How is statutory redundancy pay calculated if the employee has been furloughed?

Employees with at least two years' service are entitled to a statutory redundancy payment, based on their length of service, age and weekly pay. The employee's normal "week's pay" is calculated as at the date on which notice is given (or the date on which the dismissal takes effect if the employer fails to give notice), based on a 12-week average in some circumstances. However, this does not mean that an employee who has been furloughed on reduced pay will receive a lower redundancy payment than they would have received had they not been furloughed.

The Government introduced Regulations on the calculation of a week's pay for employees who have been furloughed, to ensure that statutory redundancy payments are based on employees' normal full pay, rather than reduced furlough pay. The Employment Rights Act 1996 (Coronavirus, Calculation of a Week's Pay) Regulations 2020 (SI 2020/814) provide that a week's pay should be based on employees' normal working hours and any reduction in pay due to furlough should be disregarded.

Where the pay of an employee with normal working hours varies by the amount of work done, or the time at which the work is done, a week's pay is based on the employee's average pay for their normal hours in the 12 weeks leading up to the date when notice is given or when the dismissal takes effect. The employee's normal hours are to include any furloughed hours and the average hourly rate of pay is to be based on the rate payable under the contract, disregarding any reduction as a result of the furlough.

For employees with no normal working hours (eg zero hours workers), a week's pay is based on a 12-week average. For weeks where the employee was furloughed, a week's pay is based on the employee's full pay as calculated for the purpose of the claim under the Coronavirus Job Retention Scheme.

For employees with variable pay, whether or not they have normal hours, any weeks where the employee was not furloughed but no remuneration was payable are to be disregarded and earlier weeks are taken into account until 12 weeks are counted.

In any event, employers should remember that the statutory cap on a week's pay for the purpose of calculating a statutory redundancy payment is £544. (Some employees will have been receiving more than this per week while furloughed, even if they were receiving only 80% of their normal pay (capped at £2,500 per month).)