Calculating notice and redundancy pay for furloughed employees

Furloughed employees. A man is crying in an office after packing the contents of his desk into a cardboard box.

The Coronavirus Job Retention Scheme (CJRS) is due to end on 30 September 2021. If you then need to make furloughed employees redundant, how must you calculate their statutory notice and redundancy pay?

Special provisions inserted into the Employment Rights Act 1996 (ERA) mean that furloughed employees are entitled to receive statutory notice pay (SNP) and statutory redundancy pay (SRP) based on their normal pre-furlough wage, rather than on their reduced furlough pay.

Essentially, the calculation of a “week’s pay” in the ERA has been modified to ensure that any pay reductions made because the employee was furloughed are disregarded for the purposes of calculating both SNP and SRP.

For employees with normal working hours, their furloughed hours are treated as if they were normal working hours and the pay related to those furloughed hours is treated as if they had been worked, ignoring any reduction which was made because the employee was furloughed. For employees who don’t have normal working hours, a week’s pay for these purposes is calculated based on their reference salary used under the CJRS for claiming furlough pay, but without applying the CJRS cap.

As far as SNP is concerned, this means you must top-up pay to its pre-furlough rate for employees working out their notice period if it’s the statutory minimum notice period or less than a week more than that period.

However, if an employee’s contractual notice period is at least one week more than the statutory minimum, no such top-up is automatically required, and you may then be able to pay notice pay based on the reduced furlough rate under s.87(4) ERA.

However, if you don’t pay a furloughed employee normal pay during their contractual notice period, they could lodge an employment tribunal claim and there’s a risk that tribunals might find a way to ensure they receive contractual notice based on their normal pay. Many employers in this situation have therefore opted to use normal pay in order to reduce risk.

In relation to SRP, the statutory cap of £544 on a week’s pay for calculating it still applies. As many employees will be earning more than this amount even during furlough, in those cases there’s then no need to consider a different calculation.

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