Furlough under the Coronavirus Job Retention Scheme (Original form)

FAQs last updated: 16/06/2020

NOTE – these FAQs concern the Coronavirus Job Retention Scheme in its original form and will not be updated further. We provide a high level summary of the forthcoming changes to the Scheme at question 2(a) of these FAQs. However, for details of these changes (that will take effect from 1 July), please refer to our FAQs on ‘Furlough under the Revised Coronavirus Job Retention Scheme’, which we will continue to update as any further guidance becomes available.

1. What is Furlough Leave? (Last updated 16/06/2020)

Furlough leave is a form of leave which the Government has made available to UK businesses via its Coronavirus Job Retention Scheme (the ‘Scheme’).

The Scheme was announced by the Chancellor on Friday 20 March as part of a package of “temporary, timely and targeted measures to support public services, people and businesses through this period of disruption caused by Covid-19”. The Scheme was originally intended to run for at least 3 months from 1 March, but the Government said it would be extended if necessary. On 17 April, the Chancellor announced an extension of the Scheme to the end of June. On 12 May, the Government announced that the Scheme will continue until the end of October (the ‘Further Extension’), with some adjustments which will take effect from August to allow new flexibility (the ‘Revised Scheme’). The Government hopes that these adjustments will help to get employees back to work and boost the economy. See question 2(a), below, for a high level summary of the Revised Scheme, and our ‘Furlough under the Revised Coronavirus Job Retention Scheme’ FAQs for further detail.  

1(a). What official guidance is there on the Scheme? (Last updated 16/06/2020)

Government guidance on the Scheme was first published on 26 March and has been through numerous iterations since then. The latest Government guidance on the Scheme for employers is set out across a number of webpages, all of which can be accessed from this central guidance hub page.

A Treasury Direction setting out certain technical details of the Scheme was published on 15 April. There were some significant inconsistencies between the initial version of the Treasury Direction and the Government guidance. An amended Treasury Direction was published on 22 May, which resolves some of these issues, but we think that there are various points of difficulty remaining. (Note that claims made on or after 23 May must be in accordance with the amended Treasury Direction.)

Where there are inconsistencies between the Government guidance and the Treasury Direction, from a legal perspective, we would expect that the Treasury Direction would be accorded more weight. This is because, while it is not a piece of legislation, it is an exercise of ministerial authority conferred by an Act of Parliament and is legislative in nature. Some of the amendments that were made to the Government guidance after the initial version of the Treasury Direction was published appeared to reinforce the differences between these two sources of information on the Scheme, which we thought suggested that, where they were inconsistent, HMRC may not have been intending strictly to enforce the requirements of the Treasury Direction. However, now that a new version of the Treasury Direction has been published, we think it likely that HMRC would resolve any remaining inconsistencies in favour of the Treasury Direction, rather than the Government guidance, at least as far as the operation of the Scheme in its initial form is concerned. 

We also expect the Treasury Direction to be updated again to reflect the Further Extension in due course.

2. In summary, how does the Scheme work? (Last updated 01/06/2020)

The Government guidance for employers states that the Scheme is designed to help all UK businesses who cannot maintain their current workforce because their operations have been severely affected by coronavirus (COVID-19). There is no guidance around how this will be assessed, so employers will need to apply their own judgement/discretion about whether the scheme is intended for them. However, the Government guidance does expressly state that different businesses will face different impacts from coronavirus. 

We appreciate that, in the absence of any detailed explanation as to the meaning of ‘severely affected’, it will not be straightforward for companies to determine whether they are eligible to access the Scheme. We note that the Treasury Direction (both the original and the amended version) does not reflect the language used in the Government guidance. It refers to the purpose of the Scheme being to provide for payments to employers in respect of costs of employment incurred in respect of furloughed employees “arising from the health, social and economic emergency in the United Kingdom resulting from coronavirus and coronavirus disease”. Although it appears quite broad, this statement does not shed any further light on the extent to which an employer’s business must have been affected in order to legitimately access the Scheme and we do not think it removes this requirement. It is also worth noting that the Treasury Direction states that claims will not be permitted where they are “abusive” or “otherwise contrary to the exceptional purpose” of the Scheme, and the Government guidance emphasises the fact that HMRC will check claims made through the Scheme. It specifies that payments may be withheld or need to be repaid in full to HMRC if the claim is based on dishonest or inaccurate information, or is found to be fraudulent. In addition, the Government guidance for employees includes a link for reporting suspected fraud by employers. 

A furloughed employee remains on the employer’s payroll, so furlough leave is a form of authorised absence. The guidance provides that furlough leave must be for a minimum of three consecutive weeks. 

To be eligible under the Scheme an employer must have created and started a PAYE payroll scheme on or before 19 March 2020, enrolled for PAYE online (which can take up to 10 days), and have a UK bank account. Any entity with a UK payroll can apply, including businesses, charities, recruitment agencies and public authorities. Note that where a group of companies has multiple PAYE schemes and there is a transfer of all employees from these schemes into a new consolidated PAYE scheme after 19 March 2020, the new scheme will be eligible to furlough those employees and claim the grants available under the Scheme.

The existing terms of the Scheme enable employers to claim for 80% of furloughed employees’ usual/regular 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 subsidised furlough pay. An employer can choose to fund the difference between the 80% / £2,500 payment and an employee’s full salary, but there is no requirement to do so. Employees on reduced income in these circumstances may also be eligible for other support including Universal Credit.

Employers can reclaim the payments from HMRC by providing information on an online portal about employees who have been furloughed and their salaries. The portal opened for claims on 20 April and the step-by-step guide for employers indicates that payments via the portal should be made within six working days of an application being submitted. HMRC experienced high volumes of applications in the initial days of operation but seems to be coping relatively well with demand. Businesses that require an additional cash injection could access the Coronavirus Business Interruption Loan Scheme (CBILS), which is offering loans of up to £5 million for SMEs through the British Business Bank, or the Covid-19 Corporate Financing Facility. The CBILS is open for applications; details are available here.   

The Government has stated that the Scheme will continue in its current form until the end of July. Then, from 1 August to the end of October, new flexibility will be introduced to the Scheme – see question 2(a), immediately below, for details of this Further Extension and Revised Scheme.

2(a). How will the Further Extension and the Revised Scheme operate and when will the changes take effect? (Last updated 16/06/2020)

As noted above, on 12 May, the Government announced that the Scheme will continue until the end of October (the ‘Further Extension’), with some adjustments which will take effect from August to allow new flexibility (the ‘Revised Scheme’). The Government hopes that these adjustments will help to get employees back to work and boost the economy. Limited further information regarding implementation of the Further Extension and the Revised Scheme was provided by the Government on 29 May in an announcement and a factsheet and we consider the implications of this below and further details of how the Revised Scheme will operate were added to the Government guidance on 12 June. 

Flexibility to allow part-time work during furlough

Under the Scheme in its current form, furloughed employees are currently not allowed to perform any work for their employer (see question 18, below). This lack of flexibility has made it difficult for some businesses to get back up and running. Following lobbying by Make UK and other business groups, the Government announced that greater flexibility would be introduced to the Scheme.

From 1 July 2020, under the Revised Scheme businesses will be given the flexibility to bring furloughed employees back to work part time. It is worth highlighting that this flexibility is being introduced a month earlier than anticipated, as the original announcement had suggested it would only come into effect in August. 

Employers will be able to decide the hours and shift patterns their furloughed employees will work on their return (although any contractual changes will need to be agreed and confirmed in writing). The 29 May announcement indicated that this flexibility is intended to enable employers to bring the workforce back in a staggered way while continuing to receive financial support. However, employers will be responsible for paying employees’ wages while they are in work, i.e. claims under the Revised Scheme will only cover the hours for which furloughed employees are not working. 

When they make their claim, employers will be required to submit data on the usual hours a furloughed employee would be expected to work in a claim period and actual hours worked. When claiming for furloughed hours, employers will need to report and claim for a minimum period of a week at a time, in order for grants to be calculated accurately across employees’ working patterns. This is a minimum period and employers will be able to make claims for longer periods, e.g. if their employees are on monthly or two weekly cycles.

Closure of the Scheme to new entrants

Claims from July onwards will be restricted to employers who are currently using the Scheme and to previously furloughed employees. The Scheme will close to new entrants on 30 June, which means that the final date by which an employer could furlough an employee for the first time was 10 June, in order for the current minimum three-week furlough period to be completed by 30 June. Announcing this change, the Government said that such a restriction was necessary to enable the introduction of part-time furloughing and support those already furloughed back to work. There is an exemption for parents on extended leave, see below.

