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Coronavirus – Job retention scheme - UK

  • United Kingdom
  • Coronavirus - Workforce issues
  • Employment law


On Friday 20 March 2020, the Chancellor announced a new “Coronavirus Job Retention Scheme” (the Scheme) to help pay people’s wages.

Importantly, to aid understanding of the Scheme and how it operates, we now have:

The scale of the Scheme is unprecedented in terms of Government support for businesses and its aim of helping employers to retain jobs in a period of lockdown. It offers a vital lifeline to many businesses at this critical time and, since the online portal through which the Scheme is administered went live, HMRC has reported that take-up is high. However, as the HMRC has conceded, putting together such a comprehensive package of measures in a time-frame of weeks, not several months, required a balancing of speed, simplicity and fraud prevention. Inevitably, therefore, compromises had to be made, not only in terms of whom the Scheme covers but in the detail of its operation. Like us, employers will have been studying the Direction and Guidance closely, to understand when the Scheme applies, fill in the gaps and ascertain what is required to be assured of payment under it. Although a late addition, being published less than a week before the Scheme went live, the Direction is particularly important and will take precedence over the Guidance in the event of inconsistency or ambiguity.

In this briefing, we attempt to answer some of the most common questions raised by employers concerning the Scheme, based on our best understanding and interpretation of the Direction and available Guidance. We encourage a pragmatic approach to the Scheme by employers according to their particular needs and circumstances. What we say below nonetheless errs on the side of caution in terms of scheme interpretation and assumes employers will want to be as assured as possible of reimbursement in accordance with the Scheme rules. Where employers are able to be more flexible and to offer greater financial support for employees, whether by supplementing pay offered under the Scheme, or otherwise, will be a matter for careful consideration and decision.

This note is a generic briefing, based upon the Treasury Direction of 15 April 2020 and Government Guidance and other information available as at 15 May 2020 and is not a substitute for detailed legal advice on the specific circumstances employers are facing. Employers should therefore take legal advice.

In this briefing we consider several aspects of the Scheme :

  • an overview
  • scheme start date
  • to whom it applies;
  • what payments it covers
  • what employers need to do in preparation
  • operation of furlough
  • some specific scenarios e.g. those with health issues, on maternity leave or caring for children
  • the process for making a claim

Overview of the Scheme

The Scheme is presented slightly differently in the Direction and the Guidance but both reflect the fact that it has been created as an exceptional response to an exceptional situation. Both anticipate employers seeking reimbursement for specified employment costs for furloughed workers, subject to a cap, arising from the health, social and economic coronavirus emergency. The Guidance, for example, states that the Scheme is designed to help employers whose “operations have been severely affected by coronavirus to retain their employees and protect the UK economy. However, all employers are eligible to claim under the scheme and the government recognises different businesses will face different impacts from coronavirus”.

To access the Scheme, employers must “furlough” (i.e. place on temporary leave from work) employees who were on their PAYE payroll on or before 19 March 2020 and in respect of whom HMRC received a notification of payment via its Real Time Information system (RTI) on or before 19 March 2020. This means an RTI submission to HMRC, notifying payment in respect of that employee must have been made on or before 19 March 2020 (for further information on this RTI date, please see below “What about staff who were already sent home, dismissed or hired prior to the Scheme becoming active?”).

During furlough, employees must undertake no work for the organisation (or associated organisations).

The Scheme does not apply to employees placed on reduced hours.

The Scheme is an overlay to existing UK employment law – it does not change the fundamental principles. It is a helpful option for employers to consider and offers the opportunity to recover certain costs while they take stock of the extraordinary circumstances (in some cases existential threats) they are facing. Employers can accordingly decide to furlough and pay staff who otherwise they would, as a consequence of the coronavirus outbreak, (a) have made redundant (itself a cashflow issue – as indicated) or (b) have laid off without pay (and for most employers, as they do not have a right to lay off, this risks claims for breach of contract and unlawful deductions from wages).

The Scheme, was originally stated to expire on 31 May 2020 but on 17 April was extended to 30 June 2020 and then further extended to the end of July in its current form, with an ongoing commitment through to October in a revised form which will accommodate a partial return to work and will involve some employer contribution -details of these July changes are awaited (expected at the end of May 2020). In tandem with Government moves towards a gradual easing of lockdown (see the Government “road map” and guidance notes for England) employers should be planning now for their business needs after furlough, in terms of managing a gradual return to work or, given the legal requirements, planning for any consultation processes as part of prudent business planning.

Each employer will need to take detailed financial and legal advice in the light of its unique circumstances.

Start date

When did the portal go live?

The HMRC claims portal opened on 20 April and the aim is that the majority of verified claims are paid within 6 working days.

To whom the Scheme applies

Which employers are covered by the Scheme?

In order to claim under the Scheme, the Direction states that an employer must have a PAYE scheme registered on HMRC’s RTI system for PAYE on 19 March 2020. The Guidance also reflects this and elaborates a little in that “businesses, charities, recruitment agencies and public authorities” are included.

Some specific categories to highlight include:

Companies in administration: Administrators are able to access the Scheme. However, the Guidance states that it expects an administrator would only do so if there is a reasonable likelihood of rehiring the workers. In our view, the administrators therefore need to be comfortable that the staff can be retained pending a sale or restructuring of the business so this would not cover a situation where the business is, effectively, unable to be saved.

Two recent High Court cases -the first court cases concerning the operation of the Scheme - have also both confirmed that, once applications for funding under the Scheme have been made by the administrator/s and sums arising from this paid to employees who have agreed to be furloughed, the administrator/s will be taken to have “adopted” their contracts of employment, for the purposes of employment protection aspects of insolvency. This means that monies paid through the Scheme can be paid to the furloughed employees in priority over the administrators' fees and expenses and the distribution of assets to floating charge and unsecured creditors.

Public sector organisations: are able to access the Scheme but the Guidance suggests this will be appropriate only in limited circumstances. The Guidance says:

“The government expects that the scheme will not be used by many public sector organisations, as the majority of public sector employees are continuing to provide essential public services or contribute to the response to the coronavirus outbreak.

