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How does furlough work?

View profile for Alexandra Bonner
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Updated: 12 May 2020

1. What is the Coronavirus Job Retention Scheme?
2. Which employers are eligible for financial support to cover furloughed employees?
3. Which employees can be furloughed?
4. What is furlough?
5. How much will the government contribute to the cost of furloughed employees?
6. How is the government contribution to the cost of furloughed employees calculated?
7. What are “regular wages”?
8. Does national minimum wage apply?
9. Does the employer have to “top-up” to 100%?
10. Does an employee have to agree to be furloughed?
11. How long does furlough last?
12. Can you “rotate” employees on furlough?
13. Applying for the grant
14. Reporting wages to HMRC after applying for a grant
15. What if the employee is sick or shielding?
16. Maternity and other family leave
17. Training, volunteer work, other employment
18. Holiday during furlough
19. Issues to consider
1.What is the Coronavirus Job Retention Scheme?

The Coronavirus Job Retention Scheme (the Scheme) allows UK employers who cannot maintain their current workforce because their operations have been severely affect by coronavirus to “furlough” employees and access financial support to cover some of the furloughed employees’ wage costs during the crisis.  This will allow employers, who may be facing financial difficulty due to the uncertainty of the present climate, to take temporary measures to avoid redundancies where possible.

On 26 March, the government issued official guidance for employers on claiming for wage contributions through the Scheme (the Guidance). The Guidance has been updated 8 times; the most recent iteration published on 1 May 2020.   On 15 April 2020, the Treasury issued a Direction to HMRC containing authority and instructions for making payments under the Scheme (the Direction) which raised concerns about apparent inconsistencies with the Guidance. It has been confirmed that employers should be following the Guidance.  

On 12 May it was announced that the Scheme would be extended on the same terms until the end of July.  Further details are to be published in May about what changes will be made to the Scheme from August to October 2020.

2.Which employers are eligible for financial support to cover furloughed employees?
  • Employers must have had a PAYE payroll scheme on or before 19 March 2020 and have a UK bank account.
  • The employer does not have to be a business; it can be any entity, a charity or even an individual.
  • Only the employer can apply for the scheme.
3.Which employees can be furloughed?
  • Employees who were on the PAYE payroll on or before 19 March 2020, provided the employer had submitted real time information payroll data by that date (this includes full-time, part-time, fixed-term employees, employees on agency contracts, employees on flexible or zero-hours contracts, apprentices, office holders (including company directors), salaried LLP members, agency workers employed by umbrella companies and PAYE workers).  Employees who have been made redundant or stopped working since 28 February 2020 can be re-hired by their employer and furloughed.
  • Employees who have been made redundant or stopped working can be re-hired by their employer and furloughed.  The relevant date for when the employee must have been on the PAYE payroll of the employer is dependent on when the employee left work.  If the employee was made redundant or stopped working on or after 28 February 2020, he/she can be re-hired and furloughed so long as he/she was on the PAYE payroll as at 28 February 2020. If the employee was made redundant or stopped working on or after 19 March 2020, he/she can be re-hired and furloughed so long as he/she was on the PAYE payroll as at 19 March 2020. The table below, from the government guidance, sets out the relevant dates for determining whether an employee is eligible:

Was the employee employed with you as of this date?      

Date RTI submission notifying payment was made to HMRC                     

Eligible for CJRS?     

28 February 2020

On or before 28 February 2020

Yes

28 February 2020

On or before 19 March 2020

Yes

28 February 2020

On or after 20 March 2020

No

19 March 2020

On or before 19 March 2020

Yes

19 March 2020

On or after 20 March 2020

No

On or after 20 March 2020

On or after 20 March 2020

No

  • Employees who are isolating in line with government guidance can be furloughed.
  • You cannot furlough employees hired after 19 March 2020.
4.What is furlough?
  • To be considered as furloughed, the employees must not be working at all for the employer or a company linked to or associated with the employer while furloughed (whether by providing services or generating revenue), directly or indirectly. 
  • Furlough is not available if an employee agrees to continue working but for a reduced salary or on reduced hours.
5.How much will the government contribute to the cost of furloughed employees?
  • Employers will be able to claim a grant for:
    • 80% of the employee’s “regular wage” up to £2,500 per month
    • plus the associated employer National Insurance (NI) contributions and minimum pension automatic enrolment employer contributions on that subsidised wage
6.How is the government contribution to the cost of furloughed employees calculated?
  • For salaried employees, their actual gross salary before tax as of 28 February 2020 is used to calculate 80% of their wage.  Benefits, commission and bonuses should not be included.  Employees remain liable for their own tax and employee NICs.
  • For employees whose pay varies, the contribution will generally be the higher of:
  • The same month’s earnings from the previous year, or
  • The average month earnings from 2019-2020 (or if the employee only worked for part of that tax year it is the average for that period)
7.What are “regular wages”?

