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Can staff be made redundant when on furlough?

Posted on: Tuesday 22nd June, 2021

Can staff be made redundant when on furlough?

Guidance for furloughed employees and how this impacts redundancy

If you are on furlough or flexible furlough due to the drastic economic circumstances inflicted by the coronavirus pandemic, we run through if you can be made redundant while on furlough and how this can impact your claim for redundancy pay.

The Coronavirus Job Retention Scheme (CJRS) was introduced in the wake of the Covid-19 pandemic to protect jobs and stabilise unemployment rates by subsidising employee wages. If you are on leave from work due to furlough or flexible furlough, your business may be financially crippled by the pandemic, and may therefore consider making staff redundant.

As the CJRS is due to end on 30 September 2021, businesses will be required to raise funds for employee wages, in addition to Covid-19 loan repayments, such as Bounce Back Loans. Employers may decide to make staff redundant while on furlough to help provide long-term financial relief and reduce liabilities. The Job Retention Scheme offers tapered support, gradually reducing contributions towards employee wages to 60% as the scheme reaches the end date.

As company liabilities resume in full force, you may consider voluntary company liquidation, such as a Creditors’ Voluntary Liquidation (CVL) which can open your claim to director redundancy.

Redundancy support for employees on furlough

If you are wondering if furlough effects your prospects of redundancy and redundancy pay, we provide a complex understanding of your entitlement as an employee. While on furlough, you will be on leave from the business until economic conditions improve. As a company director, you will be unable to trade or provide services to clients, however, you will be allowed to fulfil housekeeping duties.

If the business is no longer viable and has no option but to pursue company liquidation, employees could be made redundant. As a company director paid through PAYE, you will also be classed as an employee of the business, and therefore eligible for redundancy pay. Redundancy consultations can start during furlough; however, you must take care when calculating redundancy pay in relation to furlough and flexible furlough.

Calculating redundancy pay for furloughed employees and company directors

If your company enters liquidation while staff are on furlough, they will be eligible for employee redundancy as standard, as with company directors, subject to criteria, as they are also classed as an employee of the company. You may also be able to claim other statutory entitlements such as holiday pay, notice pay and unpaid wages.

The CJRS grant cannot be used to substitute redundancy payments and HMRC also confirmed that statutory and contractual notice periods will no longer be covered by the Coronavirus Job Retention Scheme from 1 December 2020.  

When calculating redundancy pay for employees on furlough or flexible furlough, this must be based on their usual wages and hours. During furlough, if their wages are not topped up to 94%, employees may be able to claim the remaining percentage as part of their redundancy claim.

At Redundancy Claims UK, we are active in supporting company directors throughout the coronavirus pandemic. If your business is insolvent and you wish to pursue company liquidation, you will need to consult a licensed insolvency practitioner to formally close your business. A member of the Redundancy Claims team will help calculate your entitlement for redundancy pay during this challenging period of economic uncertainty. We can offer independent advice and inform you on your statutory redundancy payment, for which the average claim is £9,000.

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