a month. While employers are allowed to top up furlough payments, they are not required to do so, leading to many staff being furloughed on a lower wage than when at work.

From 1 August, employers will be required to start making national insurance contributions, and from 1 September the government’s contribution will drop to 70 per cent and employers will be required to start contributing 10 per cent of furloughed employees’ wages. This changes again in October, when the government’s contribution will fall to 60 per cent and employers will be expected to contribute 20 per cent.

This means that, while employers will continue to be allowed to top up furlough pay beyond 80 per cent in August, September and October, furloughed employees will still only be entitled to a minimum of 80 per cent of their normal wages.

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