Now that the furlough scheme is going through its winding down period, finally reaching an end on 31st October 2020, many employers are having to look at longer term cost savings and potentially making redundancies (with many employers having to consider doing this before the furlough scheme reaches an end). In this article, our employment team discusses what is payable to employees who are made redundant whilst on furlough and what needs to be considered when doing so. It goes without saying that every redundancy is different, and so should you have any issues or questions after reading this article, please feel free to contact our employment team.
The furlough scheme as a whole has not been easy to fully understand or manage. This has been in part due to the many different guidance notes and advice surrounding this unprecedented situation, and due to the furlough scheme evolving over time, most recently with the introduction of flexi-furlough. There has been further developments following the shift in focus turning to what happens after furlough and the unfortunate reality of mass redundancies having to be considered with legislation being amended to protect redundancy pay for those that are, or have been, on furlough leave (as discussed in this article).
With the impending end of the furlough scheme approaching, employers should be mindful of the minimum consultation periods for collective redundancies (30 days where between 20 and 99 dismissals are proposed, or 45 days where 100 or more dismissals are proposed). Employers may wish to use the time employees spend on furlough to absorb part of the cost of the consultation process, however, should remember when considering the costs involved that you cannot claim for statutory redundancy payments from the furlough scheme.
Redundancies for those on furlough
It is worth noting that a fair redundancy process should still be followed, with individuals on furlough not being placed at risk above other employees simply on the basis that they have been (or continue to be) on furlough leave.
As we have mentioned in our previous articles, despite the original intention of the furlough scheme being to avoid the need to make redundancies, HMRC have confirmed that employers can make employees redundant while they are on furlough or afterwards (though no part of the grant from HMRC can be used to cover the cost of redundancy payments) and that employers can continue to claim while an employee is serving a statutory or contractual notice period.
The amount of the notice payable, and in respect of how the redundancy pay should be calculated, has been slightly more problematic, as discussed below.
Should an employee's redundancy pay be calculated on the basis of their furlough pay, or their full salary rate?
If an employee is entitled to redundancy pay (normally if they have over 2 years' service this is the case), new legislation (The Employment Rights Act 1996 (Coronavirus, Calculation of a Week's Pay) Regulations 2020 (SI 2020/814) (2020 Regulations) has been passed to make it clear that the redundancy pay must be calculated based on their pre-furlough wages (i.e. their full salary). Statutory redundancy payments are calculated based on years of service, age, and a week's pay (at full rate and subject to the cap- currently £538).
What about notice pay?
The position in respect of what notice pay is payable is unfortunately more complex and depends on how you are paying the notice and how much notice an employee is entitled to (whether this is or is not above the statutory minimum amounts which depends on the length of service of the employee). This is simplified as much as possible below:
Providing notice (to be served whilst on furlough):
What is payable depends on how much notice the employee is entitled to.
If the employee is entitled to at least one week's greater notice under their contract than the statutory minimum notice period, then the right to minimum pay during statutory notice does not apply (s87(4) ERA 1996). Therefore unless the furlough agreement says otherwise, the usual conclusion is that an employee is only be entitled to their 80% pay during their contractual notice period i.e. what they are receiving during furlough leave however this is not certain. Furlough leave is a different and new concept and therefore this conclusion is not guaranteed.
If they are entitled to statutory amount notice only then their notice should be topped up to 100%. This is in line with the new legislation as mentioned above in respect of redundancy pay, which amends the meaning of a week's pay for the purposes of calculating statutory notice pay for those on furlough (or have been furloughed).
Payment in lieu (PILON): If you make a payment in lieu of notice under a clause in the employment contract, check the clause to see if it says anything about the amount (for example- if it says pay in lieu of your basic salary- this is likely to be interpreted to mean the employees full rate.
Employers should be aware that if employees are not paid correctly then there is an argument that it could be breach of contract which could make any restrictive covenants unenforceable (along with a claim for unlawful deduction of wages). For this reason, many employers are choosing to pay 100% to employees serving their notice period.
The information contained in this article is for information purposes only and is not intended to constitute legal advice. Should you require support and assistance on the employment law implications of the COVID-19 pandemic, the support available for businesses and HR queries, our experienced advisors will be able to provide practical advice to support your business through the process. For advice, contact our employment & HR team at email@example.com or call us on 029 2009 5500.