Where employers receive public funding for staff costs, and that funding is continuing, we expect employers to use that money to continue to pay staff in the usual fashion – and correspondingly not furlough them. This also applies to non-public sector employers who receive public funding for staff costs.”

The Direction itself is silent as to any restrictions on the use of the Scheme by public sector organisations. However, the Department for Education, for example, has issued guidance to education sector employers (including state and independent schools, further education colleges and Higher Education Institutions) which contains more detailed restrictions than in the Guidance on the use of the Scheme by these employers. These will be covered in a separate briefing for our Education Sector clients, but for example encourage the consideration of alternatives to furlough (redeployment of staff or loans from the Coronavirus Business Interruption Loan Scheme or the COVID_19 Corporate Financing Facility) and indicate that furlough should be limited to staff whose salaries are not funded by public funding, work in areas where services are temporarily not required due to the COVID19 pandemic and who would be otherwise made redundant or laid off.

Employers in the public sector or who are in receipt of public funding should therefore continue to take advice on any proposed use of the Scheme.

Contingent workers in the public sector: separate guidance for public sector employers states:

“The Cabinet Office has issued guidance on how payments to suppliers of contingent workers impacted by COVID-19 should be dealt with where the party receiving the contingent worker’s services is a Central Government Department, an Executive Agency of a Central Government Department or a Non-Departmental Public Body.

Read more information on contingent workers impacted by COVID-19. This guidance applies to agency workers paid through PAYE, as well as those paid through umbrella companies on PAYE and off-payroll workers supplying their services through a Personal Service Company (PSC).”

What about staff who were sent home, dismissed or hired prior to the Scheme becoming active?

Employers can make claims under the Scheme, backdated to 1 March 2020, if applicable. The Guidance states, “If you made employees redundant, or they stopped working for you on or after 28 February 2020, you can re-employ them, put them on furlough and claim for their wages from the date on which you furloughed them, even if you do not re-employ them until after 19 March 2020."

Accordingly, employees that were employed as of 28 February 2020 and on payroll (i.e. notified to HMRC on an RTI submission on or before 28 February) and were made redundant or stopped working for the employer after that , can qualify for the Scheme if the employer re-employs them and puts them on furlough. Furthermore, the revised Guidance extends the provision on re-hiring to those who made redundant or stopped working on or after 19 March 2020. Employers seeking to use the Scheme for rehires in this way will want to do so on a “cost neutral” basis, without incurring additional costs or liabilities that cannot be reimbursed under the Scheme. They should take advice on how to best achieve this, as well as on how to deal with any termination payments already made to the former employee and the future dismissal at the end of the furlough leave period. Employers should also be prepared to give evidence about the reason for any refusal to “rehire”, to avoid potential claims relating to, for example, discrimination, victimisation or whistle-blower detriment. The claim for a rehired employee can only be made from the date when they are placed on furlough (and not their leaving date, for example).

The Scheme does not cover new starters unless they were on the PAYE payroll on or before 19 March 2020 and, importantly, were also notified to HMRC on an RTI submission on or before 19 March 2020. Due to the way the RTI system works, an employer is required to notify HMRC about salary payments on or before the payment date. This suggests that if an employer has not made a salary payment to a new starter, and therefore made an RTI submission prior to 19 March, he/she is unlikely to be covered. The above provisions regarding rehire may come to the aid of some but, for those who left employment or were expecting to start new jobs in March, the Scheme will only be of benefit for those who are paid weekly or for whom monthly salary fell prior to 19 March, requiring an RTI submission. Employees paid monthly, at or towards the end of the month, will fall outside the Scheme because no RTI submission will have been submitted by 19 March 2020.

What about TUPE transfers?

Both the Direction and the Guidance identify that the PAYE or business succession rules are applicable under the Scheme and, therefore, transferee employers will be able to claim under the Scheme for employees acquired pursuant to the TUPE Regulations.

However, an important caveat is that, as currently drafted, the Direction refers to transferring employees for whom the change of employer under TUPE occurred on or after 19 March, whilst the Guidance refers to transfers occurring on or after 28 February 2020. It is not yet clear how these differences will be reconciled but it is assumed that the date in the Direction is a drafting error and that the intention is not to exclude from the Scheme those who transferred employment between 28 February and 19 March 2020.

What payments the Scheme covers

Does the Scheme cover wages for workers as well as employees?

Integral to the purpose of the Scheme is that the amounts paid to an employer pursuant to a claim for reimbursement under it relate solely to permissible and actual expenditure within the Scheme rules i.e. in respect of wages as described in subsequent paragraphs below.

The Guidance states that, for employers to claim under the Scheme, the claim must relate to staff on the employer’s payroll on or before 19 March 2020 and for whom an RTI submission, notifying payment, was made to HMRC on or before 19 March 2020. The reference to individuals being “on payroll” or, more recently, being the subject of an RTI submission, has been a critical aspect of the Guidance and HMRC communications from the outset. Relying on the Guidance, therefore, those on payroll and covered by the Scheme include directly-engaged workers in relation to whom the ‘employer’ currently deducts income tax and national insurance via PAYE. This therefore includes many ‘casual’ workers but the Guidance states that the Scheme covers all types of employment contracts, including full-time, part-time, agency and flexible or zero-hour contracts.

Although the Direction wording differs from the Guidance and refers expressly to eligibility according to tax legislation (section 4 of Income Tax (Earnings and Pensions) Act 2003), which applies to those working under of contract of service (in employment law terms an “employee”, office holder, someone in apprenticeship and to certain agency workers), in practice, workers are deemed “in scope” of those working under contracts of service for tax purposes. Accordingly, we see no obvious discrepancy between the Direction and the Guidance, which includes a paragraph about Limb B workers, in practical terms.

Similarly, both the Direction and Guidance are clear that agency workers (including those engaged via ‘umbrella’ companies) are covered where they are paid via PAYE by their agency (technically, an employment business). However, this is only where they have no work from that ‘agency’. It is the agency, not the end user or hirer that should make any application to the Scheme. The ‘agency’ is encouraged to discuss the matter with the end user client. Agency workers should perform no work for, via, or on behalf of that ‘agency’ while they are furloughed, including for the agency’s clients.