Note that it was not absolutely clear from the information in the Government’s announcement or the accompanying factsheet whether an employee would need to be on furlough immediately before the changes take effect in order for the employer to be able to claim for them under the Revised Scheme from 1 July onwards. Our initial reading of the limited information available was that this was not the intention and that an employee could therefore be furloughed in July even if they were not on furlough in June, provided that they had at some point previously been on furlough under the Scheme in its initial form, e.g. because the employer has been operating furlough on a rotational basis. However, this scenario was not expressly covered in the announcement or factsheet so we were unable to say this with certainty. The further guidance published on 12 June confirms our understanding, i.e. provided an employee has been on furlough for a 3 week period at any time before 30 June, they will be eligible to be furloughed under the Revised Scheme.

Another aspect of the factsheet which had caused some confusion was the statement that “[T]he 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 current CJRS”. It was not immediately clear whether this provision would impact on a company that had, for example, previously been operating rotational furlough (e.g. keeping half the workforce on furlough for three weeks, with the other half working and then swapping them over) but in July wished to change so that all of the workforce work on a part-time basis and receive furlough pay for their remaining hours not worked. Such a change might potentially involve claiming for more employees in a single claim than the employer had done previously. On the basis of the further guidance published on 12 June, it appears that such a change will therefore not be permitted, as that guidance states: “For example, 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.” Employers will need to bear this restriction in mind when determining how they make use of the Revised Scheme from July. (However, there are exceptions to the cap where an employer is furloughing for the first time employees who have previously been on family leave, or who transferred under TUPE after 10 June.) 

Employers will have until 31 July to make any claims under the Scheme in respect of the period to 30 June. Once the changes take effect, employers will still be able to make claims in anticipation of an imminent payroll run, at the point payroll is run or after payroll has been run. They will be able to make their first claim under the Revised Scheme from 1 July. From 1 July, claim periods will no longer be able to overlap months. Employers who previously submitted claims with periods that overlapped calendar months will no longer be able to do this going forward. The factsheet states that this is necessary to reflect the forthcoming changes to the Scheme.

Parents on family leave who return to work in the coming months can be furloughed and are exempt from the 10 June cut-off date, provided the employer has previously furloughed other employees. This exemption applies to those on maternity, paternity, adoption leave, shared parental leave and parental bereavement leave. There is also an exception where employees transfer to a new employer under TUPE after 10 June, provided that they have previously been furloughed by their old employer. In addition, on 15 June, the Government announced an exception for reservist servicemen and servicewomen who come back to their day job after completing a period of active duty. They will be able to be furloughed by their employer for the first time under the Revised Scheme, provided their employer has previously furloughed other employees. We cover these exceptions in greater detail in our FAQs on ‘Furlough under the Revised Coronavirus Job Retention Scheme’.

Gradual reduction in level of financial support

The amount that employers can claim under the Scheme will remain the same during June and July (although if you are bringing employees back part-time in July, only their non-working (or furloughed) hours will be covered and the monthly cap on furlough pay will be proportional to the hours not worked). 

Going forwards, in addition to the tapering of support described below, if your furloughed employees are working part-time under the Revised Scheme, the amount of furlough pay you can claim will only cover non-working hours and the monthly cap on furlough pay will be proportional to the hours not worked. You will be responsible for paying the employees for their working hours.

From 1 August 2020, the level of Government grant will be slowly tapered, but employees will continue to receive 80% of their normal pay (subject to a monthly cap of £2,500) covering the time they are unable to work. 

During August, employers will be able to claim 80% of furloughed employees’ wages up to a monthly cap of £2,500 under the Revised Scheme. However, employers will no longer be able to claim for employer NICs or pension contributions under the Revised Scheme and will have to fund these themselves.

During September, employers will be able to claim 70% of furloughed employees’ wages up to a monthly cap of £2,190 under the Revised Scheme. As well as employer NICs and pension contributions, employers will have to fund 10% of the normal wages received by furloughed employees, so that the employees continue to receive 80% of their pay, up to the monthly cap of £2,500.

During October, employers will be able to claim 60% of furloughed employees’ wages up to a monthly cap of £1,875 under the Revised Scheme. As well as employer NICs and pension contributions, employers will have to fund 20% of the normal wages received by furloughed employees, to make up the 80% total to which the employees are entitled subject to the monthly cap of £2,500.

3. Who can be furloughed? (Last updated 16/06/2020)

Note, in view of the changes to the Scheme summarised at question 2(a), above, it is no longer possible to furlough any employee for the first time after 10 June (except for those who have been on maternity, paternity, adoption leave, shared parental leave and parental bereavement leave, where you have previously furloughed other employees). The content below explains the other eligibility conditions for furlough. For details of furlough from 1 July, see our FAQs on ‘Furlough under the Revised Coronavirus Job Retention Scheme’.

Furloughed employees must have been on the employer’s PAYE payroll on or before 19 March 2020, and can be on any type of employment contract, including:

• full-time employees
• part-time employees
• employees on flexible or zero-hour contracts
• apprentices
• employees on fixed term contracts

In respect of employees on fixed-term contracts, their contracts can be renewed or extended during the furlough period without breaking the terms of the Scheme. See question 5, below, for the position where a fixed-term employee’s contract has ended.

In addition, the following categories of individuals are also eligible if they are paid by PAYE and were on payroll on or before 19 March:

• Office holders (including company directors).
• Agency workers whether or not they are employees of the agency, including those employed by umbrella companies. For all agency workers, furlough should be agreed between the agency and the worker, or where there is an umbrella company, the umbrella company and the worker.
• Limb (b) workers (sometimes known as dependant contractors, where the individual carries out work or services for another party who is not their client or customer), unless they pay tax on their trading profits through Income Tax Self-Assessment, in which case they may be eligible for the Self-Employed Income Support Scheme.
• Salaried members of Limited Liability Partnerships who are designated as employees for tax purposes (‘salaried members’) under the Income Tax (Trading and Other Income) Act (ITTOIA) 2005.

Note too that foreign nationals are eligible to be furloughed. Grants under the scheme are not counted as ‘access to public funds’, and you can furlough employees on all categories of visa. This includes employees who are on Tier 2 visas and those who are in the process of applying for indefinite leave to remain (ILR). However, for such employees, their furlough pay may be lower than their minimum visa salary threshold, or minimum ILR salary bands. Accordingly, it is important that their pay returns to previous levels once the impact of Covid-19 has passed. For employees whose visas are due to expire between March and July, the Home Office have extended the visa application deadline. 

It is important for employers to take account of the forthcoming closure of the Scheme to new entrants. From July onwards access will be restricted to employers who are currently using the Scheme and previously furloughed employees. See question 2(a), above, for further details. 

4. Can an employer furlough recent starters? (Last updated 16/06/2020)

Note, in view of the changes to the Scheme summarised at question 2(a), above, it is no longer possible to furlough any employee for the first time after 10 June (except for those who have been on maternity, paternity, adoption leave, shared parental leave and parental bereavement leave, where you have previously furloughed other employees). The content below explains the other eligibility conditions for furlough. For details of furlough from 1 July, see our FAQs on ‘Furlough under the Revised Coronavirus Job Retention Scheme’.

You can only furlough employees who have been on your payroll since 19 March 2020 and which were notified to HMRC on an RTI submission on or before 19 March 2020. This means an RTI submission notifying payment in respect of that employee to HMRC must have been made on or before 19 March 2020. Employees who were placed on your payroll/in respect of whom an RTI submission was made to HMRC only after 19 March 2020 cannot be furloughed or claimed for under the Scheme.

Note that earlier Government guidance on the Scheme had set the date at which employees had to have been on payroll in order to be claimed for at 28 February 2020. This was considered necessary in order to protect against fraudulent claims (e.g. an employer taking on friends/family simply in order to furlough them and claim furlough pay from HMRC). However, following significant public pressure identifying the unfairness this created for employees who had started genuine new jobs in March, the Government guidance was amended on 15 April. The eligibility date of 19 March is the day before the Scheme was first announced – thus still preventing the sort of fraudulent claim described above.

While the extension of the Scheme to employees who were on payroll on 19 March will cover a significant number of new starters, it will not necessarily cover everyone. This is because eligibility is contingent on the employer having made an RTI submission for the employee on or before 19 March, and monthly paid employees who started work in advance of 19 March will not have been paid until the March payroll. Most employers who run a monthly payroll process payments at or around the end of the month, so the RTI submission for these employees is likely to fall after the cut-off date of 19 March. We do not think that there will be any further movement on this from HMRC, since the requirement to have made an RTI submission in respect of the employee is expressly set out in the Treasury Direction, although we are raising the point with Government.

While there is no obligation on them to do so, it is open to employers who wish to protect their new starters who are still not covered by the Scheme to fund a period of authorised leave equivalent to furlough themselves, if they can afford this.

Many employers will have placed employees whom they took on after 28 February, who were not previously covered by the Scheme, on unpaid lay-off. If those employees would now be covered following the extension of the cut-off date to 19 March, the employer could consider moving them to furlough leave going forwards (although note that if an employer has not done so already, it would need to do this by 10 June due to the forthcoming closure of the Scheme to new entrants – see further below, and at question 2(a), above).

