In our first article, we looked at whether lawyers and support staff can be made redundant when on furlough leave and how to follow a fair consultation process. In this article, we explain how to calculate notice pay and redundancy pay and consider whether any of these sums can be recovered from the Coronavirus Job Retention Scheme (CJRS).
Issue 1 – How is the notice pay calculated and will it be covered by the job retention scheme?
This is complicated and will depend on the length of the employee’s notice period and whether or not they have normal working hours. Most employees in legal firms tend to have regular working hours so let’s focus on that scenario.
If the lawyer is only entitled to statutory notice from the firm (or less than one week more than statutory notice) they will be entitled to their normal remuneration during notice, even if they are on furlough. This means that the firm will have to top up the furlough pay from the 80%/£2,500 cap to 100%. As a reminder, statutory notice is one week for every complete year of service up to a maximum of 12 weeks
In practice most lawyers, and certainly salaried partners, will have longer notice periods. If they are entitled to at least one week more than statutory notice, their pay will be based on the pay that they would otherwise have received during their notice. This will be the reduced furlough pay, and the firm will not have to top this up.
For any support staff without normal working hours, it will be a case of looking at their average weeks’ pay and the length of their notice period. We can provide help with this if you have employees in this situation.
Some legal firms prefer to pay their employees in lieu of notice. However, this is not advisable if the member of staff is in on furlough leave as there does not appear to be any way for employers to reclaim such payments under the CJRS. It is therefore preferable from a financial perspective to keep lawyers and support staff on furlough for their notice period so that at least part of their notice pay can be recovered.
Issue 2 – Is statutory redundancy pay calculated on furlough pay or normal pay and can these payments be recovered from the CJRS?
Looking at the final questions first, the CJRS guidance is clear that an employer cannot claim reimbursement of redundancy payments under the scheme. This isn’t surprising as it is meant to be a scheme to avoid redundancies
As to the amount paid, this is much less clear cut. Redundancy pay is calculated by reference to the employee’s weekly pay capped at £538. If there is nothing in the furlough agreement to say that redundancy will be based on the furlough pay, then can employers use this reduced weekly pay calculate redundancy, ie base it on 80% of salary rather than 100%? A few employers have done this but there is a big risk that they will end up fighting a tribunal claim. Although there has been an agreement to reduce wages, this is arguably only for the purpose of being able to join the furlough scheme, not to calculate redundancy pay.
The calculation of a week’s pay varies depending on the type of worker. For instance, where the employee has variable hours or their remuneration varies with the amount of work done, employers should calculate redundancy pay based on the average of the previous 12 weeks wages.
However, it is only average remuneration for working weeks which is taken into account. Whole weeks of absence are left out of the calculation. This means that whole weeks of furlough leave will probably not be taken into account, and a week’s pay should be based on the relevant reference period prior to furlough starting.
Most lawyers and support staff are paid a fixed salary, so in their case a week’s pay is calculated with reference to the basic pay payable for their normal working hours. As the normal working hours of, say, secretaries on furlough have not changed, there is a good argument that a week’s pay for statutory redundancy pay purposes is what they would usually receive when at work and not the reduced pay they are receiving while on furlough. Back in 2012 the EAT held that it would be wrong to treat short-time working hours as “normal working hours”.
Most lawyers will be earning far in excess of the weekly cap of £538 and so this won’t be an issue when calculating their redundancy pay. However, support staff are likely to be on lower wages. It is our view that the furlough scheme is not designed to allow firms to reduce statutory redundancy pay and so they should use pre furlough pay when calculating the amount due. As with everything furlough-related, this is not certain, but is a reasonable approach to take.
A number of our Partners have experience and the discretion needed to advise organisations of all forms facing challenges.
For a confidential discussion about the issues raised here please contact Rachel direct: firstname.lastname@example.org