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CJRS update: New redundancy rules and Job Retention Bonus

Ben Daniel looks at what employers are doing to prepare for the end of the Coronavirus Job Retention Scheme.

The Coronavirus Job Retention Scheme (CJRS) comes to a close at the end of October, and employers across the UK are putting in place strategies to cope with reduced business and ongoing uncertainty once wage subsidies are no longer available.

Inevitably, for many, these plans will include redundancy. In contemplation of imminent job losses, the government has introduced emergency legislation, in the form of the Employment Rights Act 1996 (Calculation of a week’s pay) Regulations 2020 designed to maximise the payments redundant employees will receive.

Separately, further details have been released of the Job Retention Bonus; the government’s attempt to incentivise employers to offer continued employment wherever possible.

New redundancy rules: the detail

As their name suggests, the new Regulations, which came into force on 31 July, amend existing legislation around the calculation of ‘a week’s pay’ for the purposes of working out an employee’s statutory redundancy pay entitlement.

Both the underlying legislation and the new Regulations are complex, and deal separately with employees who have normal working hours and those who do not.

As a reminder, when an employee is made redundant, they are entitled to receive a statutory payment comprising one week’s pay for each completed year of service where the employee was aged between 22-40 years old. This increases to one and a half week’s pay for any complete weeks of service over the age of 40, and is reduced to half a week’s pay for any complete years under the age of 22.

Usually, very broadly speaking, where a worker has normal working hours in their contract, the pay they would normally receive for working those hours stands as ‘a week’s pay’ for the purposes of the statutory redundancy calculation, subject to a statutory cap (currently £538 per week).

If the employee’s pay varies with the amount of work done, or the time that work is done, then an average of the employee’s pay is taken over the last 12 working weeks (excluding any weeks where no remuneration was earned). The same method is used where the employee has no normal working hours. Again, the statutory cap applies.

However, the CJRS scheme has in many cases driven a coach and horses through employees’ usual working arrangements and earnings. In order to ensure that a period of furlough does not adversely impact an employee’s redundancy pay, the new Regulations specify that:

  • Where an employee has ‘normal working hours’, any reductions to their working hours or pay due to furlough should be disregarded. In other words, a ‘week’s pay’ for the purposes of their statutory redundancy payment should be based on their ‘normal’, pre-furlough hours and pay.
  • Where an employee has no normal working hours (or pay varies with the amount or time of work done) a ‘week’s pay’ will be the employee’s reference salary, used by their employer to calculate their claim under the CJRS. Broadly speaking, this reference salary will be either the same month’s earnings from the previous year OR the employee’s average monthly pay in 2019-20 tax year (whichever is the higher).
  • For these purposes, any maximum limits on the amount an employer is able to claim under the CJRS do not apply. However, when working out the statutory redundancy payment, it is important to note that the statutory cap of £538 per week will apply as normal.

Job Retention Bonus

The government has confirmed that the Job Retention Bonus, will take the form of a one-off, taxable, payment of £1,000 to an employer, for every employee claimed for under the CJRS, who remains continuously employed through to 31 January 2021. To be eligible, the employee must perform ‘meaningful work’ and earn at least £520 per month on average between 1 November 2020 and 31 January 2021 (a total of £1,560 across the three months, receiving at least some pay in each of those months). Employers may apply from February 2021, after PAYE submissions have been filed for January. Further guidance on the claims process has been promised in September 2020.

In contrast with the CJRS, where the aim of ‘job retention’ is framed relatively loosely, the government has made clear that the bonus will not be payable where an employee is serving a statutory or contractual notice period which started before 1 February 2021.

Comment

While the new Regulations obviously increase the cost of post-furlough redundancies for employers, they provide a valuable financial safety net for employees facing redundancy dismissal. It is difficult to argue with the public policy objective underpinning these new Regulations; that employers should not be able to dismiss ‘cheaply’ at employees’ expense, when the financial support available for businesses throughout the pandemic has been relatively generous.

Arguably, by ignoring the ups and downs of what may be multiple periods of furlough, the new Regulations keep the process of ‘costing-up’ a redundancy exercise as simple as possible; which may be a welcome relief to employer’s fatigued by complex CJRS calculations.

It is important to note that these rules apply to the calculation of statutory redundancy payments only, and may not impact any enhanced contractual redundancy arrangements employers have in place. We would be happy to advise you if you have any queries regarding your organisation’s enhanced redundancy terms.

As well as calculating statutory redundancy pay, the new Regulations apply to a number of other situations where ‘a week’s pay’ forms the basis of the calculation; for example, working out the basic award in an unfair dismissal claim, or what an employee should be paid during a statutory notice period.

There has been some concern in legal circles that the new Regulations are clumsily drafted and have the unintended effect of imposing a statutory cap of £538 on ‘a week’s pay’ in contexts where no such cap currently applies, thereby in fact reducing an employee’s entitlement to pay (for example during a statutory notice period). These drafting issues may at some future point be thrashed out in front of an employment tribunal, or indeed by amendment to the statutory instrument itself, but have no immediate ‘real-life’ impact on best practice.

Given that the clear purpose of the Regulations is to ensure that employees are fully and properly compensated for post-furlough dismissals, it is unlikely that an employment tribunal would be sympathetic if an employer sought to rely on these technical points to save costs.

There is some debate over whether the Job Retention Bonus will genuinely achieve the stated aim of incentivising ongoing employment. While the payment may be a lifeline for smaller businesses, for others the bonus will be a ‘drop in the ocean’ of their COVID-related losses. It is already clear that HMRC will be scrupulous in assessing eligibility, already stating it may request historic or missing employee details, and that evidence of out-of-date records, or errors in previous CJRS claims, will jeopardise payment of the bonus. Time spent now, ensuring that employee data is fully up to date may be invaluable if your organisation hopes to claim the bonus early next year, and also to be prepared for any subsequent HMRC scrutiny.

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