The grant will cover regular payments which you are obliged to pay your employees including wages, past overtime, fees and compulsory commission payments

  • It will not cover:
    • Discretionary bonuses, tips, discretionary commission or non-cash payments
    • Non-monetary benefits including taxable benefits in kind
    • Benefits provided through salary sacrifice should not be included in the reference salary
    • Apprenticeship Levy and Student Loans
    • Pension contributions above the statutory contribution
8.Does national minimum wage apply?
  • As furloughed employees are not working, it does not matter if the 80% calculation takes them below NMW/NLW.
  • If they are required to complete any training while furloughed they must be paid at least NMW/NLW for the time spent training.  Apprentices must receive at least the Apprenticeship Minimum Wage, NMW/NLW as appropriate for any time spent training.
9.Does the employer have to “top-up” to 100%?
  • The employer can choose to fund the difference between the employee’s normal salary and the value of the contribution but does not have to do so. 
  • If employers choose to top up an employee’s salary, they will be liable for the NICs and auto-enrolment pension contributions on the top-up amount.
10.Does an employee have to agree to be furloughed?
  • Yes.  The employee does not have to agree in writing (although this is advised) but the employer must keep a written, auditable, record of the agreement.  We are advising clients to obtain an email confirmation from employees, where possible.
  • The most recent iteration of the Guidance states that employers should discuss furlough with staff and make any changes to the employment contract “by agreement”.  Employers must confirm in writing to the employee that they have been furloughed.  If this is done in a way that is “consistent with employment law”, the employee’s consent will be valid. 
  • Note that few contracts contain an express right to change status or lay off employees in the event there is no work and so the terms and conditions of the employee’s contract will need to be varied by way of agreement. 
  • Employers will therefore need to:
    • Write to the employee explaining that they will be designated as a furloughed worker and seek his/her agreement to be furloughed (employees have no entitlement to be furloughed). 
    • Ensure the employee understands the date on which furlough commenced and that they must not work.
    • Explain to the employee the implications of furlough (i.e. the pay they will receive and any terms of employment that continue to apply etc).
    • Ask the employee to confirm  their agreement to be furloughed and, if the employer is not topping up their salary, their agreement that any salary due will be based upon the salary contribution offered by the Scheme.
  • Employers should retain the written record of the employee’s agreement and all documentation with employees relating to furlough for at least 5 years.
11.How long does furlough last?
  • Furlough must be for a minimum of 21 days.
  • Employers are advised to set out the following information in the letter that is sent to their employees designating them as furloughed:
    • state when the furlough is deemed to have commenced which may be at any time from 1 March provided the employee has not been working
    • indicate a likely initial period which must be no less than 3 consecutive weeks
    • explain that employees may be put on furlough multiple times and that any further furlough period may or may not follow straight after an existing furlough period
    • make clear that furlough may be brought to an end if:
      • the employer or employee are no longer eligible under the Scheme
      • if the employee is required to work (after the minimum 3 week period)
      • if employment is otherwise terminated
12.Can you “rotate” employees on furlough?
  • Employees may be put on furlough multiple times with gaps in between. 
  • Each period must be a minimum of 3 consecutive weeks.
13.Applying for the grant
  • Information about the numbers of furloughed employees and their earnings will need to be submitted to the HMRC online portal, which opened on 20 April 2020. 
  • HMRC Guidance on making a claim was updated on 23 April 2020 and can be found here: https://www.gov.uk/guidance/claim-for-wages-through-the-coronavirus-job-retention-scheme
  • Grants can be backdated to 1 March 2020 but only where an employee has not been working in that period.
  • Claims should be made from the date the employee finishes working (from 1 March), not the date on which the decision to furlough is agreed or communicated.
  • Grants are pro-rated if an employee is only furloughed for part of a pay period.  You will need to calculate the amount you are claiming using the amounts in your payroll.
  • Employers will need to continue to pay salaries (albeit at the reduced rate) until they apply online for the grant.  If not topping up, wages should be reduced to 80% within payroll as this adjustment will not be made by HMRC.
14. Reporting wages to HMRC after claiming for a grant
  • If an employer has claimed through the Scheme and is using the grant to pay wages, the grant should be reported to HMRC on the employer’s payroll software on a Full Payment Submission on or before the date that it is paid to the employees.