The 23 April update to the Government guidance includes a helpful table identifying the dates that employees must have been on your PAYE payroll and an RTI submission made in order to be eligible under the Scheme:

5. What about employees who have already left the business? (Last updated 16/06/2020)

Note, in view of the changes to the Scheme summarised at question 2(a), above, it is no longer possible to furlough any employee for the first time after 10 June (except for those who have been on maternity, paternity, adoption leave, shared parental leave and parental bereavement leave, where you have previously furloughed other employees). The content below explains the other eligibility conditions for furlough. For details of furlough from 1 July, see our FAQs on ‘Furlough under the Revised Coronavirus Job Retention Scheme’.

You can use the Scheme to furlough employees who have left the business since 28 February 2020, if you re-hire them. The Government guidance that appears under the heading “If you made employees redundant or they stopped working for you on or after 28 February” states that this applies to employees that were made redundant or stopped working for you after 28 February, even if you do not re-employ them until after 19 March, as long as the employee was on your payroll as at 28 February and had been notified to HMRC on an RTI submission on or before 28 February 2020.

A further update to the Government guidance made on 23 April deals expressly with the position of employees who were made redundant or stopped working for you after 19 March 2020. It specifies that these employees can be rehired and furloughed provided that they were employed on or before 19 March 2020, were on your PAYE payroll on or before 19 March 2020 and an RTI submission was made in respect of them on or before 19 March 2020. This addition removes the uncertainty that previously existed around whether you could rehire and furlough employees who had left the business after 19 March (i.e. after the Scheme was announced).

(Note, that while the Treasury Direction does not deal directly with rehiring employees who have left the business in order to furlough them, it does provide that an employee will only count as a furloughed employee if (among other things), the instruction not to work is given “by reason of circumstances arising as a result of coronavirus or coronavirus disease”. This calls into question whether an employer can rehire and furlough an employee in all circumstances. For example, it is doubtful an employer could rehire and furlough someone it had made redundant for a reason unrelated to Covid-19, since the reason the employer would have no work for them to do is that their position was already redundant notwithstanding the coronavirus crisis. This apparent restriction does seem at odds with other announcements on the Scheme and we hope that the position will be clarified by the Government).

If you decide to re-hire any former employees, you would need to contact them, seek their agreement to be re-employed and then their consent to being furloughed. We had previously understood that furlough leave for employees you rehired and furloughed in this way could be backdated to the later of the date their employment terminated, or 1 March 2020. However, the update to the Government guidance on 17 April indicates that you can only claim for these employees’ wages under the Scheme from the date on which you furlough them through the Scheme. (See further question 13(f) below, for more details on the uncertainty surrounding the issue of backdating.)

If you rehire an employee whose employment terminated more than a week before, the ordinary position would be that their continuity of employment has been broken, and it is not possible for an employer and employee to preserve continuity by agreement. Accordingly, to ensure fairness to the employee, you may wish to allow them to retain any termination payment they received, e.g. redundancy pay, as they will not qualify for this again if they are subsequently dismissed as redundant when the Scheme comes to an end. (Note that there may potentially be scope for an employee to argue that continuity was not actually broken, on the basis that the gap between contracts constituted a “temporary cessation of work”. The case law in this area indicates that whether a cessation was temporary will be considered retrospectively, with the benefit of hindsight, but the expectations of the parties at the time the first contract ended will be relevant. Each case will depend on the individual circumstances. We therefore suggest that you seek advice if you are considering rehiring an employee who had left in order to access the Scheme and you are concerned about continuity).

You are not obliged to rehire any employees who have left the business since 28 February 2020. If you do rehire, remember that at the end of the furlough period, these individuals would remain employed by you. If redundancies are necessary at that point, you would need to start a new redundancy process. To avoid these potential complications, you could agree with the employee when you rehire them that their re-engagement will be for a fixed term and will terminate when the Scheme ends. The changes to the Scheme that will require employers to make some contribution towards the cost of employees’ furlough pay from August 2020 mean that you may wish to consider how long you are willing to keep employees whom rehire on furlough. If you have already rehired employees you may wish to review the terms of any fixed term contract. 

Note also that the Government guidance specifies that if an employee has had multiple employers over the past year, has only worked for one of them at any one time, and is being furloughed by their current employer, their former employer(s) should not re-employ them, put them on furlough and claim for their wages through the scheme.     

With regard to a fixed-term employee whose contract ended because it was not extended or renewed before its natural conclusion, you can rehire and furlough the employee provided that either:

• their contract expired on or after 28 February 2020 and an RTI submission was notified to HMRC on or before 28 February 2020; or
• their contract expired on or after 19 March 2020 and an RTI submission was notified to HMRC on or before 19 March 2020.

However, an employee whose contract both started and ended between 28 February 2020 and 19 March 2020 cannot be furloughed under the Scheme. This applies to both fixed-term employees and employees on other contracts. 

5(a). What about employees who are currently in their notice period? (Last updated 16/06/2020)

Note, in view of the changes to the Scheme summarised at question 2(a), above, it is no longer possible to furlough any employee for the first time after 10 June (except for those who have been on maternity, paternity, adoption leave, shared parental leave and parental bereavement leave, where you have previously furloughed other employees). The content below explains the other eligibility conditions for furlough. For details of furlough from 1 July, see our FAQs on ‘Furlough under the Revised Coronavirus Job Retention Scheme’.

Employees who are currently in their notice period are not specifically dealt with in the Government guidance. However, our view is that if an employee has resigned or been given notice of dismissal and is working out their notice period, but you now no longer have work for them to do due to Covid-19, you should be able to agree with them that they will be furloughed for the remainder of their notice period.  

5(b). What about employees who transfer under TUPE? (Last updated 16/06/2020)

Note, in view of the changes to the Scheme summarised at question 2(a), above, it is no longer possible to furlough any employee for the first time after 10 June (except for those who have been on maternity, paternity, adoption leave, shared parental leave and parental bereavement leave, where you have previously furloughed other employees). The content below explains the other eligibility conditions for furlough. For details of furlough from 1 July, see our FAQs on ‘Furlough under the Revised Coronavirus Job Retention Scheme’.

In employment law, the effect of TUPE is that post-transfer it is as if the transferred employee had always been employed by the new employer. The revised Government guidance specifies that the new employer will be allowed to claim under the Scheme in respect of the employees of a previous business who transferred to it after 28 February 2020 if either the TUPE or PAYE business succession rules apply to the change in ownership.  

The amended Treasury Direction provides that where transferring employees were furloughed by the old employer pre-transfer, but have been on furlough for less than the three week minimum furlough period at the time the transfer takes place, the old employer will not be prevented from making a claim under the Scheme for the period immediately before the transfer, provided that the new employer makes a claim under the Scheme in respect of the transferring employees for the period immediately after the transfer. We assume that the new employer would have to furlough the transferring employees for at least three weeks immediately following the transfer in order for this provision to apply, since the amended Treasury Direction does not suggest that the old and new employers can aggregate the time the transferring employees spend on furlough with each of them in order to make up the minimum furlough period. It also appears from this provision that the old employer’s ability to claim under the Scheme where transferring employees were on furlough with them for less than three weeks pre-transfer will be dependent on the new employer’s actions. If the new employer has work for the transferring employees to do following the transfer and therefore does not furlough them, the old employer will be unable to claim for the period they spent on furlough before the transfer.

If a TUPE transfer is into a brand new company that did not have a PAYE payroll established as at 19 March 2020, there is guidance in the amended Treasury Direction about how the new employer can access the Scheme.

5(c). What about employees with an annual pay period? (Last updated 16/06/2020)

Note, in view of the changes to the Scheme summarised at question 2(a), above, it is no longer possible to furlough any employee for the first time after 10 June (except for those who have been on maternity, paternity, adoption leave, shared parental leave and parental bereavement leave, where you have previously furloughed other employees). The content below explains the other eligibility conditions for furlough. For details of furlough from 1 July, see our FAQs on ‘Furlough under the Revised Coronavirus Job Retention Scheme’.

You can furlough employees – such as some company directors – who have an annual pay period, 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 2019 - 20 tax year. (The requirement for there to be payment of earnings in the 2019 - 20 tax year applies for any employee you claim for under the Scheme, irrespective of how frequently they are paid, e.g. weekly, fortnightly or monthly). This means that you will be unable to claim for those on an annual pay period if the last payment notified to RTI was before 5 April 2019 and no further payments were notified until after 19 March 2020.

6. Can an employer furlough those who are currently on sick leave or self-isolating? (Last updated 16/06/2020)

The Government guidance points out that the Scheme is not intended to be used by employers for short-term absences from work due to sickness. This makes sense given the three week minimum furlough period. 

However, the Government guidance seems to permit an employee who is currently on short or long term sick leave to be moved onto furlough if you have a business reason for doing so. It states that in these cases, the employee should no longer receive sick pay and would be classified as a furloughed employee.

