Covid-19 - Notice Pay
- AuthorReyhana Koser
Some much-needed clarification of notice pay calculation . . .
When the government first introduced the Coronavirus Job Retention Scheme there were a number of issues which were unclear, the majority of which have now been clarified. One such issue related to notice pay. Employers were uncertain as to how to approach the following questions:
- How to calculate notice pay for employees on furlough when they are made redundant? and
- Whether they can claim back furlough payments when terminating a furloughed employee’s employment and giving them notice?
We provide some guidance on how to approach these questions.
What is a furloughed employee’s entitlement to notice pay when an employer decides to make them redundant.
Under the statutory notice period scheme, an employee is entitled to receive at least one week’s notice for every year of service they have completed, up to a maximum of 12 weeks’ notice. But, this is a minimum notice period and an employee may be entitled to more notice under their contract of employment.
So, for example, if an employee has worked for their employer for 6 years then they would be entitled to 6 weeks’ notice. However, their contract may provide that they get two months’ notice, in which case they are entitled to this longer period of notice.
If an employee is only entitled to statutory notice, or not more than a week longer than statutory notice, then they must be paid their normal pay during their notice period. This would mean full pay rather than the 80% of their pay (capped at £2,500) that they are entitled to receive during furlough leave. That said, the employer will still be able to recover a percentage of the notice pay under the furlough pay scheme (80%, reducing to 70% in September and 60% in October).
But, where an employee has a contractual notice period which is more than a week longer than what they are entitled to under the statutory scheme, then their employer pays them their reduced pay under the furlough scheme i.e. 80% of their pay capped at £2,500 per month.
Clarifying the position relating to notice payments and furlough pay
The guidance was a little unclear about whether an employer could claim back furlough payments when they had decided to terminate a furloughed employee’s employment and given them notice.
The guidance now makes it clear that an employer “can continue to claim for a furloughed employee who is serving a statutory or contractual notice period, however grants cannot be used to substitute redundancy payments.”
If an employer decides to pay an employee in lieu of their notice, the same rules would apply as above in respect of the calculation but, it does not look as though they can recover any of the payment from the government under the furlough scheme.
If you need advice in relation to an employment matter, the Employment Law specialists at Talbots Law are on hand to advise you further.