The Government has closed a loophole which allowed employers to make furloughed staff redundant on reduced pay under the furlough scheme.

The new law kicked in on 31 July 2020 to ensure furloughed workers who are made redundant receive redundancy pay based on their normal wage.

Employees who are made redundant after more than two years of continuous service are usually entitled to a statutory redundancy payment. This payout is based on their length of service, age and pay, up to a statutory maximum.

With many of the UK’s 9.6 million furloughed workers being paid 80% of their normal wage,

the government has urged employers to do right by their employees and pay those being made redundant based on their normal wage.

Redundancies have been tipped to rise as the furlough scheme winds down at the end of next month, and a minority of employers made redundancies using the reduced furlough rate.

The Government acted quickly to close the loophole however which now ensures that those eligible receive statutory pay based on their normal wages.

Business secretary, Alok Sharma commented:

“Where redundancies are unavoidable, it’s important that employees receive the payments they’re rightly entitled to. These new laws ensure furloughed workers are not short-changed if they’re ever made redundant – providing some reassurance for workers and their families during this challenging time.”

The new law extends to statutory notice pay, which ensures workers are given a notice period before their employment ends. In addition, basic awards for cases of unfair dismissal must be based on full pay rather than reduced wages through the furlough scheme.

If you would like to discuss termination payments, please get in touch with PKB and we’ll be happy to advise.

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