The original version of the Treasury Direction seemed to be inconsistent with the Government guidance, providing that an employee’s entitlement to SSP would need to come to an end before the employee could be furloughed. While its drafting is somewhat opaque, the amended Treasury Direction appears to be intended to iron out this inconsistency. It provides that where an employee is in receipt of (or entitled to) SSP, their furlough period cannot begin until the period of incapacity for work for which they are receiving or entitled to SSP has ended – but that the period of incapacity for work can be ended by agreement between the employer and the employee. This seems to permit an agreement whereby an employee foregoes their entitlement to SSP in order to be furloughed, even if they are not actually fit to return to work. While the flexibility this offers is helpful to employers insofar as it broadens the circumstances in which they can access the Scheme, it raises potential questions around the management of employees’ sickness absence more broadly, e.g. how does an agreement to end a period of incapacity for work in this way affect the employee’s entitlement to company sick pay? Can the employer no longer count days after such an agreement takes effect as days of sickness absence under its absence management policy, even if the employee would not in fact be fit to return to work? (See further questions 6(d), below.)

Another support measure that the Government has put in place for employers, separate from the Scheme, is a rebate system under which employers with fewer than 250 employees can claim back the cost of Covid-19-related SSP (the SSP Rebate Scheme – see the FAQs on Financial support for your business for more information). The Government guidance on the interaction between furlough and sick leave makes clear that you can claim back from both the Scheme and the SSP Rebate Scheme for the same employee but not for the same period of time. When an employee is on furlough, you can only reclaim expenditure through the Scheme, and not the SSP Rebate Scheme. The Treasury Direction does not mention the SSP Rebate Scheme, so we assume the position on this remains unchanged.

It is important for employers to take account of the forthcoming closure of the Scheme to new entrants. From July onwards access will be restricted to employers who are currently using the Scheme and previously furloughed employees. This means that if an employee has not previously been furloughed, from July you will not be able to use furlough to cover their absence from work due to sickness. See question 2(a), above and our FAQs on ‘Furlough under the Revised Coronavirus Job Retention Scheme’, for further details.

6(a). Can an employer furlough an employee who is unable to work due to childcare needs? (Last updated 16/06/2020)

Yes. The Scheme is expressly stated to be available for those who are unable to work because they have caring responsibilities resulting from coronavirus, such as the need to look after children. This appears to be regardless of whether you would otherwise have furloughed them or had work for them to do – although, as is the case for all categories of employee, the general point that the Scheme is intended to be available to companies whose operations have been severely affected by Covid-19 would still apply (see question 2, above).

It is important for employers to take account of the forthcoming closure of the Scheme to new entrants. From July onwards access will be restricted to employers who are currently using the Scheme and previously furloughed employees. See question 2(a), above and our FAQs on ‘Furlough under the Revised Coronavirus Job Retention Scheme’, for further details.

6(b). Can an employer furlough an employee who is shielding or who needs to stay at home with someone who is shielding? (Last updated 16/06/2020)

Yes. The Government guidance expressly states that the Scheme is available to employees who are shielding in line with public health guidance (i.e. extremely vulnerable individuals who are most at risk of suffering severe and life-threatening symptoms if they contract Covid-19 and whom the NHS has contacted individually to advise them to remain at home – although the guidance has recently been relaxed to allow these individuals to spend some time outside their home, e.g. for exercise, they are still advised to avoid contact with people outside their household and working outside the home – and current advice is that they continue to shield until at least 30 June) and those who need to stay at home with someone who is shielding.

There was some confusion following the amendments made to the guidance on 4 April which stated that you could only furlough these individuals if they were unable to work from home and you would otherwise have to make them redundant. As we hoped (and lobbied for), this was revisited by the Government in its 9 April guidance and the ‘otherwise redundant’ requirement was removed. In short, the Government guidance indicates that you can decide whether to furlough these employees – although, as is the case for all categories of employee, the general point that the Scheme is intended to be available to companies whose operations have been severely affected by Covid-19 would still apply (see question 2, above). 

For employees who live with someone who is shielding, the Government guidance specifically states that they can be furloughed. Since they are not entitled to SSP, the above inconsistencies between the Government guidance and the original version of the Treasury Direction did not affect your ability to furlough them – although, as is the case for all categories of employee, the general point that the Scheme is intended to be available to companies whose operations have been severely affected by Covid-19 would still apply (see question 2, above).

Although it is unlikely to be relevant in the context of shielding employees and those they live with, most of whom will presumably have been furloughed since quite early on, it is important for employers to take account of the forthcoming closure of the Scheme to new entrants. From July onwards access will be restricted to employers who are currently using the Scheme and previously furloughed employees. See question 2(a), above and our FAQs on ‘Furlough under the Revised Coronavirus Job Retention Scheme’, for further details.

6(c). Can an employer furlough an employee who is vulnerable or is otherwise reluctant to come to work for a coronavirus reason, where it otherwise would have work for them to do, but who not does fall within 6(a) and 6(b)? (Last updated 16/06/2020)

This category could include vulnerable employees who may be adhering strictly to social distancing advice and therefore do not feel able to come to work, or employees who are not themselves vulnerable but who live with someone who is and therefore wish to remain away from work to protect that person, or even other employees who are simply unwilling to come into work because they are nervous about being infected.

The Government guidance does not expressly deal with this scenario. In our view, whether or not you can furlough these employees where you would otherwise have work for them to do will depend on the interpretation of references in the Government guidance about the circumstances in which employers can access the Scheme. As noted in question 2, above, this is an area of uncertainty. You will have to make a judgment call based on whether you can say that your operations have been severely affected by Covid-19. If, for example, a business has found that its operations are severely affected, the fact that it still has work for some production operatives to do and it needs to backfill for any of them who cannot come into work should not, of itself, mean that it would not be eligible under the furlough scheme. It is also worth noting that, even if you would otherwise have work for them to do, furloughing employees who are vulnerable or otherwise reluctant to come to work for a coronavirus reason would seem consistent with the requirement in the Treasury Direction that the instruction not to work “is given by reason of circumstances arising as a result of coronavirus or coronavirus disease”.

(Note also that employers may previously have treated vulnerable employees or those who are living with someone who is vulnerable as if they were on sick leave and paying them SSP (and contractual sick pay, if applicable). However, regulations that came into force on 1 April make clear that, strictly speaking, such employees are not legally entitled to SSP. In view of this, employers may have decided to change approach and sought to agree with these employees that they would no longer be treated as on sick leave but would instead be placed on furlough. Similarly, employers that had previously required these employees to take unpaid leave may also have sought to agree with them that they would instead be placed on furlough. However, in this regard, note that the Government guidance states that an employee who is on unpaid leave cannot be furloughed, unless they were placed on unpaid leave after 28 February. It also provides that an employee who went on unpaid leave on or before 28 February cannot be furloughed until the date on which it was agreed they would return from unpaid leave. These points are reflected in the amended Treasury Direction, which also provides that where an employee went on unpaid leave before 1 March, and the employer and employee agreed before 20 March to end that unpaid leave earlier than originally planned, the employee can be furloughed after the agreed varied end-date).

It is important for employers to take account of the forthcoming closure of the Scheme to new entrants. From July onwards access will be restricted to employers who are currently using the Scheme and previously furloughed employees. See question 2(a), above and our FAQs on ‘Furlough under the Revised Coronavirus Job Retention Scheme’, for further details.

6(d). What about employees who are on long-term sick leave? (Last updated 16/06/2020)

The Government guidance suggests that you can potentially furlough employees who are on long-term sick leave and it is essentially your decision about whether to do so. However, the original version of the Treasury Direction called this into question as it seemed to indicate that the employee’s entitlement to SSP would first have to come to an end (see question 6, above). This issue seems to have been removed by the amended Treasury Direction which, as noted at question 6 above, appears to allow a period of incapacity for work for which the employee would be entitled to SSP to be ended by agreement between the parties.

However, there remains a degree of uncertainty about whether you can furlough an employee who is currently on long-term sick leave for a non-Covid-19 reason. This is because the Treasury Direction provides that an employee will only be furloughed if (among other things), the instruction that they do not carry out any work “is given by reason of circumstances arising as a result of coronavirus or coronavirus disease”. An employee who is on long-term sick leave for a non-Covid-19 reason is unlikely to meet this requirement. Although the amended Treasury Direction appears to allow sick leave to be brought to an end by agreement in order to access the Scheme, where an employee remains unfit for work due to a non-Covid-19 illness, it seems somewhat artificial to do this and then say that the reason the employee is not working is because of coronavirus. In practice, of course, an employee who remains entitled to full pay company sick pay if they stay on sick leave may be unlikely to agree to end that sick leave in order to be furloughed on a reduced rate of pay. If an employer were to end a period of long-term sick leave in order to furlough an employee, they would also need to consider the implications for the employee’s entitlement to SSP or company sick pay in the future, e.g. if the employee remains unfit for work after the Scheme comes to an end, has their entitlement to sick pay been reset during the furlough period? And what about their position under any trigger system in the employer’s absence management policy?

