Redundancy Pay for Furloughed Staff - FAQs

By Amanda Beattie
24 Aug 2020

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

Through the scheme, the government paid 80% off 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 the Job Retention Scheme is phased out, you may have to make tough decisions.

Unfortunately for some, this means some redundancy. As furloughed staff can be made redundant, how should their redundancy pay be calculated?

Redundancy pay & furlough - frequently asked questions

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 £538 from 6 April 2020). The formula is:

  • One and a half weeks' 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, 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 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.

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

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About the Author

Amanda Beattie

Amanda represents corporate clients and large public bodies, including complex discrimination and whistleblowing claims. Amanda also drafts and delivers bespoke training regarding all aspects of employment law, including ‘mock tribunal’ events; in addition she also frequently drafts employment law articles for various publications for Croner and their clients.