UK COVID-19: new rules on redundancy and notice pay for furloughed employees

As the Coronavirus Job Retention Scheme (CJRS) begins to wind down through to 31 October 2020 with increasing levels of employer contribution, more employers are having to consider the issue of redundancies.  Two recent Government announcements will be key to these considerations: new regulations which came into force on 31 July 2020 have changed the way in which statutory redundancy and notice pay must be calculated in respect of employees who have been furloughed on reduced pay, and some further information about the Job Retention Bonus, which seeks to incentivise employers to hold off on redundancies, has also been given (although full details are not expected until the end of September).

New rules on statutory redundancy and notice pay for furloughed employees on reduced furlough pay rate

The new regulations are complex but the main points to note are as follows:

Notice

• Employers can give notice of termination to employees while they are on furlough and can continue to claim a CJRS grant covering the relevant proportion of the wages paid to those employees while they are on statutory or contractual notice. (Some confusion over this, caused by the stated purpose of the CJRS set out in the Treasury's Third Direction and by a lack of clarity in earlier iterations of HMRC's guidance, has now largely been cleared up.)
• There has been some debate as to whether it could be viewed as an abuse of the CJRS to give a longer period of notice than is required by contract or statute, to expire on 31 October 2020 when the CJRS ends.  We consider that the risk of HMRC taking this view and pursuing repayment of the relevant grant is low;  HMRC is likely to focus on clearer cases of abuse, particularly given a recent survey suggesting that, contrary to the rules of the scheme, two thirds of employees furloughed prior to 1 July continued to work for their employers during furlough (albeit that only around 20% were formally asked to do so by their employer).  An alternative to extending the period of notice would be simply to defer the giving of the required period of notice so that it expires on 31 October.
• Payment in lieu of notice cannot be claimed under the CJRS.
• The new regulations provide that where an employee is entitled to minimum statutory notice pay they must be paid their pre-furlough rate of pay during statutory notice.  This is a change only for some employees (depending on the type of contract) who, because of the way in which minimum statutory notice pay is calculated using a 'week's pay', would only have been entitled to a reduced pay rate during statutory notice.  Employees on different types of contract may already have been entitled to their full pre-furlough pay rate and the regulations simply confirm that.  For further details see our updated briefing on the CJRS.
• The new requirement will apply if notice is given after 31 July 2020 (whenever it expires).  Unfortunately the regulations are not clear as to whether it is intended to apply where notice given before 31 July 2020 expires after that date and, if so, whether only in relation to the weeks of notice worked from 31 July.  In any event, it is likely that employers will come under pressure to pay the full pre-furlough rate for all notice weeks regardless of the strict legal requirement. Employers will need to weigh employee relations and reputational issues against the increased cost in paying full pay when deciding their approach.  (The new requirement will not apply retrospectively to employments terminated prior to 31 July 2020.)
• An employer can continue only to pay a reduced furlough rate throughout notice where an employee on reduced furlough pay is not eligible for minimum statutory notice pay under the relevant legislation.  This could be because:
  • the employee's contractual notice period exceeds the statutory minimum (one week per year of service up to a maximum of 12 weeks) by at least one week
  • the employee cannot be viewed as "ready and willing to work" were the employer to provide work; there is a (perhaps unattractive) argument that employees who cannot work from home and who are not prevented for medical reasons from attending the worksite, and who have asked to be furloughed, may not be seen as "ready and willing to work".

The government press release does not acknowledge these exceptions and so, again, employers may well face pressure to pay the full pre-furlough rate in these cases too.

• In our view, although the drafting could be clearer, the regulations do not have the effect of applying the statutory weekly pay cap (currently £538) to notice pay (as has been suggested by some commentators).  The usual approach - that the cap is not applied to notice pay - should be followed.

Redundancy pay

• Where the notice of termination expires on or after 31 July, the new regulations mean that any statutory redundancy pay entitlement must be calculated using an employee's normal pre-furlough wages, rather than any reduced furlough rate. (Employees dismissed for redundancy are entitled to a statutory redundancy payment calculated using age, length of service and weekly pay rate (subject to the statutory weekly pay cap), provided they have two years’ continuous service.  Again this improves the position for some employees (depending on the type of contract) on reduced furlough pay when their employment ended.)
• Although the regulations do not make it clear, the new rules on statutory redundancy pay will probably also apply where the notice of termination expired before 31 July 2020 but the employer gave less than statutory minimum notice and statutory minimum notice would have expired on or after 31 July (as this would make the "effective date of termination" for statutory purposes on or after 31 July).
• These rules only apply to statutory redundancy payments and any contractual enhancement will depend on the contractual terms.
• A grant cannot be claimed under the CJRS to cover redundancy payments.

Job retention bonus

On 31 July 2020 the Government published some additional details of the Job Retention Bonus in addition to those announced by the Chancellor on 8 July 2020.  The initial announcement set out that a one-off (taxable) payment of £1,000 would be available to UK employers for furloughed employees who remain continuously employed through to the end of January 2021 and who earnt above the Lower Earnings Limit (£520 per month) on average from 1 November 2020 to 31 January 2021 and received at least some earnings in each of the three months.

The new details include that the bonus will not be available in respect of employees who have been given notice of termination before 1 February 2021, and an employer will only be able to claim in respect of employees transferred to it under TUPE if the new employer has successfully claimed furlough for them - furlough by the transferor is not sufficient;  the same applies for changes of ownership covered by PAYE business succession rules and certain transfers from a liquidator.  Only earnings recorded through HMRC Real Time Information (RTI) records can count towards the earnings threshold and employers should therefore ensure that their employee records are up to date and that all of their CJRS claims have been accurately submitted and any necessary amendments notified to HMRC.  The policy paper notes that "Employers must keep their payroll up to date and accurate and address all requests from HMRC to provide missing employee data in respect of historic Coronavirus Job Retention Scheme claims. Failure to maintain accurate records may jeopardise an employer’s claim. HMRC will withhold payment of the Job Retention Bonus where it believes there is a risk that Coronavirus Job Retention Scheme claims may have been fraudulently claimed or inflated, until the enquiry is completed."

Full guidance will be published by the end of September.  Although the sums involved may well be insufficient to save jobs, employers should at least take the availability of this bonus into account when considering whether there are alternatives to redundancies.