The Coronavirus Job Retention Scheme (CJRS) comes to an end on 31 October 2020. As the scheme winds down and
employers start meeting some of the associated costs, they will face difficult decisions as to whether they
can bring employees back to work or whether they need to make some employees redundant. New legislation has been introduced to ensure that furloughed employees do
not lose out on certain statutory entitlements, including the right to statutory redundancy pay.

Nature of statutory redundancy pay

Employees who have at least two years’ continuous employment with their employer at the date on which
they are made redundant are entitled to statutory redundancy pay. Where an employer operates a contractual
redundancy pay scheme, they must pay employees redundancy pay which is at least equal to the statutory
amount.

Where an employee has been placed on furlough prior to being made redundant, the time that the employee was
furloughed counts as continuous employment in determining their entitlement to statutory redundancy pay.

The cost of statutory redundancy pay is met by the employer. From the employee’s perspective, it is
tax-free as long as the £30,000 tax-free threshold for termination payments remains available.

How much is statutory redundancy pay?

An employee’s entitlement to statutory redundancy pay depends on the length of their service, their age
and how much they are paid when they are made redundant. They are entitled to:

  • one-and-a half weeks’ pay for each full year of service for which they were 41 or older;
  • one weeks’ pay for each full year of service for which they were 22 or older but under 41; and
  • half a week’s pay for each full year of service that they were under 22.

Service is capped at 20 years for the purpose of the calculation and counted backwards from the date of
redundancy. Pay, too, is capped for the purposes of the calculation. For 2020/21, the cap is set at
£538 per week, meaning that the maximum amount of statutory redundancy pay that must be paid in
2020/21 is £16,140 (20 x £538 x 1.5).

Where an employee’s pay varies, statutory redundancy pay is calculated by reference to average weekly
pay for the 12 weeks prior to the date on which the employee was made redundant.

Pay and furloughed employees

During the COVID-19 pandemic, the CJRS allowed employers to place employees on furlough and to claim a grant
with which to pay them from the Government. The grant was set at 80% of the employee’s pay to a
maximum of £2,500 per month.

When calculating statutory redundancy pay for an employee who has been made redundant after a period of
furlough, the employee’s ‘usual’ pay should be used, rather than the reduced pay that they
may have received while on furlough. This will normally be the pay used to calculate the grant payable under
the CJRS, typically their pay for February 2020 or, where their pay varies, their average pay for the
2019/20 tax year. Thus, if an employee whose normal pay is £300 per week is furloughed prior to being
made redundant and receives £240 per week (80% of £300) while on furlough, the employee’s
usual pay of £300 per week is used to calculate their statutory redundancy pay.

Contact us

We can help you work out whether your employees are entitled to statutory redundancy pay, and the level of
pay which should be used to calculate their entitlement.