Redundancy and Furlough

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Carol Smith

Carol Smith

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09 Jul 2020

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The government initially put the Job Retention Scheme in place to help businesses retain staff during the coronavirus pandemic.

Through the scheme, the government paid a portion, currently 80%, of wages for staff that were placed on furlough. This meant that whilst these staff didn’t work, they also received less pay as a result.

However, as they phase the Job Retention Scheme out, you may have to make tough decisions. Unfortunately for some, this means some redundancy.

Can I make an employee redundant during furlough?

The short answer—yes.

However, you must still follow the usual redundancy process. That means considering alternatives and holding a consultation of the appropriate length.

The benefit of redundancy during furlough is that you can pay employees a furlough rate throughout the process. Of course, to do this, you must continue to follow the qualifying criteria for having an employee on furlough. That means they cannot undertake any work for you, unless currently working on a basis of flexible furlough.

Can I make an employee redundant after furlough?

Again—yes, redundancy after furlough is possible.

You must follow a legally compliant process. If you’re unsure whether your process is up to scratch, check here.

The other thing you need to consider is whether you are paying the employee the correct amount of redundancy pay. We’ll cover this later in our redundancy pay & furlough FAQs.

Can I use flexible furlough and redundancy together?

Yes, so long as you manage the process correctly. It makes sense to have the employee in work for some of the time if there is work that needs to be covered. However, you need to ensure you are paying them the correct amount.

Whatever you would pay the employee on the flexible furlough rate, continue to pay them that for the extent of the process. We’ll answer more questions on redundancy pay and furlough next:

What pay are staff usually entitled to when made redundant?

Usually, staff who have worked for a company for at least two years are entitled to statutory redundancy pay. You are free to offer enhanced rates of pay if you choose to. Employees are also entitled to be paid statutory notice pay, alongside any untaken days of annual leave at that point. Again, employers are free to provide additional notice pay if they wish. If you do this, it should be specified in a contract.

How is statutory redundancy pay usually calculated?

Statutory redundancy pay is calculated based on a number of factors. These include employee age, length of service and weekly pay (subject to a weekly maximum, set at £541 from 6 April 2021). The formula is:

One and a half week's pay for each complete year of service after reaching the age of 41

One week´s pay for each complete year of service between the ages of 22 and 40 inclusive; and

Half a week´s pay for each complete year of service under the age of 22.

A maximum of 20 years is taken into account when calculating a statutory redundancy payment. If employees have more than 20 years' service, the earlier years are ignored.

How is statutory notice pay calculated?

Statutory notice pay arises as employees must be given a notice period before their employment ends. This can vary from at least one week’s notice up to 12 weeks’ notice. The length of the notice period depends on how long they have worked for you.

What impact did the reduced furlough rate have on these calculations?

As furlough reduces weekly pay, do you use this reduced rate to calculate redundancy pay?

Some companies did explore this route earlier in the year. As a result, there were calls for the government to reassess how redundancy pay should be calculated in the circumstances.

How should these rates of pay be calculated now?

On 31 July 2020, they responded with a new law. Furloughed employees who are made redundant should receive redundancy pay based on their normal wage. Do not pay them a reduced furlough rate.

These changes also apply to statutory notice pay. During this notice period, employees must be paid and this must be based on normal wages. Do not pay them based on their wages under the Coronavirus Job Retention Scheme (CJRS).

Can redundancy pay be claimed for under the Job Retention Scheme?

Guidance released on 17 July 2020 confirms that you can continue to claim for a furloughed employee who is serving a statutory or contractual notice period. However, grants cannot be used to substitute redundancy payments.

From December 2020, the grant can no longer be claimed for furloughed staff who are being made redundant, meaning employers need to fund their salaries in full.

The new legislation doesn’t affect enhanced redundancy pay stipulated in an employee’s contract. But, it does apply to basic statutory redundancy pay entitlements

Expert support

If you have more questions, or just need personalised HR support, you can get it by calling one of our HR and employment law experts today on 01455 858 132

About the Author

Carol Smith

Carol joined Croner in 2001 as an Employment Consultant advising a wide range of clients on all aspects of Employment Law and HR practice. She demonstrates particular expertise in complex disciplinary, grievance matters and reorganisation / redundancy.

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Carol Smith

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