The government has just brought in new legislation aimed at protecting employees and ensuring furloughed workers receive their full entitlement if they are made redundant.
From Friday 31 July any employee who is furloughed but then made redundant will receive statutory redundancy pay based on their normal (pre furlough) wages rather than the reduced rate they were paid under the Coronavirus Job Retention Scheme (CJRS).
There are now over 9.5 million UK workers who are registered as being furloughed, meaning they are being paid 80% of their usual wages through the CJRS scheme, up to a maximum of £2500 per month. However, a minority of employers have used the opportunity to exploit the CJRS scheme by making their furloughed workers redundant, but basing their redundancy pay on the reduced rate they are being paid.
It is thought that around 150,000 people have been made redundant as a result of the Covid-19 pandemic, but this number is expected to rise after October when the CJRS scheme ends and employers are wholly responsible for their wages bills.
The CJRS is set to taper the amount of financial support paid out to businesses, as the economy starts to recover. As a reminder:
- Employers start to share the cost of the CJRS by paying National Insurance (NI) and pension contributions of furloughed workers, which amounts to an average of 5% of the gross employment costs of these employees. The government continues to pay 80% of the wages of furloughed employees.
- Employers now need to pay 10% of furloughed workers’ wages, (plus NI and pension costs). The government will pay the remaining 70% up to a cap of £2187.50 per month.
- The government’s contribution will taper to 60% of the wages for those being furloughed. Employers therefore need to pay 20% of their furlough salaries (plus NI and pension costs), to bring the wages for those workers up to 80% of their usual pay. The chancellor has said this represents 23% of the gross employment costs for an employer, had their employee not been furloughed.
The new law means it is illegal to make furloughed workers redundant on anything other than 100% of their full redundancy pay entitlement. It also applies to the statutory notice period (based on their length of service, age and pay) that an employee must be given before their employment ceases. The notice period can vary from one to twelve weeks, depending on how long the person has worked for their employer. It will also apply to unfair dismissal claims, which must be paid at 100% of pay, rather than any reduced rate under the furlough scheme.
More information on the latest legislation is available here https://www.gov.uk/government/news/new-law-to-ensure-furloughed-employees-receive-full-redundancy-payments
You may also like to refer to our FAQs on the furlough scheme