  • If the grant is being used to reimburse wages already paid, the employer does not need to make another Full Payment Submission for this amount. 
15.What if the employee is sick or shielding?
  • Sick/shielding employees can be furloughed but employers cannot claim under both the Scheme and the SSP rebate scheme in respect of the same period. 
  • A furloughed employee who becomes sick can be moved to sick leave and pay but employers will not want to do this if it means the period of furlough is less than the 3 week minimum period.
16.Maternity and other family leave
  • An employee cannot be furloughed during the two week compulsory maternity leave.
  • If employees receive enhanced contractual pay on maternity, adoption, paternity or shared parental leave, they can be furloughed and the employer can claim through the Scheme for enhanced (earnings related) contractual pay.
  • If an employee’s period of family-related statutory pay begins on or after 25 April 2020, and they were on furlough leave and paid via the Scheme during any part of the relevant 8 week period leading up to their statutory leave, the government has set rules for working out their average weekly earnings (AWE). The earnings used to work out an employee’s AWE for any part of the 8 week period that they were furloughed will be the higher of either what the employee:
    • actually received from their employer; or
    • would have received from their employer had they not been on furlough.
  • Employers will still need to instruct such employees to cease work and reach agreement with them that they are furloughed.
17.Training, volunteer work, other employment
  • Furloughed employees may undertake training and/or take part in volunteer work subject to public health guidance and provided they do not provide their services or do anything which generates revenue for the employer.  They are entitled to the appropriate NMW/NLW for training.
  • Furloughed employees are permitted to work for another employer (whether existing or new) if this is permitted by their contract with you.  When putting employees on furlough, remind them of any ongoing contractual obligations about taking other employment or otherwise agree that this will be waived during furlough.
18.Holiday during furlough
  • Employees on furlough continue to accrue holiday entitlement.  Employers may wish to consider requesting that furloughed employees take accrued holiday entitlement during furlough.  Employers will need to comply with the Working Time Regulations in respect of any requirement to take holiday.
  • Legislation has been amended to allow carry over of up to 4 weeks’ leave into the next 2 leave years where it is not “reasonably practicable” for employees to take some or all of their holiday entitlement due to coronavirus.
  • Holiday during furlough should be paid in accordance with the employee’s normal rate of pay for holiday. If an employee’s pay varies, holiday pay should be calculated based on the average pay received by the employee in the previous 52 working weeks. 
  • Employees who are union or non-union representatives are permitted to undertake duties for the purpose of individual or collective representation of other employees/workers.  In doing so, they must not provide services to or generate revenue for, or on behalf of, the company or an associated company.
19.Issues to consider
  • Furloughed employees have the same employment rights as non-furloughed employees including in respect of unfair dismissal, redundancy payments, SSP and parental rights. Equality and discrimination laws apply as normal.
  • When the Scheme ends, the employer will need to assess at that point whether to bring the employee back to work or, depending on the circumstances, make them redundant.
  • It is not clear what “severely affected” means therefore the employer is advised to record the threats and operational risks faced by the business at the time. 
  • The Guidance indicates that an employee may be made redundant whilst on furlough but the scheme should not be used to cover the costs of redundancy payments (statutory or contractual redundancy pay).
  • HMRC has retained the right to retrospectively audit all aspects of a claim under the scheme.  Claims should be based upon the correct payroll amounts.

Updated: 12 May 2020

Employment Law at Goodman Derrick

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The employment law team assist with employment contracts and policies, internal processes, restructures, redundancies, employment disputes and negotiations, business protection, DSAR responses and document reviews, as well as being highly experienced and successful representatives in employment tribunal and appeal court proceedings.

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For more information about our London based employment law service please visit: https://www.gdlaw.co.uk/site/services/business_services/employment_law/

This guide is for general information and interest only and should not be relied upon as providing specific legal advice. If you require any further information about the issues raised in this article please contact the author or call 0207 404 0606 and ask to speak to your usual Goodman Derrick contact.