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Coronavirus - new guidance on “flexible furlough” arrangements - UK

  • United Kingdom
  • Coronavirus - Workforce issues
  • Employment law

15-06-2020

From 30 June, 2020, significant changes will be made to the “Coronavirus Job Retention Scheme”, most notably:

  • the introduction of “flexible furloughing”, but also
  • reduced financial support from the Government in terms of wage contribution

Following the publication of new Guidance on 12 June 2020 (the Guidance), this briefing provides an overview of these changes and also endeavours to answer some anticipated questions about the future operation of the scheme.

By way of background, on Friday 20 March 2020, the Chancellor announced the Coronavirus Job Retention Scheme to help pay people’s wages (the Original Scheme). A Treasury Direction and a series of guidance notes have also been published. Details of the Original Scheme and how it will operate until 30 June 2020 are available in our Q&A document, last updated on 29 May 2020.

The Original Scheme will be amended with effect from 1 July 2020 (the Revised Scheme).

Coronavirus - overview of the Revised Scheme

The Revised Scheme, like the Original Scheme, applies to employers who have placed staff on “furlough” (i.e. on temporary leave from work). Eligible employees are those who were on the employer’s 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. However, there are significant changes from the Original Scheme, as identified below.

Importantly, the Revised Scheme is accessible only in relation to those employees who were furloughed at some point under the Original Scheme (unless they have been on family leave, such as maternity or paternity leave, in which case access has been extended to allow them to be furloughed for the first time when their family leave ends). As such, in order to access ongoing financial support under the Revised Scheme, the final date by which an employer needed to have agreed and placed employees on furlough was 10 June. Employers will have until 31 July to make any claims in respect of any periods to 30 June. Claims for any periods starting on or after 1 July cannot be made before the beginning of July.

In addition, the number of employees for whom a claim can be made under the Revised Scheme is limited to the maximum number claimed for in a single claim under the Original Scheme (subject to exceptions for employees returning from parental leave – see below).

A further significant change is that, under the Revised Scheme, employers are able to allow furloughed employees to resume work for any amount of time and any shift pattern, while still being able to claim for furloughed hours i.e. normal hours not worked. However, when claiming the grant for such furloughed hours, employers will need to report and claim for a minimum period of a week.

As before, employers must agree any new flexible furloughing arrangement with any employee being placed on furlough (including by collective agreement with recognised union/s) and confirm that agreement in writing. As explained below, if the employee is already on furlough leave, there will be no need for a new furlough agreement in order to transition into flexible furlough – the employer will just need to agree (if necessary) the hours or days which the employee is to work during the furlough period.

Also, as previously, employees cannot undertake any work for their employer during periods they are furloughed – from 1 July this means that the employee can only work such hours or days as specifically required by the employer. Non-working hours or days will count as “furlough time”, during which no work can be undertaken.

Financial support offered by the Revised Scheme will gradually be reduced from the 80% of normal wages (capped at £2,500) that can be claimed under the Original Scheme, as follows:

Date % recoverable wages Additional employer liabilities
1 July

80% unworked days

(up to £2,500)

1 August

80% unworked days

(up to £2,500)

Employer National insurance (NI) + pension contributions
1 September

70% unworked days

(up to £2,187.50)

Employer NI + pension contributions +10% wage contribution (to make up the 80% total, up to a cap of £2,500 ie up to £312.50)
1 October

60% unworked days

(up to £1,875)

Employer NI + pension contributions +20% wage contribution (to make up the 80% total, up to a cap of £2,500 i.e. up to £625)

The cap will be proportional to the hours not being worked.

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

Start date

The Revised Scheme will apply to all claims for reimbursement via the HMRC portal from 1 July 2020.

Who does the Revised Scheme apply to?

The position remains that employers can only claim for furloughed employees that were employed on 19 March 2020 and who were on their PAYE payroll on or before 19 March 2020 and, importantly, they must have been already furloughed for at least three consecutive weeks taking place any time between 1 March and 30 June 2020.

The Revised Scheme does not therefore cover new starters (since 19 March 2020) or new entrants – i.e. those who have never been furloughed. The Guidance states that those previously furloughed with caring responsibilities and/or shielding can continue to be furloughed from 1 July.

