Furlough update

The government has introduced legislation to ensure that furloughed employees receive notice pay and redundancy payments based on their pre-furlough earnings.

In force from 31 July 2020, the Employment Rights Act 1996 (Coronavirus, Calculation of a Week’s Pay) Regulations 2020 confirm that employees who are furloughed are entitled to receive notice payments and statutory redundancy payments based on 100% of their usual earnings, ignoring any reduction in pay or working hours under the Coronavirus Job Retention Scheme.

The issue as to calculating notice and redundancy payments being made to furloughed staff had been the subject of some legal debate, bringing with it a lack of clarity for employers. These new Regulations are intended to make the position clear.

From 1 August, the government will continue to pay 80% of employees wages, capped at £2,500, however, employers will need to start paying national insurance and pension contributions, representing 5% of employment costs.

From 1 September 2020, the government will begin to phase out the furlough scheme by decreasing payments by 10% and decreasing the maximum payment by £313. Employers will then be able to claim 70% of employees wages, capped up to £2,187, being 14% of employment costs.

From 1 October 2020, the government will pay 60% of wages capped up to £1,875, a further decrease of £312, representing 13% of employment costs. on 31 October the Job Retention Scheme will cease to operate.

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