If, however, the long-term sick leave ends because the employee is fit to return to work, but the employer does not need the employee to work, or there is some other coronavirus-related reason why the employee cannot return, then it should be possible to place that employee on furlough without contravening the Treasury Direction.

It is important for employers to take account of the forthcoming closure of the Scheme to new entrants. From July onwards access will be restricted to employers who are currently using the Scheme and previously furloughed employees. See question 2(a), above and our FAQs on ‘Furlough under the Revised Coronavirus Job Retention Scheme’, for further details.

6(e). What if your employee becomes sick while furloughed? (Last updated 26/05/2020)

The Government guidance states that furloughed employees retain their statutory rights, including their right to SSP. This means that furloughed employees who become ill or need to self-isolate because they, or someone in their household, have symptoms of Covid-19 must be paid at least SSP. The Government guidance goes on to say that you can decide whether to move these employees onto SSP or keep them on furlough, at their furloughed rate.

If you keep the sick furloughed employee on the furloughed rate, the Government guidance states that you can still access the Scheme. It may well be more advantageous for the employer to keep the employee on furlough, as furlough pay can be reclaimed from the Government, whilst an employer must pay SSP themselves (although for SMEs with less than 250 employees, up to 14 days’ of Covid-19 related SSP per employee can be reclaimed from HMRC under the SSP Rebate Scheme – see the FAQs on Financial support for your business). Most employees will also be better off staying on furlough, as furlough pay will be higher than SSP. (Note that the amended Treasury Direction’s provisions on sickness and furlough do not appear to prevent this, although they do not address it directly.)

The Government guidance specifies that if you do decide to move a furloughed employee who becomes sick onto SSP, you can no longer claim for the furloughed salary. Nor can you claim for SSP under the Scheme. You can claim back from both the Scheme and the SSP Rebate Scheme for the same employee but not for the same period of time. When an employee is on furlough, you can only reclaim expenditure through the Scheme, and not the SSP Rebate Scheme.

Given the above, employers may be unlikely to move employees off furlough leave and furlough pay onto SSP. However, if they do, the Government guidance does not fully address the consequences of this on the employer’s ability to claim for the employee’s furlough pay under the Scheme. Does it ‘interrupt’ or ‘break’ furlough leave? For example, if an employee falls ill after two weeks on furlough leave, it is not clear whether moving them onto SSP at that point (i.e. before they have been furloughed for three consecutive weeks) would mean that the employer could no longer claim in respect of their furlough pay for the two weeks already spent on furlough? Given the emphasis in the guidance on the three week minimum furlough period, we expect that an employer may no longer be able to claim under the Scheme in those circumstances – and, if so, this is likely to be a significant factor employers will consider when deciding whether to move employees who fall ill during furlough onto SSP.

Where a company operates a contractual sick pay scheme, we would recommend confirming to employees that any company sick pay payable in respect of sickness during furlough will be based on their adjusted rate of furlough pay. (Note, however, that the practical effect of this may be to discourage employees from telling the employer that they are sick, so that they do not use up their company sick pay entitlement.)

6(f). If an employer that had closed its business and furloughed all employees is now reopening, can it keep on furlough any employees who cannot work from home and are unable to return to the workplace? (Last updated 13/05/2020)

The Government guidance on the Scheme does not address this question. However, we assume that an employer whose business had closed due to the Covid-19 pandemic would still be able to satisfy the general eligibility requirement that its business is “severely affected” by coronavirus, even after it reopens. The fact that certain employees are unable to return (e.g. because they are shielding, or otherwise vulnerable) would presumably support this.

As to whether employees in particular circumstances can be furloughed (e.g. those who are shielding, otherwise vulnerable, on sick leave, etc.), see questions 6, and 6(a) to (d), above. Also see the FAQs on ‘Issues at work / on returning to work’ for discussion of points an employer will need to consider when reopening its business.

7. How will furlough leave affect those on maternity leave or due to go on maternity leave? (Last updated 16/06/2020)

The Government guidance states that the normal rules for maternity and other forms of parental leave and pay continue to apply.

Since maternity leave is triggered automatically on the birth of a baby, if not commenced earlier, an employee who gives birth while on furlough would switch to maternity leave and the normal rules around eligibility for Statutory Maternity Pay (SMP) or Maternity Allowance (MA) would apply. If an employee’s earnings have reduced because she has been on furlough leave, this may affect her SMP or MA. However, regulations in force from 25 April 2020 provide that, where an employee starts her maternity leave on or after 25 April 2020, her normal weekly earnings for the purpose of determining her entitlement to, or the amount of, SMP or MA are to be calculated as if she had not been furloughed. Employees on maternity leave must take at least 2 weeks off work (4 weeks if they work in a factory or workshop).

The Government guidance updated on 1 May notes that if an employee is receiving MA through Jobcentre Plus while she is on maternity leave, she should not get furlough pay from you at the same time. Accordingly, if the employee agrees to be put on furlough, you should tell her to contact Jobcentre Plus to stop her MA payments. If the employee agrees to be put on furlough and end her maternity leave early, the Government guidance specifies that she will need to give you 8 weeks’ notice and will only be eligible for furlough pay after the 8 weeks have passed. 

Employees who are on maternity leave already, and in receipt of SMP, or no pay in the final 13 weeks of leave, could potentially be better off if they were placed on furlough leave instead and receiving 80% pay. In order to do this, they would have to give notice to end their maternity leave. Although the position under the legislation is that 8 weeks’ notice of return is required, this can usually be reduced by agreement. The employer could then agree with the employee that she would be furloughed, but it would be sensible to make sure she understands that once she has ended her maternity leave she can’t restart it at the end of furlough leave. However, as noted above, the 1 May update to the Government guidance concerning the interaction between furlough pay and MA states that if an employee “agrees to be put on furlough and end their maternity leave early, they will need to give you at least 8 weeks’ notice and they will not be eligible for furlough pay until the end of the 8 weeks”. This strict adherence to the 8 week notice requirement may be necessary in MA cases to allow Jobcentre Plus enough time to stop the employee’s MA payments. It appears under the heading “If your employee gets Maternity Allowance”, so we think it is only intended to apply in MA cases. However, it is possible that this is an oversight and the guidance may be amended further to apply this restriction in other cases as well. If so, this would prevent an employer and employee from agreeing for the employee to return from maternity leave with less than 8 weeks’ notice in order to switch to furlough.

From July onwards access will be restricted to employers who are currently using the Scheme and previously furloughed employees (i.e. those who have been furloughed for at least a 3 week period before the end of June). However, this cut-off date does not apply to employees whom you wish to furlough for the first time on curtailment of their maternity leave, provided you have previously furloughed employees. See question 2(a), above and our FAQs on ‘Furlough under the Revised Coronavirus Job Retention Scheme’, for further details.

(With regard to employees in the final 13 weeks of their maternity leave, note that the Government guidance states that an employee who is on unpaid leave cannot be furloughed, unless they were placed on unpaid leave after 28 February. It also provides that an employee who went on unpaid leave on or before 28 February cannot be furloughed until the date on which it was agreed they would return from unpaid leave. These points are reflected in the amended Treasury Direction, which also provides that where an employee’s period of unpaid leave began before 1 March and was varied by agreement before 20 March 2020, the employee can be furloughed after their varied agreed date of return from unpaid leave. However, it remains unclear whether these restrictions apply to all types of unpaid leave, including the unpaid part of maternity leave, or only to unpaid lay-off and sabbaticals).

Note that where employees are receiving SMP, employers are already able to claim most of the cost of this back from HMRC, so there is no need for such costs to be covered under the Scheme and the amended Treasury Direction makes clear that employers cannot claim for SMP under the Scheme.

For employees who receive enhanced contractual maternity pay, the position is slightly different. The Government guidance states that you can claim through the Scheme for enhanced (earnings related) contractual pay for women on maternity leave. This seems to allow employees to be on both maternity leave and furlough leave at the same time, but it is not entirely clear and appears to apply a different rule about what furlough pay these employees would receive when compared to other furloughed employees (as it is not based on their pay in the last pay period before 19 March/average previous earnings, but on their contractual maternity pay entitlement). As noted above, the amended Treasury Direction specifies that employers cannot claim under the Scheme for the cost of SMP. Since contractual maternity pay will include an employee’s SMP, employers claiming under the Scheme for the cost of such contractual maternity pay will need to adjust the amount that they are claiming to exclude the SMP element. When considering whether to furlough employees who are in receipt of contractual maternity pay, it is also important for employers to take account of the forthcoming closure of the Scheme to new entrants. From July onwards access will be restricted to employers who are currently using the Scheme and previously furloughed employees. However, this cut-off date does not apply to employees whom you wish to furlough for the first time on curtailment of their maternity leave, provided you have previously furloughed employees. See question 2(a), above, for further details.