The Guidance is clear that apprentices can be furloughed in the same way as other employees and can continue to train whist furloughed. It is nonetheless important for employers to bear in mind that apprentices must receive at least the Apprenticeship Minimum Wage/National Living Wage/National Minimum Wage as appropriate for all the time they spend training. Employers will need to cover any shortfall between the amount recoverable under the Scheme and the appropriate minimum wage.

Company directors with an annual pay period are eligible to claim, as long as they meet the relevant conditions. This includes being notified to HMRC on an RTI submission on or before 19 March 2020, which relates to a payment of earnings in the 19/20 tax year.

It is clear is that the Scheme is not accessible to the self-employed for tax purposes, where the individual makes a self-assessment to HMRC each year.

Which wages are covered by the Scheme?

The Direction refers to “Qualifying Costs” under the Scheme and its provision is reflected and elaborated upon in the Guidance for employers, which sets out how wages will be calculated for different types of employees. The newly added “Guide to Working out 80% of Wages” adds further detail still and some worked examples.

There is a distinction between a “fixed rate” employee and other employees. Fixed rate employees are, consistent with NMW legislation, likely only to be those with annual hours stipulated in the contract. Those who have weekly or monthly hours of work will not therefore, according to HMRC (effectively the administrative/ enforcement body for both NMW and the Scheme), be fixed rate employees. If this somewhat narrow interpretation is adopted by HMRC there are not many employees who would qualify as fixed rate employees. For fixed rate employees, the reference salary employee is the amount payable to the employee in the latest salary period ending on or before 19 March 2020. However, note the latest Guidance which states that “HMRC will not decline or seek repayment of any grant based solely on the particular choice of pay calculation, as long as a reasonable choice of approach is made.” This may offer some comfort that HMRC appears unlikely to be unduly technical in respect of the employer’s decision to treat an employee as “fixed rate” or not, providing there is a reasonable rationale for the approach. This wording does not, however, expressly apply to the accuracy of the calculation itself, once the employer has decided which calculation to use (although it is to be hoped that a similar approach would be taken).

The Guide to Working out 80% of Wages states:

“Work out 80% of wages for fixed rate full or part time employees on a salary

Where a claim covers multiple pay periods, this calculation should be done for each and then added together.

Claim for the 80% of the employee’s wages, from their last pay period before 19 March 2020.

If you have already calculated your claim based on the employee’s wages as of 28 February 2020, and this differs from their wages in their last pay period prior to 19 March 2020, you can choose to still use this calculation for your first claim.

To work out 80% of your employee’s wage:

  • 1. Start with your employee’s wages, which is their last pay period before 19 March - if you’re claiming for a full pay period, skip to step 4.
  • 2. Divide by the total number of days in the pay period.
  • 3. Multiply by the number of furlough days in the pay period.
  • 4. Multiply by 80%.


Worker started work for B Ltd in 1997 and is paid a regular monthly salary on the last day of each month. The worker agreed to be placed on furlough from 23 March 2020. The worker was paid £2,400 for the last full monthly pay period before 19 March 2020. There are 9 days between 23 March and 31 March.

  • 1. Start with £2,400 (employee’s wages)
  • 2. Divide by 31 (the total number of days in March)
  • 3. Multiply by 9 (the number of furlough days in March)

Multiply by 80% - which is £557.42”

Employees whose pay varies and were employed as at 6 April 2019 ie they have been employed for a full tax year

If the employee has been employed continuously from the start of the 2019 to 2020 tax year, you can claim the highest of either:

  • 80% of the same month’s wages from the previous year (up to a maximum of £2,500 a month)
  • 80% of the average monthly wages for the 2019 to 2020 tax year (up to a maximum of £2,500 a month)

To calculate 80% of the same month’s wages from the previous year:

  • 1. Start with the amount they earned in the same period last year.
  • 2. Divide by the total number of days in this pay period - including non-working days.
  • 3. Multiply by the number of furlough days in this pay period.
  • 4. Multiply by 80%.

Example of claiming for the same period last year

A Ltd pays an employee on a weekly basis. The employee’s pay period starts on 23 March 2020 and ends on 29 March 2020. The employee was paid £350 for 23 March 2019 to 29 March 2019. The employee was furloughed for the whole week.

  • 1. Start with £350 (the amount they earned in the same period last year)
  • 2. Divide by 7 (the total number of days in this pay period)
  • 3. Multiply by 7 (the number of furlough days in this pay period)
  • 4. Multiply by 80% - this is £280

To work out 80% of the average monthly wages for the last tax year:

  • 1. Start with the amount they earned in the tax year up to the day before they were furloughed.
  • 2. Divide it by the number of days from the start of the tax year - including non-working days (up to the day before they were furloughed, or 5 April 2020 – whichever is earlier).
  • 3. Multiply by the number of furlough days in this pay period.
  • 4. Multiply by 80%.

Example of working out 80% of average monthly wages for the last tax year

Worker started work for A Ltd in 2010 and was placed on furlough on 23 March 2020, earning £15,000 between 6 April 2019 and 22 March 2020 inclusive. There are 353 days between 6 April 2019 and 22 March 2020. A Ltd is claiming for 23 March to 31 March 2020. There are 9 days between 23 March and 31 March.

  • 1. Start with £15,000 (the amount they earned in the tax year up to the day before they were furloughed)
  • 2. Divide it by 352 (the number of days from the start the tax year, up to the day before they were furloughed)
  • 3. Multiply by 9 (the number of furlough days in this pay period)
  • 4. Multiply by 80% - this is £306.82

Employees whose pay varies and who started employment after 6 April 2019 ie they will not have been employed for a full tax year

If the employee started their employment after 6 April 2019, claim for 80% of their average monthly wages since they started work until the date they are furloughed, up to a maximum of £2500 per month.

To work out 80% of your employee’s average monthly earnings:

  • 1. Start with the amount they earned in the tax year up to the day before they were furloughed.
  • 2. Divide it by the number of days they’ve been employed since the start of the tax year – including non-working days (up to the day before they were furloughed or 5 April 2020 – whichever is earlier).
  • 3. Multiply by the number of furlough days in this pay period.
  • 4. Multiply by 80%.

