• Calculating Redundancy Pay for Workers Currently on Furlough Leave

    Many workers are currently on Furlough Leave following the Governments direction that certain businesses must close to prevent the spread of COVID-19.

    As Boris Johnson announced today we are, hopefully, at the peak of the virus and so as we move into the next stage of measures many businesses will be starting to think how they re-start their business and whether restructures or redundancies may unfortunately be necessary to ensure their survival in the short term.

    So, how will statutory redundancy pay be calculated for those who are currently only receiving 80% of their pay?

    The calculation is based on an employee’s length of service, age and a “weeks’ pay” calculated in accordance with the provisions of the Employment Rights Act 1996 and capped at the statutory maximum which is currently £538.

    The calculation varies depending on the type of employee, so the extent to which Furlough pay will be taken into account depends on the answer to that question. It will also depend on the calculation date.

    • Normal Salaried Employee Whose Pay Does Not Vary. This type of employee’s hours who is currently on Furlough Leave will not have changed and so there is a good argument that their “week’s pay” for the purpose of calculating statutory redundancy pay will be their usual pay at the rate of 100%.
    • Working Hours/Pay Varies. For an employee with normal working hours whose pay varies with the work done, a week’s pay is based on the sum of renumeration earned in a 12 week period, divided by 12. For an employee with normal workings hours whose hours vary (such as shift workers) a week’s pay is based on the amount of pay paid in the 12 week reference period, divided by the hours worked and multiplied by an average week’s hours. However, as weeks where the employee is absent are usually taken out, it is arguable that Furloughed weeks will also likely not be taken into account in calculating the average. So, the applicable reference period will be the week before the employee was placed on Furlough leave.
    • No Normal Working Hours. Where an employee has no normal working hours statutory redundancy pay is calculated by reference to the average weekly renumeration. This is calculated by reference to the 12 week’s pay paid in the preceding 12 weeks. Weeks with no earnings are not taken into account, but non working weeks are. It is likely that Furlough pay will count as renumeration and would therefore be taken into account and used in the calculation of a weeks’ pay for the purpose of calculating statutory redundancy pay.
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