(The guidance provides that the same principles apply where an employee qualifies for contractual adoption, paternity, or shared parental pay.)

Furlough pay for employees who are furloughed on return from family leave is discussed at question 13(b), below.   

8. Can an employee ask to be furloughed? (Last updated 16/06/2020)

An employee can ask to be put on furlough leave, but there is no right to furlough, so it is up to the employer whether or not to accede to such a request.

When considering any request to be furloughed, it is important for employers to take account of the forthcoming closure of the Scheme to new entrants. From July onwards access will be restricted to employers who are currently using the Scheme and previously furloughed employees. See question 2(a), above and our FAQs on ‘Furlough under the Revised Coronavirus Job Retention Scheme’, for further details.

As well as taking account of the eligibility criteria under the Scheme, employers considering whether or not to place a particular employee on furlough should be aware that equality and discrimination laws continue to apply to such decisions – see further question 9 below.

9. How do you choose whom to furlough if you still have work for some employees to do? (Last updated 16/06/2020)

The Covid-19 crisis means that many employers do not have enough work for all of their employees, but there is still some essential work to be done in certain functions or departments. The Government guidance helpfully notes that employers do not have to put all of their employees on furlough. However, it also makes clear that when employers are making decisions in relation to whom to offer furlough to, equality and discrimination laws will apply in the usual way.

As a first step, employers need to think carefully about what roles they still require employees to perform and the numbers they need in each role. For example, an employer seeking to reduce its shop-floor workforce by 30% will still require a certain number of supervisors to work, in addition to the production operatives.

Having identified the numbers it needs to place on furlough in particular roles, our view is that an employer can probably ask employees to volunteer for this. Doing so may help to reduce any sense of unfairness, as some employees may prefer to continue to work and receive full pay, while others (in particular those who fall into a vulnerable category, or who have childcare needs) may prefer to cease work and remain at home on reduced pay. Assuming that the employer is not proposing to top up employees’ pay above the amount that it can recover from the Government under the Scheme, whether employees would prefer to be furloughed or to continue to work may also be influenced by how much they are normally paid. The Scheme currently covers up to 80% of employees’ gross pay, capped at £2,500 per month (plus the employers National Insurance and minimum auto-enrolment pension contributions on that subsidised furlough pay – see question 13 below). If £2,500 represents 80% of an employee’s gross monthly pay, their full gross monthly pay would be £3,125 per month, or £37,500 per year. Employees whose normal pay is higher than this will suffer more than a 20% pay cut and therefore might be less keen to be furloughed than those for whom the pay cut is limited to 20%. That said, many employees on lower pay may be unable to afford even a 20% pay cut. Accordingly, while we think that most employees would agree to furlough if the alternative is redundancy, they may be less likely to actively volunteer for it if they have the option of continuing at work on normal pay.

Where an employer receives more volunteers than it needs to furlough, or does not receive enough volunteers, it will need to conduct some sort of selection process. The recommended approach may differ depending on whether there are too many or too few volunteers. If an employer has too many employees volunteering to be furloughed, it will need to decide which volunteers to turn down based on which employees have the necessary skills to perform essential retained roles. If an employer has too few employees volunteering to be furloughed, it will have to look at each of the roles for which it has too many employees still wishing to work and apply appropriate selection criteria. As an alternative in either case, the employer may wish to consider rotating groups of employees on and off furlough – see question 17, below.

The safest approach when deciding whom to furlough if you don’t have the right number of volunteers may be to conduct an objective selection exercise in relation to the roles required in order to ensure you retain the best employees but, in reality, practical considerations as to which employees are still able to work, as well as employee relations issues, will probably take precedence. It is also likely that if an employer is in serious financial difficulty and has a really pressing need to furlough employees as soon as possible in order to be able to continue trading, a more limited or cursory approach to the decision may be acceptable. Please email our HR and legal experts or call our National Adviceline on 0333 202 2221 if you need our support. 

While employers must take care not to discriminate when selecting which employees to furlough, it is worth noting that certain otherwise discriminatory selection decisions might potentially be justifiable in the circumstances of the Covid-19 crisis. For example, selecting employees aged over 70 could amount to age discrimination. However, it may be possible to justify this as a proportionate means of achieving a legitimate aim – namely, protecting the health and safety of vulnerable employees as identified by the applicable Government guidance.

Employers will also need to keep the situation under review, as they may find that work volumes increase or reduce unexpectedly and they need to bring people back from furlough, or place more employees on furlough, as things evolve. In this regard, it is important for employers to take account of the forthcoming closure of the Scheme to new entrants. From July onwards access will be restricted to employers who are currently using the Scheme and previously furloughed employees. See question 2(a), above and our FAQs on ‘Furlough under the Revised Coronavirus Job Retention Scheme’, for further details.

10. What process should you follow to put an employee on furlough? (Last updated 16/06/2020)

In our view, it is important that employees agree to furlough leave as it involves a change in terms and conditions. There had been concern that employers who had simply confirmed to employees that they were being furloughed (following the advice in the early versions of the Government guidance) would be put outside the scope of the Scheme by the original Treasury Direction, which required employees’ written agreement to be furloughed. In view of this, the Government guidance was then updated, apparently in an attempt to tone down the original Treasury Direction, stating that employers must confirm in writing to their employee that they have been furloughed “in a way that is consistent with employment law” and that while there “needs to be a written record… the employee does not have to provide a written response.” However, unless an employer has a contractual right to lay-off, or is maintaining full pay, confirming furlough in a way that is consistent with employment law would – strictly speaking – require the employer to obtain the employee’s agreement (whether or not in writing) in any event. The amended Treasury Direction provides that the employer and employee must have agreed (whether individually or by means of a collective agreement between the employer and a trade union) that the employee will cease all work and that such agreement must:

• specify the main terms and conditions on which the employee will cease work;
• be incorporated (expressly or impliedly) in the employee’s contract;
• be made in writing or confirmed in writing by the employer (such agreement or confirmation may be in electronic form such as an email); and
• be retained by the employer until at least 30 June 2025.

With regard to the requirement to specify the main terms and conditions on which the employee will cease work, we assume that it will be sufficient to cover the extent to which the employee’s normal terms and conditions (e.g. as to pay and benefits) are varied during furlough and any provisions relating to the possibility that the employee may be required to undertake training during furlough, as well as the extent to which they are permitted to work for another employer, or to volunteer. Our template furlough letter covers these points, so we think that employers that have used our template to seek employees’ agreement to be furloughed should meet the requirements of the amended Treasury Direction in this regard. Note that claims under the Scheme made on or after 23 May must be in accordance with the amended Treasury Direction.

In practice, given the unprecedented circumstances of the Covid-19 crisis, it is likely that most employees will agree to furlough, particularly if the alternative is redundancy. Good communication is key in order to encourage agreement. While in-person meetings with all affected staff are unlikely to be possible for most employers in the current circumstances, we would recommend that employers try to arrange some form of meeting (e.g. via Zoom, Skype, or even telephone) at which they can explain to affected employees what they are proposing and the reasons why furlough is necessary, before sending them letters to seek their agreement.

In terms of the mechanics of seeking agreement, where practical, it is best for an employer to write to the employee setting out the proposed move to furlough leave and ask the employee to sign and return a copy of the letter. E-signatures would be appropriate if the company has the necessary software. If e-signatures are not possible, the employer could ask employees to sign and return a hard copy letter. However, if the letter is sent to employees by email, they may not have access to printing and scanning facilities that would enable them to provide this. Accordingly, employers could as an alternative provide for employees to confirm their agreement by email or text message to an appropriate contact at the company (e.g. HR or line manager) using a set form of words, such as “I confirm my agreement to the variation of my terms and conditions of employment to place me on furlough leave as described in the letter from the company dated [DATE]”, or replying to the employer’s email using voting buttons.

Employers that recognise a trade union for collective bargaining with a defined bargaining unit and have a standard incorporation clause in individual contracts of employment should seek to engage with the trade union. In our view, if your collective bargaining arrangements cover changes to pay and hours, then they should also cover furloughing. The fact that the original Treasury Direction referred to agreement between “employer and employee” caused concern for employers that had relied on a collective agreement to furlough employees, as it suggested that an individual agreement would be required in order for employers to make a claim under the Scheme. However, Government guidance for employers was updated on 23 April to confirm that “Collective agreement reached between an employer and a trade union is also acceptable for the purpose of such a claim”. The Government guidance for employees reflects this but also notes that “Once agreed your employer must confirm in writing that you have been furloughed to be eligible to claim” and advises employees to contact their employer if they do not receive such confirmation. Accordingly, if the union agrees, we would suggest that you also communicate/send letters to employees individually, to confirm the change to terms that has been agreed by the union and that it is incorporated into their contracts temporarily. As noted above, the amended Treasury Direction expressly recognises that the agreement to furlough can be a collective agreement between the employer and a trade union.