An exception is made for employees returning from statutory parental leave after 10 June, providing they were on the employer’s PAYE payroll on or before 19 March 2020, started their leave before 10 June and the employer has previously submitted a furlough claim for any other employee.

Is there a minimum furlough period under the Revised Scheme?

The three week minimum furlough period will no longer apply under the Revised Scheme. Instead, there will be no minimum amount of time that an employee can be on furlough leave. In fact, because the Revised Scheme treats unworked hours as “furlough” time, an employee can spend part of any day working and the rest of that day on furlough leave – so for example, an employee could work each morning Monday-Friday, with the afternoon counting as furlough leave.

However, when submitting a claim to HMRC to recover furlough wage costs, the claim must cover a period of at least seven calendar days, unless a claim is being made for the first or last few days in a month.

Where a previously furloughed employee starts a new furlough period before 1 July this must be for a minimum of three consecutive weeks. This is the case regardless of whether the three consecutive week minimum period ends before or after 1 July. After 1 July, employers cannot make claims that cross calendar months, so the employer will need to make a separate claim for the period up to 30 June.

Any claim periods starting on or after 1 July must start and end within the same calendar month. Given the scope for confusion over timing of claim periods, the Guidance provides a number of worked examples.

What records must employers keep for flexible furlough?

There are several record keeping requirements under the Revised Scheme. In addition to retaining the furlough letter, setting out the basis upon which the employee agrees to “flexible” furlough , for five years, employers must keep a copy of all records for six years, including:

  • the amount claimed and claim period for each employee
  • the claim reference number for their records
  • their calculations in case HMRC need more information about their claim
  • usual hours worked and the number of hours they are furloughed (i.e. not working), including any calculations that were required, for employees they flexibly furloughed
  • actual hours worked for employees they flexibly furloughed
  • any claim adjustment/ correction notified to HMRC in the event of error

Accurate record-keeping for employees’ hours will be crucial for flexible furlough. To make a flexible furlough claim, the employer will need to work out employees’ usual hours (and retain a copy of the calculation) as well as record the actual hours they work and their furloughed hours for each claim period.

The Guidance states that an employer should not claim until employers are sure of “the exact number of hours [the employees] will have worked during the claim period. This means that you should claim when you have certainty about the number of hours your employees are working during the claim period. If you claim in advance and your employee works for more hours than you have told us about, then you will have to pay some of the grant back to HMRC.”

The calculation of an employee’s usual hours depends upon whether the employee works fixed or variable hours. Fortunately, worked examples are available for both in the guidance. (These calculations will not need to be carried out for employees who are “fully furloughed”).

Variable hours employees are those whose contracts of employment don’t specify a fixed number of hours or whose pay varies depending on the number of hours they work. The Guidance notes that employers were required to show the hours worked by such employees on their payslips since April 2019 and will therefore have records of the hours worked by each such employee. The “usual hours” for a variable hours employee for any period under the Revised Scheme (eg a week or a month) will be the higher of:

  • the hours they worked in the same calendar period in 2019, or
  • the average number of hours they worked in such a period (ie average weekly or monthly hours) in the tax year 2019/2020

Furloughed hours will be the difference between the usual hours and the actual hours worked in a claim period, even where those actual hours are different to what was originally agreed.

What rate of pay will apply to worked and furloughed hours?

The contractually agreed rate must be paid for any worked hours. However, there are no changes to what can or can’t be included when calculating wages under the Revised Scheme.

Can employers and employees agree to a lower rate of pay for worked hours?

Any contractual change which results in a reduction in pay will almost certainly be in breach of contract unless implemented with the express consent of employees (or recognised unions) in the context of the furlough arrangement. It is likely to prove an emotive issue and should be considered carefully in terms of what is needed in the interests of the business and how it will be achieved. Communication and negotiation with affected employees (or their trade union) will be key.

Our “adapting the workplace” briefing considers some of these issues.

If employers go down this route, they will also need to be aware that it will complicate the calculation of furlough pay, going forwards. To comply with the Revised Scheme, the applicable furlough rate must still be based upon a percentage of full pay pre-furlough, not a latterly agreed reduced rate.

What if employers miscalculate and submit an incorrect claim?

