Statutory redundancy pay and furloughed employees

As the Coronavirus Job Retention Scheme draws to a close, employers may face the difficult decision to make some employees redundant. Legislation was introduced at the end of July to protect furloughed employees.

An employee is entitled to statutory redundancy pay if they have at least two years’ continuous employment when they are made redundant. Where an employee has been furloughed during the Coronavirus pandemic, the time that they are on furlough counts as part of their continuous employment.

The amount of statutory redundancy pay to which an employee is entitled depends on:

• – how many complete years they have been employed at the date that they are made redundant;
• – their age at the date of redundancy; and
• – how much they are paid.

It is paid at the rate of:

• – one and a half week’s pay for each full year the employee was aged 41 or older;
• – one week’s pay for each full year the employee was 22 or older but younger than 41; and
• – half a week’s pay for each full year that the employee was younger than 22.

The number of years’ service that is taken into account in calculating statutory redundancy pay is capped at 20 and is counted back from the date of the redundancy. This works in the employee’s favour as the rate at which statutory redundancy is paid increases with age.

Pay is also capped. For 2020/21, the cap is set at £538 per week, meaning that the maximum statutory redundancy pay that is payable for 2020/21 is £16,140 (£538 x 1.5 x 20).

Where an employee has been furloughed and a grant claimed under the Coronavirus Job Retention Scheme, the employee may only be receiving minimum furlough pay of 80% of their pay to a maximum of £2,500 per month, rather than their usual pay.

However, when working out an employee’s statutory redundancy pay, the employee’s pre-furlough pay is used rather than their furlough pay where this is lower. This applies where the calculation date for statutory redundancy pay is on or before 31 October 2020 (the date on which the furlough scheme comes to an end).

Where the employee’s pay varies, statutory redundancy pay is based on average pay over the previous 12 weeks. Where that period includes at least one week where the employee was furloughed, the averaging calculation must be performed over 12 weeks of full pay.

Partner note: The Employment Rights Act 1996 (Coronavirus, Calculation of a Week’s Pay) Regulations 2020 (SI 2020/814).