If an employer with a unionised workforce wants to speed up the process of getting employees’ agreement to furlough, we would suggest that the employer impress upon the union the exceptional and time-critical circumstances. The employer could offer the union a shortened process, for example, one meeting at which the proposal would be discussed and agreement sought. You could also suggest that if the union does not agree then the employer will consider going directly to the employees for their individual agreement. While there is a degree of risk that making direct offers to the employees might contravene section 145B of the Trade Union and Labour Relations (Consolidation) Act, we think this risk is limited given the temporary nature of the proposed contractual changes.

Where a large number of employees is involved and you are not relying on a collective agreement, seeking individual agreement may be time-consuming and administratively burdensome. Pressure of time may mean that employers seeking to place employees on furlough leave need to truncate the normal process they would follow when seeking employees’ agreement to a significant contractual change. Please email our HR and legal experts or call our National Adviceline on 0333 202 2221 if you need our support.

Employers who had placed employees on furlough without agreement, or who had requested employees’ agreement but did not receive it (e.g. if employees did not reply to a furlough letter as requested), might still wish, where practical, to seek individual confirmation from furloughed employees, given that the amended Treasury Direction does still require agreement and there is nothing in it that expressly requires the agreement to pre-date the period of furlough. That said, it has been suggested that a retrospective agreement may not be effective, given the future tense wording of the Treasury Direction, which requires the employer and employee to have agreed that the employee “will cease all work”. In addition, even if employers do write to employees seeking their retrospective agreement to furlough, there is no guarantee that they will respond – positively or at all. In view of this, employers will have to make a judgment call as to whether they try to obtain retrospective individual agreement or seek to rely on whatever original communication they used to confirm employees’ furlough leave (possibly relying on an argument that, by now, employees who have not raised any objection can be taken to have impliedly agreed to being furloughed – although this approach is untested) and wait and see whether HMRC takes issue with that.  

(While the Government guidance indicates that if sufficient numbers of staff are involved, it may be necessary to engage collective consultation processes, in our view, it should not be necessary for an employer to initiate collective consultation when first proposing to put employees on furlough leave, unless the employer anticipates that 20 or more employees are likely to refuse – and the consequence for those employees who refuse would be that they are dismissed. Furlough is likely to be an attractive option for most employees, so employers would be unlikely to anticipate 20+ refusals at the outset).

(Also note that if furloughing a company director, the company board must formally adopt the decision, note it in the company records and communicate the decision to the company director concerned.)

For details of the process to follow when placing an employee back on furlough, or agreeing that an employee will work part-time during furlough under the Revised Scheme, see our FAQs on ‘Furlough under the Revised Coronavirus Job Retention Scheme’.

11. What happens to an employee’s terms and conditions of employment during furlough leave? (Last updated 26/05/2020)

In theory, an employer could agree any changes it wishes with the employees it places on furlough. But in practice, the more severely the employer tries to remove or restrict benefits during furlough leave, the more likely it is that employees might refuse to agree to the proposed changes. Employees may be more likely to agree to otherwise unpalatable changes where the employer is in difficult financial circumstances and can clearly explain to employees the need for particular changes in order to help the company continue as a viable business. In all cases, however, it is important for the employer to communicate with its employees so that they understand the changes the employer is seeking to make and why it needs to make them.

Employers cannot place employees on furlough without their agreement, so will need to weigh up the importance of additional contractual changes against the likelihood of employees refusing to agree – and the potential complications that will cause (see question 12, below). As noted at question 10, above, the amended Treasury Direction requires the agreement to furlough to specify the main terms and conditions of the furlough leave, so any changes the employer does wish to make should be specified when placing the employee on furlough.

(Note that we do not think it would be appropriate for an employer seeking employees’ agreement to go on furlough leave to seek to make permanent changes to employees’ contractual terms that will continue to apply after furlough leave ends as part of that process).

There are different benefits and risks in relation to each of these options and which you choose will depend on your particular circumstances. For example, employers may consider it unpalatable to dismiss as redundant a handful of employees who refuse to agree to be furloughed when the majority of the workforce has agreed, particularly if the dismissed employees will receive significant redundancy payments. If so, we suggest the employer first considers whether to impose a period of unpaid lay-off on the basis that there is a temporary cessation of work due to coronavirus and the employee’s job will soon be available for them to return to.

Speak to your Make UK adviser about the best way to handle employees who refuse to agree to furlough.

Note that employers that are facing cash flow difficulties as a result of the Covid-19 crisis may struggle to carry out statutory collective consultation if this is required in a redundancy situation (minimum of 30 days’ consultation where 20 or more redundancies are proposed within a 90 day period, or 45 days’ consultation where 100 or more redundancies are proposed).

Employers can shorten the timeframe of their statutory collective consultation if the “special circumstances” defence applies, i.e. where it was not reasonably practicable to comply with the collective consultation requirements in full and that the circumstances behind this were “special”. This could relate both to the practicability of electing employee representatives and running an election and consultation process remotely and the employer’s solvency while consultation is ongoing. It is possible that an employment tribunal would agree that the impact of the Covid-19 crisis on a business amounted to “special circumstances”, but this is not guaranteed. We suggest you consult your Make UK adviser if you are considering this.

13. What can you claim under the Scheme and how do you do it? (Last updated 16/06/2020)

Under the current Scheme, employers can claim a grant from HMRC to cover the lower of 80% of an employee’s regular wage or £2,500 per month, plus the associated Employer National Insurance Contributions (ENICs) and minimum automatic enrolment employer pension contributions on that subsidised furlough pay. From 1 August to the end of October, furloughed workers will continue to receive 80% of their current salary (up to £2,500), but employers will be required to contribute towards the cost of paying employees who are on furlough. Furloughed staff will also be able to return to work part-time from July, with furlough pay covering their non-working hours only and employers being responsible for paying employees for their working time – see question 2(a), above and our FAQs on ‘Furlough under the Revised Coronavirus Job Retention Scheme’, for details of these changes. 

In order to claim under the current Scheme, employers must first work out which elements of pay they must include, then calculate 80%in accordance with the Government guidance on how to do the calculation. Once they have calculated the 80%, they can then identify how much they can claim for ENICs and pension contributions on the basis of that figure. There is a lot of detailed information and some helpful worked examples in the various bits of Government guidance and you will need to read and digest this before you make your claim. We have summarised key points in the questions below. 

Note that while an employer can choose to top up an employee’s salary beyond the 80%, it is not obliged to do so under the Scheme and will not receive any contributions from HMRC to cover the costs of such a top up. 

Note too that the grant received to cover an employee’s subsidised furlough pay must be paid to them in the form of money. No part of the grant should be netted off to pay for the provision of benefits or a salary sacrifice scheme. Where you provide benefits to furloughed employees, including through a salary sacrifice scheme, these benefits should be in addition to the wages that must be paid under the terms of the Scheme. (Note that the Pensions Regulator has produced detailed salary sacrifice guidance which explains the impact of pensions salary sacrifice on the calculation of a claim under the Scheme for an employee’s wages and employer pension contributions.)

13(a). What elements of pay should you include? (Last updated 26/05/2020)

Government guidance for employers on what to include when calculating wages provides that the 80% should be based on “regular payments you are obliged to make”, including regular wages, non-discretionary payments for hours worked (including overtime), non-discretionary fees, non-discretionary commission payments and piece rate payments.

The amended Treasury Direction states that, in all cases, the employer should exclude anything which does not constitute “regular salary or wages”, which it defines as an amount that arises from a legally enforceable agreement, understanding, scheme, transaction, or series of transactions and which cannot vary by reference to:

• the performance of the business;
• the employee’s contribution to that performance;
• the employee’s performance of their duties; or
• any similar considerations or otherwise at the employer’s discretion

unless the variation in amount arises from a non-discretionary payment. It defines non-discretionary payments as those which are made:

• in respect of overtime, fees, commissions, or a piece rate;
• in recognition of the employee undertaking additional or exceptional responsibilities;
• in recognition of the circumstances in which the employee undertakes their duties or the time when those duties are undertaken; or
• in recognition of other similar matters

and the method of calculating the amount of such payments is set out in a legally enforceable agreement, understanding, scheme, transaction or series of transactions, whether or not that method involves the exercise of discretion by the employer or a person connected to the employer.

Essentially, this means that overtime, commission, shift premium payments and allowances such as dirty work allowance, working at height allowance, etc. should all be included in the calculation of furlough pay, so long as the method of calculating those payments is prescribed by contract.

