A LOOPHOLE that allowed businesses to calculate furloughed workers’ redundancy pay using their reduced salary has been closed thanks to a new law.
Employment lawyers had warned that employees who are let go could be left thousands of pounds out of pocket if companies took advantage of the gap in the guidance.
Businesses must pay furloughed workers’ redundancy packages based on full wage
The new law, which comes into force from tomorrow, protects workers to make sure they receive their full statutory redundancy payout based on their normal wages.
Until now, firms could exploit the scheme by using reduced furlough wages to work out redundancy pay as there is nothing in the current rules that explicitly stops businesses from taking this approach.
The government says that the majority of businesses have continued to calculate payouts fairly but accepted that “there are a minority who have not”.
Employees who’ve been working for a firm for at least two years are entitled to a payout based on their wages.
How much you’re entitled to also depends on your age and length of service, although this is capped at 20 years. You’ll get:
- Half a week’s pay for each full year you were under 22,
- One week’s pay for each full year you were 22 or older, but under 41,
- One and half week’s pay for each full year you were 41 or older.
Sadly, you won’t be entitled to a payout if you’ve been working for your employer for fewer than two years.
The new rules will also apply to statutory notice pay, which is the time given to employers between being told they will be let go and their last day of employment.
A fair notice period depends on how long an employee has been working for a company, but it can vary from at least one week’s notice to up to 12 weeks worth.
Now, employers must make sure to pay furloughed workers in full during this period as well.
Workers are entitled to appeal an employers’ decision by claiming unfair dismissal within three months of being let go.
Businesses must make sure that any basic award for unfair dismissal is based on a worker’s full pay and not furlough pay, under the law from tomorrow.
It’s not clear whether the new laws can be backdated to help those who’ve already fallen foul of the loophole. HOAR has asked and we’ll update this article when informed.