Every day or period after the employee commenced employment with the employer is counted in making this calculation. This includes days when no work was undertaken.

Example of working out 80% of average monthly wages for the last tax year

Employee started work for A Ltd in 1 May 2019 and was placed on furlough on 23 March 2020, earning £15,000 between 1 May 2019 and 22 March 2020 inclusive. There are 327 days between 1 May 2019 and 22 March 2020. A Ltd is claiming for 23 March to 31 March 2020. There are 9 days between 23 March and 31 March.

  • 1. Start with £15,000 (the amount they earned in the tax year up to the day before they were furloughed)
  • 2. Divide it by 327 (the number of days from the start the tax year, up to the day before they were furloughed)
  • 3. Multiply by 9 (the number of furlough days in this pay period)
  • 4. Multiply by 80% - this is £330.28”.

NB It is important to note that 80% of normal salary is the minimum that must be paid to employees in order for employers to be reimbursed under the Scheme. If the employer pays less, the claim on the Scheme will be invalid. It is therefore vitally important that employers calculate pay carefully and accurately, paying particular attention to those additional elements of pay described below which may need to be included.

Are any other elements of pay covered by the Scheme?

The Direction states that, in calculating the employee’s reference salary (for the purposes of calculating the 80%), no account is to be taken of anything which is not regular salary or wages. In this context, “regular” means it does not vary according to business or individual performance, is not conditional on any matter and is not a benefit of any other kind. However, items that are payable under a legally enforceable agreement, understanding, scheme, transaction or series of transactions may be included.

In terms of application of the Direction, we are aware of some inconsistency in approach as between some HMRC officers and that some officers are taking a more liberal approach to what is “regular pay”. We can only assume they justify this on the basis that, once the hours were worked or the commission was earned by the worker in the periods up to 19 March, they would be contractually due the payment. Employers nonetheless need to cautious that their calculation accurately reflect regular pay and can be justified as such -taking care too that they do not risk paying less than the required 80% of wages (as preceding paragraph above).

The Guide to Working out 80% of Wages states:

“…The amount you should use when calculating 80% of your employees’ wages is regular payments you are obliged to make, including:

  • regular wages you pay to employees
  • non-discretionary overtime
  • non-discretionary fees
  • non-discretionary commission payments
  • piece rate payments

You cannot include the following when calculating wages:

• payments made at the discretion of the employer or a client - where the employer or client was under no contractual obligation to pay, including:

o tips

o discretionary bonuses

o discretionary commission payments

• non-cash payments

• non-monetary benefits like benefits in kind (such as a company car) and salary sacrifice schemes (including pension contributions) that reduce an employees’ taxable pay …“.

In the round, in addition to salary, regular payments which would be deemed part of “normal” wages, and provided there is a legally enforceable agreement in relation to the payment, may be included in the reclaimable 80% of wages, but only where the payment is not conditional on any matter. So anything that is discretionary (such as a discretionary bonus or incentive scheme) is not recoverable under the Scheme.

Just to clarify, we deal with some examples:

  • Compulsory overtime – would be included (legally enforceable and not conditional).
  • Non-guaranteed overtime – would be included (legally enforceable and not conditional)
  • Voluntary overtime – would not be included (not legally enforceable)
  • Car allowance – would be included (legally enforceable and not conditional)
  • Shift premiums – would not be included (conditional upon working shifts)
  • Call-out payments – would not be included (conditional on being available for call-out).

This is a complex area and for employers with specific pay provision in excess of a basic wage, we would encourage them to seek legal advice, as all circumstances will differ.

Employers are nonetheless able to continue to pay other elements of pay which are not recoverable under the Scheme, provided they are able to bear the cost and (to avoid discrimination claims) this is applied equally. Similarly, they may seek to re-negotiate pay entitlement as a temporary measure as part of the negotiated terms of furlough.

Where an employee has entered into a salary sacrifice arrangement, the salary that is to be used as the reference salary should be the post salary sacrifice salary. It may be possible for employee’s to suspend their salary sacrifice arrangements. The Guidance confirms that COVID-19 may be treated as a ‘life event’ for the purposes of salary sacrifice. This would need to be clearly documented. Where the arrangements are not suspended, the benefits would need to be provided on top of the salary paid to the furloughed employee and, according to the Guidance, no deduction for the benefit may be made from such furlough salary payment.

How much can employers actually claim?

The Direction and Guidance specify that employers can apply for a grant that covers 80% of their usual monthly wage costs, up to £2,500 a month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that wage. Student Loan deductions and the Apprenticeship Levy cannot be claimed.

Government grants will cover 80% of the pay of retained workers up to a total of £2,500 a month (provided, where necessary, they obtain the consent of staff – see below). If 80% of salary is £2,500 per month, the full salary would be £3,125 per month. This amounts to a salary of £37,500 per annum. Accordingly, our calculations suggest that any wages earned by a member of staff in excess of £37,500 per annum are not covered by the Scheme. Wages up to £2,500 paid to such a higher earner would be covered by the Scheme.

Employers will be required to deduct income tax and employer and employee’s NICs from the monies paid to furloughed workers. Student loan deductions should also be paid as usual.

As mentioned above, in addition to the £2,500 or 80% (the lower of the two) employers will also be able to claim from HMRC by way of reimbursement the cost of employer NICs and (mandatory) auto enrolment pension contributions employment costs. Any additional pension contributions would not be recoverable, any apprenticeship levy or the costs of other benefits such as life or medical insurance may not be reclaimed under the Scheme.

In respect of lower earners, it is the lower of £2,500 per month or the 80% that may be recovered by the employer.

