Emergency legislation closes redundancy and notice pay loophole

Emergency legislation clarifies that notice pay and redundancy pay must be based on an employee’s pre-furlough earnings.

The Employment Rights Act 1996 (Coronavirus, Calculation of a Week’s Pay) Regulations 2020 were announced by the government on 30 July.They came into effect on 31 July 2020.

They were introduced to close a loophole that allowed employers to make severance payments that were calculated on the employee’s furlough pay of 80% of normal pay, capped at £2,500 per month.

For employees with normal working hours, if the calculation date for statutory redundancy pay or statutory notice pay falls on or before 31 October 2020 (when the furlough scheme comes to an end), the amount which is payable “is to be calculated disregarding any reduction in the amount payable as a result of [the employee] being furloughed”.

This also applies to contractual notice if this is not at least one week more than statutory minimum notice.

Similar provisions apply for employees whose pay varies with the time of, or amount of, work, or who have no normal working hours. In these cases, pay is normally averaged over the last 12 weeks.

The new rules apply where this period includes at least one week during which the employee was furloughed and ensure that the averaging is based on full, rather than reduced, pay.