The Revised Scheme re-iterates that is an employer’s responsibility to check that any amounts claimed are correct and that it is not permissible to claim more than the maximum amount for each employee nor to claim in respect of any wages not paid out the employee.

However the Revised Scheme acknowledges that genuine mistakes will happen and now provides for errors to be rectified. Where that arises, employers should inform HMRC of any over/under claimed amount (preferably as part of their next claim).

Any overpaid sums will need to be repaid - normally through an adjustment to a subsequent claim. Potentially, this new rectification facility may permit employers to recover elements of furlough pay under claimed in previous claim periods, due to a misunderstanding, such as discretionary overtime.

According to the Revised Scheme, employers can bring furloughed employees back to work for any amount of time and any shift pattern and agree any working arrangements with previously furloughed employees. What employment law considerations apply here?

Employers should write to relevant employees to inform them that they will be on flexible furlough leave from 1 July (or other relevant date) – ie that they may be required to work, that they will be paid their usual contractual pay for such work, but that otherwise they will remain on furlough leave and receive furlough pay for their usual hours which they do not work.

It is unlikely that this change to flexible furlough will require employers to obtain new furlough agreements with employees who are already on furlough leave. Furlough will effectively continue for any period when the employee is not working. The employer will need to either instruct the employee about the hours or days they are required to work or agree those with the employee.

However, a return to work may require the introduction of shifts, new shift rotas or a change in hours of work, to enable adherence to Government return-to-work Guidance, to meet post-lockdown demand and/or to allow social-distancing at work. The starting point in asking employees to return on a basis of flexible working will be the terms of their existing employment contract and the degree of flexibility it allows (if any) for hours of work to be determined or changed unilaterally by the employer.

In the context of flexible furlough, it may possible to change contracted hours with the employee’s (or, in certain circumstances, the recognised trade union’s) consent. Employers need to guard against potential discrimination (e.g. caring responsibilities) and inequality over the amount and scheduling of work.

The number of employees an employer can claim for in any claim period cannot exceed the maximum number they have claimed for under any previous claim under the Original Scheme. How will that affect employers in practice?

The Guidance provides an example of how this limit will work in practice: “… an employer had previously submitted three claims between 1 March 2020 and 30 June, in which the total number employees furloughed in each respective claim was 30, 20 and 50 employees. Then the maximum number of employees that employer could furlough in any single claim starting on or after 1 July would be 50.”

When calculating the maximum number of employees, the employer may add newly furloughed employees who have returned from statutory parental leave after 10 June.

Those employers who rotated groups of staff on and off furlough, and may wish to bring back more employees on a part-time basis from 1 July, will need to ensure that they do not exceed this limit in any claim period.

How does the Revised Scheme apply to TUPE transfers?

A transferee is also eligible to claim under the Revised Scheme in respect of employees transferred under TUPE after 10 June 2020. .

These circumstances represent another exception to the cap referred to above in that the maximum number of employees that the transferee can claim for will be the total of both:

  • the maximum number of employees the transferee claimed for in any one claim ending on or before 30 June, and
  • the number of transferring employees which have had a claim submitted for them in relation to a furlough period of at least 3 consecutive weeks taking place any time between 1 March 2020 and 30 June (subject to the maximum cap applicable to the transferor)

Equivalent provisions will apply where the transferor is the liquidator of a company in compulsory liquidation.

Will this be the final development employers will need to monitor?

A revised Treasury Direction is expected to be published, to cover claims from 1 July.

What should employers do now in preparation?

Key aspects of the Revised Scheme are the need to agree hours in advance and then be able to track those hours accurately, to avoid having to admit an error has been made (albeit it can now be rectified). Employers should:

  • decide whether to adopt flexible furloughing where a full return to work is not yet possible
  • ensure union and employee representatives are involved at earliest opportunity
  • determine and agree (where necessary) flexible working patterns
  • select who will move onto flexible furlough, avoiding discrimination and other employment law breaches
  • inform relevant employees that they are on flexible furlough leave and keep a written record that confirms the flexible furlough arrangement
  • decide how to ensure all working hours are recorded
  • decide on the claim period (ordinarily a minimum seven calendar days)
  • plan for what will happen when the Revised Scheme ends on 31 October

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