The furlough loophole employers are using to underpay redundant staff

Workers caught in the expected wave of redundancies about to hit Britain could find their final months' pay is cut

A loophole in the Government’s Job Retention scheme is allowing employers to pay their furloughed staff reduced wages during their notice period if they are made redundant. 

Workers are braced for job losses as businesses are expecting to announce a wave of redundancies over coming weeks.

Close to nine million workers have been furloughed during the lockdown and most have had to accept at least a 20pc pay cut. Many continuing to work have also had to agree to voluntary lower wages.

However, those who have had a pay cut could be forced into lower pay, during notice periods as many will be entitled only to what they had received under furlough. 

One person affected, who asked to remain anonymous, said she was made redundant from her London-based financial services start-up one month after the furlough scheme launched. She has since been made redundant and expects the loophole will cost her £1,000 for every months of her four-month notice period. 

Her employer claimed she would receive the maximum wage under the furlough scheme, £2,500, during her 16-week gardening leave instead of her full pay. 

She said: “It seems that my employers had made up their mind about cutting me off last month, but used the furlough route to reduce their cost. I agreed to reduced pay only to be able to keep my job. The scheme was introduced with good intention but I'm saddened to realise that businesses have jumped at it for the wrong reasons.”

Government guidance clearly states that grants cannot be used to substitute redundancy payments, however the calculation of how much employers are expected to pay during the notice period is not disclosed. 

Kathleen Heycock, of Farrer & Co, a law firm, said that the position on notice pay during furlough has not been clarified by the Government and consequently has been left open to debate.

She said: “This is concerning as it is a real issue that could cause hardship to employees. I am not surprised that some employers are assuming that they can continue to pay employees their furlough pay during notice which could be significantly lower than their normal pay.” 

Strictly speaking, if the furlough agreement expressly shifts notice pay to the reduced furlough pay, then the employer can legally pay this reduced amount.

However, if this was not part of the agreement then employees could argue they only agreed to be furloughed as a way of retaining their job.

Employment tribunals may be sympathetic to this argument, although there is no guarantee that any dispute will be processed or heard quickly, Ms Heycock warned. 

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Those who took a voluntary pay cut but continued to work full-time are unlikely to be able to contest the lower redundancy and notice period pay.

If employees agree to vary their pay, not under the furlough scheme, this is likely to amount to a change in their contract of employment.

That means it is the new rate of pay to which they will be entitled during their notice period, and on which any redundancy payment is calculated. 

Matthew Bradbury, of consumer charity Citizens Advice, said that if you are made redundant during furlough, you may be entitled to either statutory or contractual redundancy pay. 

Your statutory redundancy payment should be calculated on 100pc of your pay (capped at £538 per week), not the 80pc of pay during furlough, he said. Any employers paying less than this will be acting in breach of the law.

If you are owed contractual redundancy pay on top of the statutory amount, your contract will set out how much this should be.

Importantly, your notice period can run while you are furloughed, but the law around what you are entitled to if you’re not working during your notice period is complex. An employee is still employed during their notice period and is entitled to be paid, even if not actually performing work. However, if an employer were to give pay in lieu of notice that might raise some questions as to the firm's ability to keep the employee furloughed.

In some circumstances you may be entitled to full pay during your notice period rather than 80pc of pay. Statutory redundancy pay varies depending on the kind of worker. For straightforward, salaried employees it is typically based on the normal pay on the termination date.  

For those where pay varies there is a 12-week averaging calculation. This means the longer into furlough they are, the less of the pre-pandemic salary will be brought into account. 

If an employee does not qualify for minimum guaranteed notice rights, then their pay during a furloughed notice period will be whatever they have agreed to receive while on furlough.

HM Revenue & Customs has set up a fraud hotline for those who suspect their employer of potential misuse of the furlough scheme.