Wage reduction, Furlough, redundancy and Holiday pay

pstaylor

Hi, Hopefully someone may be able to provide some guidance... My wife was notified in March that due to Covid the company were imposing a 30% paycut to everyone forthwith. Within 2 weeks the majority of employees were placed on furlough (Those who weren't furloughed were placed on 90% of their wages). My wife is now in the process of being made redundant and is being offered the following...

• statutory redundancy of 12 (length of service 12 years) x £500 (her weekly wage after the reduction of 30%) 
• Un-used Holiday entitlement payment, reduced by 2 days for every month she has been furloughed. When it was queried regarding the holiday pay she was told, that because the firm topped up her salary to the £500 amount then they were entitled to take 2 days per month as per an email sent out by one of the directors

The 2 main questions/queries I have are as follows:

• I have looked everywhere, and all I can find is that annual leave is still accrued whilst furloughed, so the does the email sent by the Director enable them to do this or should she receive full payment of un-used leave?

• Whether the calculation of he weekly wage should be based on the imposed reduced amount of £500 or her salary prior to the 30% reduction (I am aware this doesn't make a huge difference in her payment as statutory redundancy pay is based on a maximum of £538pw)

Any advice, guidance would be appreciated!

Jeremy535897

When in March was the 30% pay cut imposed? Was furlough 80% of the wage reduced by that 30% (if they were fixed rate employees), and were people who weren't furloughed paid 90% of the wage already reduced by 30%? Was the 30% pay reduction applied to a wage put through payroll on or before 19 March 2020?

The basic rule on statutory redundancy is that you look at the pay in the 12 weeks prior to redundancy. See https://www.gov.uk/redundancy-your-rights/redundancy-pay

From 31 July 2020, a week's wage for this purpose is calculated as if the employee was not furloughed, but unfortunately if pay was reduced by 30% before furlough came in, that may not help. See https://www.legislation.gov.uk/uksi/2020/814/part/2/made

Provided sufficient notice for taking holiday is given (usually twice the length of holiday to be taken), employers can demand employees use holiday while on furlough. Most employees accept that holiday pay must be at full rather than furloughed rate, but that has happened in your wife's case. (If she is not a fixed rate employee, holiday pay should broadly be based on the previous 52 weeks' wages (see https://www.gov.uk/guidance/holiday-entitlement-and-pay-during-coronavirus-covid-19 and the links therein).

pstaylor

Jeremy535897 said:

When in March was the 30% pay cut imposed? Was furlough 80% of the wage reduced by that 30% (if they were fixed rate employees), and were people who weren't furloughed paid 90% of the wage already reduced by 30%? Was the 30% pay reduction applied to a wage put through payroll on or before 19 March 2020?

The basic rule on statutory redundancy is that you look at the pay in the 12 weeks prior to redundancy. See https://www.gov.uk/redundancy-your-rights/redundancy-pay

From 31 July 2020, a week's wage for this purpose is calculated as if the employee was not furloughed, but unfortunately if pay was reduced by 30% before furlough came in, that may not help. See https://www.legislation.gov.uk/uksi/2020/814/part/2/made

Provided sufficient notice for taking holiday is given (usually twice the length of holiday to be taken), employers can demand employees use holiday while on furlough. Most employees accept that holiday pay must be at full rather than furloughed rate, but that has happened in your wife's case. (If she is not a fixed rate employee, holiday pay should broadly be based on the previous 52 weeks' wages (see https://www.gov.uk/guidance/holiday-entitlement-and-pay-during-coronavirus-covid-19 and the links therein).

Hi Thanks for the response.... in answer to your questions,..

• 30% pay reduction was notified circa 18th March and came into effect from 01st April 2020
• In my wifes case, Furlough payments were 100% of the reduced amount (80 % government, 20% topped up by company) - ironically, if the company had not reduced my wife's salary by 30% and just paid her the government 80%, she would have been better off without the company topping up her pay)
• Non furloughed staff were paid 90% of their full salaries
• Payroll for march would have been put through after 19th March

Sorry, one last question for clarification.... So even though the government guidelines indicate that annual leave entitlement can be accrued whilst on Furlough, the company can essentially take this off an employee (1/12 of entitlement per month) if they notify them that they plan to do so?

Thanks again

Jeremy535897

That's very interesting. Furlough "reference salary" for fixed rate employees is based on the pay for the last pay period ending before 20 March 2020. For employees on variable pay the average pre furlough pay for 2019/20 was used (or the pay for the equivalent calendar period in the previous year if higher). Therefore there is no way that even 100% of the reduced pay is the right amount to pay furloughed employees, because as you point out 100% of the new pay is less than 80% of the reference salary above. If the employer has paid its furloughed employees less than 80% of their reference salary throughout (assuming the £2,500 cap is not in point), all its CJRS claims should be repaid as they are in breach of the Treasury Direction (using the first one in May 2020):

"7.1 Costs of employment meet the conditions in this paragraph if-
(a) they relate to the payment of earnings to an employee during a period in which the employee is furloughed, and
(b) the employee is being paid-
 (i) £2500 or more per month (or, if the employee is paid daily or on some other periodic basis, the appropriate pro-rata), or
 (ii) where the employee is being paid less than the amounts set out in paragraph 7.1(b)(i), the employee is being paid an amount equal to at least 80% of the employee’s reference salary."

See https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/879484/200414_CJRS_DIRECTION_-_33_FINAL_Signed.pdf

It would seem also that the 30% reduction was not imposed on people still working, just 10%.

So long as the employer gives adequate notice as I explained earlier, employers can make people take holiday while on furlough.