HMRC will have the payroll records to substantiate claims and the Guidance states that claims will be checked and that HMRC will reserve the right to audit and, more generally, continue to “monitor businesses” after the Scheme is closed. This confirms our view that employers should act responsibly when making claims and ensure the accuracy of the data provided with the claim. As we identified in the introduction, both the Direction and the Guidance identify the specific raison d’etre of the Scheme i.e. to facilitate job retention in the exceptional circumstances created by COVID-19. Significantly also, the Direction refers to the fact that employers claiming under the Scheme accept that they are doing so only in accordance with the purpose of the Scheme and that any payment they received but do not use for this purpose must be returned to HMRC immediately. A claim under the Scheme will be accompanied by a requirement for a declaration by the employer to this effect and confirming that the information supplied to HMRC is accurate (comparable to the declaration on a self-assessment income tax return).

The Guidance also confirms that any monies claimed under the Scheme should be paid to employees in full. In line with the nature of the Scheme being a reimbursement mechanism of monies paid to staff, there is no scope for employers to make deductions (for administration or other costs) from the amount claimed and the applicable reference pay (subject to the cap). The employee Guidance encourages employees to report concerns to HMRC (potentially ‘whistle blow’) if they suspect fraud by their employer – e.g. employers not paying all of the monies claimed to their employees.

Is the employer obliged to make up the 20% of wages lost by staff who are paid under the Scheme?

The Guidance states that employers do not have to pay the 20% top up but can choose to do so. Many employers are doing so (on a time-limited or open-ended) basis. However, to be clear, the furlough scheme itself does not allow the employer to impose a pay reduction – the reduction in pay during furlough leave must be achieved by agreement, under the terms of the contract itself (e.g. a lay off clause) or through dismissal and re-engagement. Unless pay is varied in this way, the obligation to pay full pay will continue.

How does the national minimum wage apply to furloughed employees?

The Guidance confirms that individuals are only entitled to the NMW for the hours they are working and furloughed workers are not working. Therefore, they must be paid the lower of 80% of their salary, or £2,500 even if, based on their usual working hours, this would be below NLW/NMW.

However, if workers are required to, for example, complete online training courses whilst they are furloughed, then they must be paid at least the NMW for the time spent training, even if this is more than the 80% of their subsidised wage.

What employers need to do in preparation

Does the process have to be initiated by the employer?

There is no right to be furloughed and, whilst employees may express a preference, the decision to furlough lies solely with the employer. Employers should document their choices as regards the Scheme, i.e. in deciding who to furlough (to manage the risk of any claims for discrimination, etc.).

The confirmation of furlough status should be made in writing to the employee and the Guidance states that a record of this communication must be kept for at least 5 years, as a mandatory condition of the Scheme. This requirement should be noted, given the possibility of a future HMRC audit, as the absence of such letters might jeopardise a claim.

Significantly also, the Direction states that an employee is only deemed as furloughed for the purposes of the Scheme if “…the employer and employee have agreed in writing (which may be in an electronic form such as an email) that the employee will cease all work in relation to their employment….”.

The Guidance clarifies that collective agreement reached between an employer and a trade union will satisfy the requirements of the Scheme in this regard. For unionised workforces, it is envisaged that the trade union will negotiate the terms of the furlough with the employer and (where relevant) will have agreed a process for determining how employees will be selected for furlough and also the terms of any letter or communication to be sent to employees to record in writing the terms of their furlough with the employer. Where there is no recognised union, many employers (often in light of the pure scale and logistical challenges of issuing furlough letters and obtaining signed confirmation of agreement) have relied upon implied consent or simply issued a unilateral furlough confirmation.

The Guidance states that “… To be eligible for the grant employers must confirm in writing to their employee confirming that they have been furloughed. If this is done in a way that is consistent with employment law, that consent is valid for the purposes of claiming through the [Scheme]… There needs to be a written record, but the employee does not have to provide a written response [bold emphasis added]. A record of this communication must be kept for five years…”. In practical terms, the Guidance offers helpful clarification that an employer does not have to have the express written consent of the employee to do no work, in order to claim under the Scheme.

A recent High Court case concerning the position of administrators and the operation of the Scheme also applied a very pragmatic approach to how “agreement” to contractual variation might be evidenced.

However, if an employer’s’ written communications have (a) not communicated clearly to employees that they should do no work for the employer (or a linked organisation) whilst furloughed or (b) not referred to agreement being assumed in the absence of reply (ideally by a specified date), the employer should consider a further clarification communication to those employees. Moving forward, employers may wish in any event to seek acknowledgement of the terms of furlough from employees, by text, email or other form of electronic message, where it is practicable to do so.

What steps does the employer need to take to designate staff as “furloughed workers”?

See paragraph immediately above. Whilst the Direction states that an essential condition for placing employees on furlough is the need for written agreement as between employer and employee that the latter will undertake no work for the employer during the furlough period, the Guidance is more pragmatic. Even so written confirmation of the fact of furlough and that no work may be undertaken on behalf of the employer should be provided in all cases. Employers should carefully check their furlough letters and communications to be assured of compliance with the Scheme requirements.

The Guidance makes clear employers may need to take legal advice before embarking on furlough. If there is a contractual right to lay staff off in the employment contract, employers will be able to rely on this provision to furlough staff on pay (to the extent permitted by the Scheme) and look to recover those wage costs from the Scheme. In any event, staff need to be notified in writing of the change in their designation, from employees or workers to “furloughed workers” and, as identified above, there must be some record of agreement regarding their inability to work. This need for written record of furlough should also be noted when employees switch (for the purposes of claiming under the Scheme) between various forms of leave (e.g. sick leave, maternity leave etc.) and furlough.

Where no contractual right to lay staff off exists, the Guidance is clear that changing the status of staff remains (as with the remainder of the Scheme) subject to existing employment law - consent to contractual change, consultation obligations etc. Further, depending on the employment contract, this may be subject to negotiation. Additional considerations apply in relation to those staff within scope of union collective bargaining, in which case the employer should first seek to agree the terms of the furlough leave with the union and if the terms cannot be agreed (perhaps because the union is insisting that the employer “tops up” the payment to 100%) then the employer should seek legal advice, as offering furlough leave direct to staff in these circumstances might risk union related claims. As identified above, the terms of furlough must include some record of confirmation regarding the requirement that the employee ceases work during furlough leave.

