The Employment Rights Act 1996 (Coronavirus, Calculation of a Week’s Pay) Regulations 2020 (the “Regulations”) came into force on 31 July 2020. In a time of uncertainty, the Regulations aimed to provide clarity on calculating a week’s pay when an employee has been furloughed.
The amount calculated for a week’s pay will impact statutory redundancy and notice payments as well as the amount of compensation awarded for unfair dismissal; payments which employers may become familiar with in the current climate.
It is worth noting that if an employee is entitled, under the contract of employment, to at least one week more than the statutory minimum notice, the Regulations do not apply.
The Regulations summarised
For employees who have normal working hours, their furloughed hours are treated as normal working hours and the remuneration for the furloughed hours are treated as if they had been worked.
An employee who has normal working hours and their pay does not vary with hours worked, will find themselves with their week’s pay at the amount which is payable under their contract of employment. Therefore, if the relevant date is before 31 October, the employee’s week’s pay will be calculated at their normal amount, prior to furlough.
Under the ERA, a week’s pay for employees who have normal working hours and their remuneration varies according to the time of work or the amount of work done, is calculated at the average hourly rate of remuneration payable in respect of the 12 weeks ending with the “calculation date”.
The Regulations do very little to vary this. Where an employee is furloughed for any part of the relevant period, normal working hours includes furloughed hours and the hourly rate is as set out in the contract of employment in force before the employee was furloughed. Any reduction to pay, because an employee has been furloughed, is disregarded.
However, there is a caveat. Under Regulation 2, the relevant date for calculating a week’s pay is the date immediately before the date on which an employee was furloughed. If it is agreed that more permanent contractual changes are to be made, continuing beyond the furlough arrangements, the position reverts back to the ERA and is calculated ending with the calculation date. This means the reduced furlough wage will be accounted for in the calculation of a week’s pay.
Employees who have no normal working hours will have their weekly remuneration calculated in accordance with the full reference salary used by the CJRS. That reference salary is informed by the employee’s remuneration during 2019-2020.
Commission payments and a week’s pay
The position in relation to commission and calculating a week’s pay is far from simple under the ERA. Whether commission is included in a week’s pay for the purpose of notice or redundancy pay is decided on a case by case basis, considering if a commission payment is driven by results.
Section 221(4) ERA defines remuneration varying with the amount of work done as including “remuneration which may include any commission or similar payment which varies in amount”. The same is stated in the Regulations (see Regulation 2(4)).
It would appear that the Regulations are adopting the same position as the ERA, allowing for the possibility of commission to be included depending on the purpose of the payment.
The Regulations have been able to provide a level of clarity for furloughed employees, aiming to ensure that their statutory entitlements, upon the termination of employment. are not reduced. It attempts to bring employees back to the position they would have been in had their week’s pay been calculated under the ERA. However, the grey areas, already present in the ERA, continue.