The furlough loophole employers are using to underpay redundant staff

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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