Securing agreement

Where there is no contractual right to lay off, designating staff as “furloughed” will in theory (without agreement) amount to a breach of contract. Given that the Government is paying 80% of wages up to £2,500 per month (£576.92 a week), many staff may be amenable to accepting a revised status to furloughed. However, this is not a given and employers may face resistance from:

  • employees who are paid more than £2,500 per month and where the employer does not propose to top-up the wages
  • those who will experience a pay-cut where the employer does not pay the 20% reduction in wages
  • those wishing to trigger the normal lay-off rules (which continue to apply), such that after four consecutive weeks of lay-off or for six weeks in any period of 13, they would be entitled to leave and claim a redundancy payment. (In practice the continuation of a proportion of pay will mean that only higher earners will actually satisfy the relevant conditions). Given the current economic climate, it is also unlikely that many staff would claim a redundancy payment rather than ongoing pay. However, it is possible depending on circumstances, particularly for staff where, due to their profile, a redundancy payment would be material and for higher paid staff who might be able to find other opportunities for work.

What advice are we giving employers in terms of actions now?

Consistent with the Government’s intention of saving jobs in order to allow the economy to quickly recover at the end of the crisis, the following process will apply:

1. where no work is available for one or more members of staff, and where there is no contractual right to lay staff off, our view is that employers should immediately consult (either individually or collectively following usual rules on negotiation and consultation) with a view to affected staff agreeing to become “furloughed”. Where there is a contractual right to lay staff off, go to point 3 below

2. if agreement is not reached, employers should take immediate legal advice. If agreement is reached, go to point 3 below

3. employers should write to each employee confirming that they are considered to be “furloughed” in accordance with the Scheme. As a minimum, the letter should state that the employee must cease all work for the employer during the furlough leave and confirm that the employee will receive 80% of their salary up to £2,500 per month. The gross amount of pay per month should be set out. It should be made clear that the payment is being made under the Scheme, is conditional upon the employee agreeing by email or text that they will not undertake work for the employer during furlough and is subject to change depending upon the rules of the Scheme, and in particular upon the interpretation of rules under the Scheme as clarity emerges. Employers may also wish to address their position on the taking of holiday (for which, see “Furlough and annual leave”, below).

4. employers should pay staff in accordance with the arrangements and they are not permitted to make any deductions for administrative costs or other charges except as specified in the Scheme

5. employers should submit information to HMRC with each payroll (either in anticipation of an imminent payroll, at the payroll date or after payroll has been run) about the staff that have been furloughed and their earnings through the new online portal.

Operation of furlough

It is a condition of the Scheme that the employee does no work at all during the furlough period

The clear intention of the Scheme is to support employers to pay staff who are without work. In line with this, those on reduced hours are expressly excluded from the Scheme. To this extent, performing work and being furloughed are mutually exclusive and, as outlined above, the Direction/ Guidance states that it is a condition of the Scheme that the employee is clearly informed in writing that they are to undertake no work for the employer placing them on furlough. The restriction on working for the furloughing employer extends to ‘associated or linked’ employers. A more recent clarification is that furloughed employees who are union or non-union representatives may undertake duties and activities for the purpose of individual or collective representation (as long as this does not involve the provision of services or generate revenue for the organisation).

HMRC will have visibility of pay records and we would anticipate that, if a member of staff earns wages during a furlough period, it will result in the employer not being reimbursed for any “furloughed” wages paid.

Employees may (and under the Guidance are encouraged to) undertake “required” training and be paid at least the NMW rate for that work. It does not seem that training need be essential in the sense of being required for regulatory, compliance or professional accreditation purposes. However, one would expect HMRC, in due course, to be vigilant that such training did not extend to work. Employers should avoid being creative in their definition of ‘training’ when seeking to claim under the Scheme and therefore the training should be on a business need basis. (see also position of apprentices and training under “Does the Scheme cover wages for workers as well as employees?” above).

Volunteering and working for third parties

Volunteering, whether for the NHS or under the new statutory right to emergency volunteering leave for certain employees (not yet in force) is compatible with the Scheme and a furloughed employee can take part in volunteer work as long as they do not provide services or generate revenue for their employer. Read our Alert on the new proposed emergency volunteer leave. Volunteers are by definition unpaid (save for genuine out of pocket expenses).

The Guidance indicates that other paid work undertaken by the employee is separate and s/he can be furloughed (or not) by each employer. Existing third party jobs are unaffected by the furloughing.

When one reads the Guidance there seems no barrier under the Scheme to a furloughed employee starting new paid employment (e.g. in food retail, health care or online) and their furloughing employer claiming under the Scheme. However, as the Guidance states, taking up such new employment must be allowed under the employee’s contract with the furloughing employer.

Does the “furlough period” need to be continuous? Is there flexibility for workers to move in and out of the scheme?

The Direction and the Guidance specify a minimum furlough period of three weeks (21 calendar days in the Direction). The Guidance states that each period of furlough can be extended by any amount of time whilst the employee is on furlough, up until the Scheme closes. The employee Guidance also states “… your employer can place you on furlough more than once, and one period can follow straight after an existing furlough period, while the scheme is open.”

The employees must do no work for their employer or a linked or associated organisation during any period of furlough. Where there is a genuine business reason to furlough or to remove from furlough, monies paid whilst furloughed should be recoverable under the Scheme, if otherwise recoverable. As a result, employers may legitimately “rotate” workers on and off furlough in minimum three week blocks.

Furlough and annual leave

Whilst the Direction is silent on holiday, earlier versions of the Guidance expressly confirmed that holiday can be taken during furlough leave without jeopardising the claim for reimbursement of wages. Provision regarding holiday and furlough is now set out in a separate non-statutory guidance, “Guide to holiday entitlement and pay during coronavirus”. There is also Acas guidance available.

This new “holiday entitlement” guide confirms that holiday continues to accrue during furlough and, importantly, that the taking of holiday does not interrupt furlough. It also acknowledges that employers can require workers to take holiday and cancel a worker’s holiday, provided they give enough notice to the worker. However, being on furlough does not alter an employee’s statutory rights to holiday. Accordingly, any period of holiday will still need to be paid at 100% normal pay and not the furlough rate, unless this has been topped up to 100%) i.e. the employer must pay the difference between 80% and normal rate.

