Calculation of a weeks pay for redundancy and settlement agreements following furlough

On 31 July 2020, the Employment Rights Act 1996 (Coronavirus, Calculation of a Week’s Pay) Regulations 2020 came into force. The purpose of the Regulations is to require calculation of certain statutory payments to be made with reference to a furloughed employee’s normal week’s pay, not their reduced furlough pay.

The statutory payments covered by the Regulations are pay for time off to look for work or arrange training, notice pay, redundancy pay, compensation for failure to provide a written statement of reasons for dismissal and basic and additional awards for unfair dismissal.

The Regulations are complex. In summary, for employees who have normal working hours (and who may have pay that does not vary or whose pay varies with the amount or timing of work done) any reduction in pay as a result of an employee being furloughed is disregarded. For employees who do not have normal working hours, a week’s pay is calculated with regard to their reference salary for claiming furlough pay under the Coronavirus Job Retention Scheme, but without the cap imposed by the scheme.

This is good news for people being made redundant following furlough. We’ve seen a good number of clients with settlement agreements during or following a furlough period over the last few months since the scheme began, and while we always pushed (and obtained) full pay and not furlough pay, it is good to see that it is now law that notice pay and redundancy pay should be calculated with reference to the pre-furlough sums.

However it should be noted that it does not stop situations where an employer has enforced a pay cut, as (once agreed) that reduced pay becomes the reference pay for calculations.

The legislation is complex. If you’ve been given a settlement agreement and are concerned about the settlement sum, the figures or the tax position, then get in touch today.

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