New legislation came into force on 31 July 2020 to ensure that employees who are on furlough will be entitled to receive their statutory redundancy payments based on their normal wages, rather than on any reduced salary while on furlough. However, there has been no change to the cap on a week's pay for the purpose of calculating statutory redundancy pay and, therefore, there is no impact on the overall maximum statutory redundancy payment that an employee can receive. Prior to introducing the new legislation, the Government had urged businesses to base any redundancy payments on full pay, but it appears that a change in the law was required to ensure this happens in practice.
In addition, the new legislation ensures that various statutory entitlements based on a week's pay are not based on any reduced pay during furlough, e.g. statutory notice pay and compensation for unfair dismissal. The new rules also apply to contractual notice, if this is not at least one week more than statutory minimum notice.
This legislation, therefore, brings greater certainty to the calculation of a week's pay for those employees on furlough and ensures such individuals do not lose out financially by having been placed on furlough.
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