Calculating statutory redundancy pay and notice pay for furloughed workers

Under the new Regulations, employers are required to calculate ‘a week’s pay’ for the purpose of calculating statutory redundancy pay and notice pay entitlement, for employees whose pay has been reduced due to being on furlough as follows:

  • for employees with no normal working hours, the employer must use the (uncapped) reference salary for the 2019-2020 tax year which was used for calculating the employee’s CJRS claim for determining a ‘week’s pay’. The full reference salary is to be used, rather than the 80% reduced amount and if the applicable cap under the CJRS of £2,500 per month limited the employee's remuneration, then this cap is disapplied. The Regulations use the uncapped reference salary, rather than the contract of employment in determining normal pay because there are no normal working hours that can be treated as if they had been worked;
  • for employees with normal working hours whose pay varies (according to the time of work or amount of work done), the 12-week reference period for determining a ‘week’s pay’ includes furloughed hours. The hourly rate is calculated based on the hourly rate under the contract of employment in force at the calculation date, disregarding any reduction in the amount paid as a result of the employee being furloughed; and
  • for those with normal working hours where pay doesn’t vary (i.e. for fixed salaried employees), a week’s pay is on the amount that is payable under the employee’s original contract of employment in force on the calculation date, so the employees' normal working hours are in effect deemed to include any furloughed hours, but any reduction in pay as a result of the employee being furloughed is disregarded.

Under these Regulations, the calculation date for calculating notice pay and statutory redundancy pay is the date immediately before the date on which the employee became furloughed (or where the employee has been furloughed more the once, the date on which the employee was first furloughed).

The Regulations do not change the statutory cap on a week's pay for the purpose of calculating a statutory redundancy payment, or for calculating the tribunal awards covered by the Regulations, which is currently £538 in Great Britain.

The only exception to the above is where a reduction in hours (and pay) is a permanent variation of contract agreed to extend beyond any period of furlough; or where the contractual notice period that applies is at least a week longer than the statutory notice period, in which case the whole notice period can be paid in accordance with the reduced furlough wages under the furlough agreement/varied contract of employment.

These Regulations do not extend to enhanced or contractual redundancy arrangements or contractual notice periods of more than a week longer than the individual’s minimum statutory notice entitlement, as these payments will be determined by the contract of employment.

Prior to the Regulations coming into force, the calculation of a week’s pay for the purpose of calculating statutory redundancy and notice pay were already required to be calculated using the employee’s normal pay in most cases, rather than reduced furloughed wages. One notable exception is that, prior to the Regulations, employers were able to pay employees with no normal working hours (such as casual hour workers) statutory notice pay based on their reduced hours under flexible furlough.

The Regulations also require normal pay to be used when calculating various other statutory employment rights referable to a week's pay. These include the basic award for unfair dismissal, remuneration for time off to look for employment or arrange training, compensation for failure to provide a written statement of reasons for dismissal, and compensation for failure to comply with an order for reinstatement or re-engagement.