Bank holidays are treated in accordance with whether it’s holiday or furlough, and this will be in accordance with the contract (as, potentially, varied by the furlough letter). If the worker would usually have had the bank holiday as annual leave, there are two options: (i) the bank holiday is taken as annual leave while on furlough and the employer must pay the correct holiday pay for the worker or (ii) the bank holiday is deferred by agreement until a later date, but the worker should still receive their full holiday entitlement.

Under the Working Time Regulations (which were amended in March 2020) workers are entitled to carry forward parts of their four week statutory holiday to the next two holiday years where, due to the outbreak, it has not been reasonably practicable to take holiday in the current leave year. The new guide recommends that best practice in all cases is for employers to inform workers of both the need to carry forward, and how much leave will be carried forward. The guide then provides examples of when it might not be reasonably practicable to take holiday as a result of the coronavirus. In so doing, the guide suggests that “workers who are on furlough are unlikely to need to carry forward statutory annual leave, as they will be able to take it during the furlough period”. However, it goes onto recognise that the employee’s ability to gain any real sense of rest or genuine time-off may be impaired by the need to socially distance or self-isolate, thereby preventing the taking of “holiday”. Employers may be faced with a difficult assessment of whether employees can in reality take “holiday”, depending upon their personal circumstances.

Furthermore, the guide notes that some employers may be unable in current circumstances to fund the difference between 80% furlough pay and full pay during holiday. In that event also, it will not be reasonably practicable for the worker to take their leave, in which case it will need to be carried forwards.

Some specific scenarios (e.g. those with health issues, on maternity leave or caring for children)

If employees are on unpaid leave or unpaid sabbaticals, can they be furloughed?

Employees who started a period of unpaid leave or an unpaid sabbatical after 28 February 2020 can be placed on furlough leave. However, they must be paid at least 80% of regular pay up to the £2,500 per month cap.

If the unpaid leave or sabbatical began before 28 February, then the employee can only be placed on furlough under the Scheme until the date when that unpaid leave or sabbatical would have ended and the employee would have returned to work.

Can employers bring staff into the Scheme who are already on sick leave or receiving SSP/CSP due to self-isolation?

The Guidance provides that:

“Short term illness/self-isolation should not be a consideration in deciding whether to furlough an employee. If, however, employers want to furlough employees for business reasons and they are currently off sick, they are eligible to do so, as with other employees.”

The Guidance is therefore clear that the Scheme is not intended for short term absences from work due to sickness, including Covid-19 or self-isolation due to potential exposure to Covid-19. These individuals should be placed on sick leave, during which time (as a minimum) they will be entitled to receive SSP.

However, the Guidance also states that the ability to furlough for business reasons applies to employees on short and long term sick leave and those who are self-isolating. In these cases, based on such business reasons, the employer appears to retain a discretion to furlough. Importantly, the employee should no longer receive sick pay and would be classified as a furloughed employee, but note the comments below regarding where sick pay is more beneficial than furlough pay.

The Direction confirms this, reiterating that the employer cannot claim under the Scheme in respect of any employee while they remain on SSP and the period of time on SSP does not count towards the 21 day minimum furlough period. However, the employer can end the SSP period by agreeing with the employee that they will move to furlough leave. Additional support for this view is offered in the employee version of the Guidance, which refers to SSP as amended to capture shielding employees being a safety net where the employer chooses not to furlough them.

If a currently furloughed employee become sick, the Guidance states that they retain their statutory rights (in this context, to SSP) but it is for the employer to decide whether to place them on SSP or keep them on furlough pay. The Guidance does not expressly refer to the employee’s contractual rights being retained (in addition to their statutory rights) but we believe this is implicit and must be the case unless the contract is varied.

Employers can claim furlough pay under the Scheme and the SSP rebate scheme in respect of the same employee but not in respect of the same period of time. For example, if a furloughed employee becomes sick and is moved onto SSP, an employer can no longer claim for the furloughed pay. This mutual exclusivity of the two reimbursement schemes is important: whilst in many cases the furlough pay will be at least equal to (if not higher) than the applicable sick pay, this will not be the case for those employers with generous full pay sick pay terms. Employers will therefore wish to avoid employees seeking to switch from furlough leave to sick pay if the employee could then receive pay that cannot be claimed back under the Scheme.

Furthermore, where the sick pay terms are a matter of discretionary policy, it is now clear that the employer’s discretion can be exercised (in a non-capricious way – so as to minimise claims for breach of the implied term of trust and confidence) to apply the terms of the sick pay scheme so that the sick pay will be SSP or no greater than the prior furlough pay (and ideally, from an employer’s perspective, whichever is the lower).

Where sick pay terms are contractual, of course, a variation will need to be agreed with the union/employee, as applicable, for example to state that, during furlough leave, sick pay will not apply. This is best done at the same time as seeking agreement to furlough leave. Employers who have already placed employees on furlough leave will find it more difficult to agree those changes with union or the furloughed employees and may therefore need to rely on the argument that the furlough leave itself overrides any contractual entitlement to sick pay. Notwithstanding the strict contractual position, employers may in practice be keen to deter employees from seeking to move from furlough to more favourable enhanced sick pay.

What about those who are shielding?

The Guidance states that “employees who are unable to work because they are shielding in line with public health guidance (or need to stay at home with someone who is shielding) can be furloughed.” Effectively this means that such employees can be furloughed if they are unable to work from home.

Employees with caring responsibilities

Employees who are “unable to work” because they have caring responsibilities resulting from coronavirus (e.g. they need to look after children because they are not in school) can be furloughed.

Can employees on maternity and other forms of family-related leave be brought into Scheme by being “furloughed”?

The Guidance does not address this issue clearly. It states – under the heading “If your employee is on maternity leave, adoption leave, parental leave or shared parental leave” – that “The normal rules for maternity and other forms of parental leave and pay apply.” In addition, it states that employers can claim under the Scheme for enhanced (earnings related) contractual pay for employees who qualify for these statutory forms of leave.

