Until now, there has been some debate as to whether furloughed workers should be entitled to a statutory redundancy payment based on their normal (unreduced) salary, or whether it would be acceptable to calculate entitlement based on the reduced, furlough rate of pay.
Prior to now, the Government has urged employers to treat staff fairly, but has stopped short of legislating in respect of redundancy and notice pay. The Government's announcement demonstrates the need to go further to protect furloughed workers. The Government has published the new Employment Rights Act 1996 (Coronavirus, Calculation of a Week's Pay) Regulations 2020, which will come into effect from Friday 31 July. Under the new Regulations, all workers will be entitled to statutory redundancy pay calculated based on their unreduced salary. The statutory cap on a week's pay will remain in force. The Government has described the new law as ensuring workers will not be 'short changed' because they are furloughed.
The new law will also apply to statutory notice payments and basic awards for unfair dismissal claims, which must also be based on normal wages rather than the reduced, furlough, rate of pay.
Where employers need to make redundancies during furlough leave, the Coronavirus Job Retention Scheme (CJRS) can continue to be used to reclaim notice pay up to the cap. As has previously been confirmed, the CJRS cannot be used to pay redundancy payments, which must be financed by employers.