The Employment Rights Act 1996 (Coronavirus, Calculation of a Week’s Pay) Regulations 2020 came into effect on Friday 31 July 2020. The Department for Business, Energy & Industrial Strategy (BEIS) announced this ‘new law to ensure furloughed employees receive full redundancy payments’. The intention of the legislation is to ensure that any furloughed employee on reduced pay, subsequently made redundant, is paid at their ‘normal’ rate of pay (as opposed to the one they received on furlough).
This is applicable to employees who have contract of employment written under the Employment Rights Act 1996 (ERA).
The 2020 Regulations apply to the calculation of a week’s pay in the following situations:
- Statutory Remuneration (Time off to Look for Employment or Arrange Training)This refers to this statutory right under ERA, sections 52, 53 and 54.
Note that section 52 states that there is a 2-year continuous service requirement. 53 says that the employer only has a statutory obligation to pay 40% of a week’s pay to cover the leave.
- Statutory Notice PaymentsThis is not contractual notice payments, which may be longer but cannot be shorter in terms of the notice given by employer to employee. This refers to this statutory right under ERA, involving all sections under part 9.
The Money Advice Service have some good and simple guidance entitled ‘Your right to a minimum notice period’.
- Any Statutory Sum for Failing to Provide a Written Statement of ReasonsThe employee is entitled to receive a written statement giving particulars of the reasons for the employee’s termination of employment (ERA section 92). If they are not provided with this, the employee can make a complaint to an Employment Tribunal who may uphold the complaint and rule that the employer must pay compensation of an amount equal to two weeks’ pay. This is why the 2020 Regulations refer to ERA section 93 (complaints to an Employment Tribunal).
- Any Statutory Sum for Failing to Comply with a Reinstatement or Re-engagement OrderThis refers to when an Employment Tribunal make an order of re-instatement or re-engagement of employment. If the employer refuses to comply with the Tribunal’s ruling, section 117 (3) comes into play. The Tribunal will enforce a basic award and a compensatory award.
The basic award is worked out based on a ‘week’s pay’ which is capped. This cap is reviewed annually and is currently £538 per week.
- Statutory Compensation for Unfair DismissalIf the Employment Tribunal rules that the dismissal is unfair, there is a limit on the amount of compensatory award that can be awarded. This is the lower of:
- 52 multiplied by the value of a week’s pay or
- The statutory cap of £88,519
Sections 118 to 126 of ERA applies for this calculation.
- Statutory Redundancy PaymentThis refers to this statutory right to paid redundancy payment under ERA, part 11 and refers to the calculation with which we are familiar:
- Half a week’s pay for each full year the employee was under 22
- One week’s pay for each full year from 22 but under 41
- One and half week’s pay for each full year from the age of 41
This is capped at 20 weeks and only applies when an employee has been continuously employed for 2 years. It is capped at £538 per week.
Any of the above payments that are made on or after 31 July 2020 must be made considering this new piece of legislation that defines a ‘normal’ amount of a weeks’ pay. The Regulations apply until 31 October 2020.
The Details
The intention of this new legislation is to set out how to calculate week’s pay / hourly rate, though it can be extremely complicated to read. Without trying replicate the legislation and, hopefully, imminent guidance, there are the following sections advising the calculation of a week’s pay where:
- Normal working hours and remuneration do not vary with the amount of work done
- Normal working hours and remuneration does vary with the amount of work done
- Normal working hours and remuneration does vary according to time of work
- No normal working hours
There is also a section on calculating the average hourly rate of remuneration.
Summary
While the intention is to set out how to calculate week’s pay / hourly rate, this is only when the contractual right to salary has been reduced as a result of furloughing. Even though this is a contractual reduction in pay, these new Regulations override that contractual reduction.
Where an employee has been furloughed and their pay reduced, the starting point for calculating a ‘normal’ week’s pay or hourly rate is the pay reference period immediately before the employee was furloughed for the first time (the ‘relevant period’). With the exception of employees who have normal working hours, the relevant period is the 12 weeks ending before the employee was furloughed for the first time. The calculation must not contain any weeks in which the employee was furloughed.
That concept does not apply when the employer and employee have agreed a more permanent contractual change in working hours.