In our view, this indicates that if an employee is furloughed and then begins a period of family related leave (called “social benefit leave” in the Direction), they continue to have their usual statutory rights in relation to leave and pay, and their contractual rights as well, unless these are varied in the furlough agreement. The employer does not have to remove them from furlough, can continue to pay them at the furloughed rate but cannot claim under the Scheme for reimbursement of statutory SMP, etc. (see paragraph 8.6 of the Direction).

It is less clear that an employee who is already on maternity or other family leave can be furloughed until they return from leave (including by cutting that leave short). They can only be furloughed if they agree not to work – the Direction makes that clear – and that agreement must relate to circumstances caused by the COVID-19 emergency. Our view is that it is likely that such employees can be furloughed, for example to avoid the employer deciding to make them redundant. Their statutory leave would continue and the employer could not (as explained above) seek reimbursement under the Scheme of any statutory pay to which they are entitled.

In relation to the amount of pay that can be claimed for a “fixed rate” employee who returns from statutory leave after 28 February 2020 and is then furloughed, the “How To” Document states:

“Employees returning from family-related statutory leave

Family-related statutory leave includes maternity leave, paternity leave, shared parental leave, adoption leave, parental bereavement leave and unpaid parental leave.

For employees on fixed pay, claims for full or part time employees furloughed on return from family-related statutory leave should be calculated against their salary, before tax, not the pay they received whilst on family-related statutory leave. The same principles apply where the employee is returning from a period of unpaid statutory family-related leave.

Claims for those on variable pay, returning from statutory leave should be calculated using the highest of either:

  • 80% of the same month’s wages from the previous year (up to a maximum of £2,500 a month)
  • 80% of the average monthly wages for the 2019 to 2020 tax year (up to a maximum of £2,500 a month)”

The Guidance now expressly clarifies that it is the higher of these two alternatives that should be used.

More generally, it is helpful to have clarification that the furlough pay of returners should be based on their so called substantive pay rather than the pay they received during the period of leave.

The position of calculating, pay, including maternity pay, for those placed on furlough and who then commence maternity leave has now been addressed in the latest update to the statutory payment regulations. It is now clear that “normal weekly earnings” for the purpose of determining entitlement to or the amount of statutory pay during a period of parental leave must be calculated according to pre-furlough pay where:

  • the employee is furloughed;
  • the employer has claimed and is in receipt of financial support under the Scheme and
  • the employee’s earnings during furlough are lower than they would have been had furlough not occurred

Please note our comments regarding the need for a written agreement regarding the furlough. In other words, do not assume the change in status from leave to furlough is implicit for the purposes of a claim under the Scheme.

“Company directors”

The Direction adopts a narrow (and arguably narrower than the Guidance) interpretation to what will not be regarded as work for directors, namely “… fulfil a duty or other obligation arising by or under an Act of Parliament relating to the filing of company accounts or provision of other information relating to the administration of the… company…”.

Any additional activities (such as board meetings and preparation for the same) would jeopardise a claim under the Scheme.

“Fixed term contracts”

The Guidance now clarifies that a fixed term contract can be extended before its “natural conclusion” and the employee/worker can be furloughed in line with the Scheme. There is no minimum period that needs to be left on the fixed term. However, if the contract expired on or before 19 March, a claim cannot be made under the Scheme.

The process for making a claim

What is the process for the employer accessing funds under the Scheme?

HMRC have committed to making the claim process as “straightforward as possible” and HMRC claims should be made using the amounts in an employer’s payroll – at the same time as running payroll.

There seems to be a possibility of being ‘timed out’ after 30 minutes, with no ‘save and return’ functionality. Therefore, employers will need to be fully organised and efficient when logging on to apply. Employers are encouraged to note the application reference and print a copy as they will not receive an email acknowledgment. They are encouraged not to query payment until 6 working days from applying.

The following information is required:

  • employer PAYE scheme reference number
  • the number of employees being furloughed
  • National Insurance numbers for the furloughed employees
  • names of the furloughed employees
  • payroll/employee number for the furloughed employees (optional)
  • self-Assessment Unique Taxpayer Reference, Corporation Tax Unique Taxpayer Reference, Company Registration Number or Employer Name (as appropriate)
  • the claim period (start and end date)
  • amount claimed (per the minimum length of furloughing of 3 consecutive weeks)
  • bank account number and sort code
  • contact name
  • phone number

Where an employer has fewer than 100 furloughed staff, details of each employee being claimed for will need to be inputted directly into HMRC’s system - this will include their name, National Insurance number, claim period and claim amount, and payroll/employee number (optional).

However, employers with 100 or more furloughed staff will be asked to upload a file containing the equivalent information (rather than inputting it directly). The following file types are acceptable to HMRC: .xls .xlsx .csv .ods.

Where an employer uses an agent authorised to act for PAYE purposes, the agent will be able to make a claim on behalf of the employer, in which case the employer will need to confirm which bank account the grant should be paid into. However “file only” agents (i.e. who file an employer’s RTI return but do not act on any other matters) are not authorised to make a claim on an employer’s behalf, but can assist employers in collating requisite information.

We also anticipate that the portal will require a confirmation that the information provided is provided with reasonable care, complete and accurate – as is the case with other tax related submissions. It is very important that employers retain all records and calculations in respect of their claims, including records of the amount claimed for each furloughed employee and the period for which each employee is furloughed and a claim made under the Scheme. HMRC will verify claims and retain the right to retrospectively audit all aspects. HMRC have also stated that they can withhold or recover all payments.

Finally, HMRC have stated that they will not be in a position to respond to employee queries regarding claims. Instead, the responsibility for keeping employees updated is placed very firmly upon employers.

Each organisation will continue to need advice on its unique circumstances.

We have a team of experienced advisers available to advise on this further. Dozens of our experts have been advising employers since 20 March on the Scheme. In the first instance, please contact your usual Eversheds Sutherland adviser or the contacts below.

This note is a generic briefing and is not a substitute for detailed legal advice on the specific circumstances employers are facing. Employers should therefore take legal advice.

For more information contact

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