Is an employee entitled to their normal full pay during the notice period if they are made redundant while on furlough?
From 1 December 2020, employers will not be able to claim under the Coronavirus Job Retention Scheme for days on which the employee is serving a notice period. The following relates to the position up to 1 December 2020.
Where an employee who is on reduced pay during furlough is given notice of redundancy, the question arises as to whether they should be paid their normal full pay or their furlough pay during the notice period. The HM Revenue and Customs guidance on the Coronavirus Job Retention Scheme states that statutory notice pay should be based on the employee's normal wage rather than the reduced furlough wage. This is the safest option for an employer to take. However, there are a number of factors that make this a complex question.
One relevant factor is whether the employee is "ready and willing to work" during the notice period (ss.87 to 89 of the Employment Rights Act 1996). If they are, they are entitled to be paid their normal pay for their normal working hours during the notice period. However, this right does not apply if the employee's contractual notice exceeds their statutory notice entitlement by one week or more. Where the right does apply, the question of whether or not an employee on furlough is "ready and willing to work" is likely to depend on their individual circumstances. Ultimately, this may be something to be decided by an employment tribunal.
The Government has introduced Regulations on the calculation of a normal week's pay for employees who have been furloughed. The Employment Rights Act 1996 (Coronavirus, Calculation of a Week's Pay) Regulations 2020 (SI 2020/814), which came into force on 31 July 2020, 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. The Regulations prevent employees without normal working hours being disadvantaged as they confirm that their average pay over the previous 12 weeks should be based on their full pay (as calculated for the purpose of the claim under the Coronavirus Job Retention Scheme) rather than any reduced furlough pay.
Where the right to a normal week's pay during the notice period does not apply, ie where the employee is not ready and willing to work, or where their contractual notice period exceeds the statutory minimum notice by a week or more, arguably the employer can continue to pay them at the furlough rate, without topping this up.
The safest option for an employer, to avoid any dispute, would be to pay the employee at their normal, pre-furlough rate. Where an employer decides to continue to pay the reduced furlough rate, it should be aware that this may be challenged by employees and it is not yet known how tribunals will approach this issue.