Employers can’t slash furloughed workers’ redundancy payouts thanks to new law
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.
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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.
Can I be made redundant if I'm on furlough?
EVEN though furlough is designed to keep workers employed, unfortunately it doesn't protect you from being made redundant.
But it doesn't affect your redundancy pay rights if you are let go from your job amid the coronavirus crisis.
Your employer should still carry out a fair redundancy process.
You will be entitled to be consulted on the redundancy lay-off first and to receive a statutory redundancy payment, as long as you've been working somewhere for at least two years.
How much you're entitled to 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.
There should be a period of collective consultation as well as time for individual ones if your employer wants to make 20 or more employees redundant within 90 days or each other.
You are also entitled to appeal the decision by claiming unfair dismissal within three months of being let go.
If you're made redundant after your company has gone into administration you can claim redundancy pay .
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.
Unfortunately, the new laws can't be backdated to help those who've already fallen foul of the loophole.
Do I pay tax on a redundancy payout?
YOU do not have to pay tax on redundancy pay, including any severance pay, worth under £30,000.
You will have to pay the taxes on payments that are more than this.
Your employer will however deduct tax and National Insurance contributions from any wages or holiday pay that they owe you.
Your employer should have sorted any tax owed for you but it's always worth double-checking.
Under the Coronavirus Job Retention Scheme (CJRS), the government pays 80 per cent of the wages, up to £2,500, of a furloughed member of staff to keep them employed even if they can't work during the Covid-19 pandemic.
Nine million workers have been rolled onto the scheme since it launched back in March as the UK went into lockdown to stop the spread of the virus.
Thousands of jobs are expected to be lost and employment figures soar as the scheme is wound down, beginning from August 1.
Business Secretary Alok Sharma said: "We urge employers to do everything they can to avoid making redundancies, but where this is unavoidable it is important that employees receive the payments they are rightly entitled to.
"New laws will ensure furloughed employees are not short-changed and are paid their full redundancy pay entitlement – providing some reassurance in an undeniably testing time."
Before employers axe jobs, there should be a period of collective consultation as well as time for individual ones if your employer wants to make 20 or more employees redundant within 90 days or each other.
If you're worried about the future of your job, we've put together a guide of your redundancy rights.
Being let go from a job doesn't stop you from looking for new work - here are 50 jobs you can apply for right now.
But competition is high, as new research found that more than eight people are applying for each new job vacancy as unemployment rises faster than during the Great Depression.
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