This amendment has brought the Treasury Direction into line with the approach taken in the Government guidance on, for example, what is meant by non-discretionary overtime. The Government guidance on this states that if an employee “has been paid variable payments due to working overtime, you can include these payments when calculating 80% of their wages as long as the overtime payments were non-discretionary. Payments for overtime worked are non-discretionary when you are contractually obliged to pay the employee at a set and defined rate for the overtime that they have worked.” This also seems consistent with our view that whatever the position regarding overtime in an employee’s contract before it is worked (e.g. whether it is compulsory, guaranteed, or voluntary), the reference salary calculation is based on past pay for past work – and once the employee has worked the overtime, there is nothing discretionary about the employer’s obligation to pay them for that time.

The change to the Treasury Direction also helps to resolve some of the earlier lack of clarity on commission payments, as the Government guidance indicates that “non-discretionary commission” is covered, whereas the original Treasury Direction excluded payments that were “conditional on any matter” – and most commission payments are conditional in some way, e.g. on completion of a sale. The amended Treasury Direction, by contrast, provides that commission would be included if the method of calculating it is prescribed by contract.

It is worth noting the statement in the Government guidance that, when considering whether a payment is non-discretionary, you should only include payments which you have a contractual obligation to pay and to which your employee had an enforceable right – but that when variable payments are specified in a contract and those payments are always made, then those payments may become non-discretionary. If that is the case, they should be included when calculating 80% of your employees’ wages.

The Government guidance also expressly states that payments made at your discretion, or that of a client, where there is no contractual obligation to pay (such as tips (including those distributed through troncs), discretionary bonus, or discretionary commission) should be excluded, as should non-cash payments and non-monetary benefits/benefits in kind (such as a company car), as well as salary sacrifice scheme benefits (such as pension contributions) that reduce an employee’s taxable pay.

At the time of writing, much of the uncertainty as to what is and what is not covered has been cleared up by the amended Treasury Direction. Employers who have included payments such as overtime pay, commission, etc. in their calculations of furlough pay will be reassured to know that the Scheme will cover them and it is unlikely that HMRC will refuse to pay out or seek to claw back such payments at a later date. Employers who have, to-date, been excluding certain payments from the calculation of furlough pay may need to consider changing their approach to the calculation going forwards, in view of the change to the Treasury Direction.

In addition, there is still some scope for dispute as to the correct interpretation of the amended Treasury Direction and it may be that any ambiguities are left for the courts to determine at a much later date. Accordingly, we suggest that, in all cases, employers keep a detailed record of how they have calculated their claims and retain this for at least 6 years.

When deciding what to include in a claim, employers also need to be aware of what they have promised to employees; depending on what has been agreed, employers may need to pay employees more than they are able to recover under the Scheme.

While there are still some potential difficulties with the interpretation of “regular salary or wages”, it is unquestionable that the Scheme provides invaluable support for businesses in the exceptional circumstances of the Covid-19 crisis and that the bulk of most employees’ pay will be covered up to the 80% or £2,500 limit under the Scheme in its current form. It is also worth pointing out that some of these difficult decisions as to what elements of pay should be claimed for are not questions for HR; decisions need to be made by an employer’s finance department with support from their accountants and payroll provider.

As noted above, reference salary should not include the cost of benefits provided through salary sacrifice schemes (including pension contributions) that reduce an employee’s taxable pay. Accordingly, the salary used to calculate furlough pay is the post-salary-sacrifice amount. Normally, an employee cannot switch freely out of a salary sacrifice scheme unless there is a life event. HMRC has confirmed that Covid-19 counts as a life event that could warrant changes to salary sacrifice arrangements, if the employment contract is updated accordingly, but note that their reference salary for claiming furlough pay is based on the employee’s past pay. Employers thinking of agreeing a change to salary sacrifice arrangements with employees should also be aware that proposing a reduction in pension contributions could trigger pension consultation obligations.

Where you provide benefits to furloughed employees, this should be in addition to the wages that must be paid under the terms of the Scheme.

13(b). How should you calculate the 80%? (Last updated 16/06/2020)

Note, the information below is relevant to calculating furlough pay under the Scheme in its initial form only. For guidance on calculating furlough pay under the Revised Scheme, see our FAQs on ‘Furlough under the Revised Coronavirus Job Retention Scheme’.   

You will need to calculate the amount you are claiming using the amounts in your payroll - either shortly before or during running payroll. If appropriate, wages should be reduced to 80% of their furloughed employees’ salary within your payroll before they are paid. This adjustment will not be made by HMRC. 

The way you should calculate how much you can claim for under the Scheme differs depending on whether the employee is salaried, or on variable pay. There are special considerations where an employee has returned from a period of statutory leave (i.e. sick leave or family leave), or unpaid sabbatical/other unpaid leave. And it is also important to note that any claim will be subject to the maximum allowable amount. We discuss each of these points below.

Note that the Government has produced a calculator which can be used to work out what you can claim for most employees who are paid either regular or variable amounts each pay period (for example, weekly or monthly). However, it is not currently able to calculate what you can claim if employees: returned from statutory leave such as maternity leave in the last three months; get director’s payments; have been transferred under TUPE; have been employed at separate times throughout the year; receive employer pension contributions outside of an auto-enrolment pension scheme; or have an annual pay period. If any of those apply, you will need to work out manually how much you can claim. The calculator is available here.

Salaried / “fixed-rate” employees

Full-time and part-time salaried employees are referred to in the Treasury Direction as “fixed-rate” employees. Essentially, this means employees who:

• are entitled under their contract to an annual salary in respect of their basic hours;
• do not receive payments other than their annual salary in respect of their basic hours;
• are entitled to be paid in equal instalments throughout the year regardless of the number of hours actually worked in a particular pay period; and
• do not have basic hours that vary according to business, economic or agricultural seasonal considerations.

For fixed-rate employees, the Treasury Direction provides that the 80% should be calculated based on the employee’s pay in their last pay period prior to 19 March, excluding anything that does not count as “regular salary or wages” (see further below). This method of calculation, reflected in the current Government guidance, marks a change from earlier versions of the guidance, which provided that the employer should use “the employee’s salary, as of 28 February 2020, before tax” to calculate the 80%. The revised guidance specifies that if you have calculated a claim based on the previous guidance, and the amount differs from the employee’s salary in their last pay period prior to 19 March 2020, you can still choose to use the original calculation for your first claim, and this point is also reflected in the Treasury Direction. 

The method for calculating 80% of pay for a fixed-rate employee is described in the Government guidance as follows:

• Start with your employee’s wages in their last pay period before 19 March 2020 (if you’re claiming for a full pay period, skip to the fourth step)
• Divide by the total number of days in the pay period
• Multiply by the number of furlough days in the pay period
• Multiply by 80%

The guidance includes the following example:

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)
4. Multiply by 80% - which is £557.42

The guidance also includes step-by-step instructions and an example of how to do the calculation for an employee who has not been paid for a full pay period up to 19 March 2020.  

Variable pay employees

For employees with variable pay (i.e. all employees who do not meet the definition of “fixed-rate”), if the employee has been employed for a full twelve months prior to the claim, the Treasury Direction provides that the employer can claim for the higher of either:

• the average monthly (or, if the employee is paid on some other periodic basis, the appropriate pro-rata) amount paid to the employee for the period of the 2019-20 tax year before furlough began; or
• the actual amount paid to the employee in the corresponding calendar period in the previous year.

The Government guidance describes the method of calculation based on the same pay period’s wages from the previous year as follows:

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

And the calculation based on average monthly/other pay period amount for the last tax year is described as:

• Start with the amount they earned in the tax year up to the day before they were furloughed
• 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)
• Multiply by the number of furlough days in this pay period
• Multiply by 80%

The guidance gives the following 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 352 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

If the employee has been employed for less than a year, the employer can claim for 80% of their average monthly earnings since they started work until the date they are furloughed and the guidance includes step-by-step instructions for how to do this, as well as a worked example.

(Note that we have had feedback from member companies that some employees whose role and/or hours of work have changed over the last year may find that the furlough pay calculation described in the guidance – based as it is on past pay – either gives them a windfall or causes hardship. We have flagged this issue with Government.)

Employees returning from statutory leave, or from unpaid sabbatical/unpaid leave

Where an employee is furloughed after returning from a period of statutory leave (i.e. sick leave, or family-related statutory leave such as maternity, paternity, shared parental, adoption, or parental bereavement leave, or unpaid parental leave), the Government guidance specifies that:

• furlough pay for salaried/fixed-rate employees should be calculated based on 80% of their salary, before tax, not the pay they received while on statutory leave; and
• furlough pay for variable pay employees should be calculated using the higher of either 80% of the same pay period’s wages from the previous year, or 80% of their average monthly/other pay period wages for the 2019/20 tax year.

It is worth noting the difference in approach to salaried/fixed-rate employees and variable pay employees in this regard. The furlough pay for a variable employee who was on maternity leave and in receipt of SMP for the better part of the last tax year would be impacted by their period of statutory leave, whereas the furlough pay for a salaried/fixed-rate employee who was on maternity leave and in receipt of SMP at the same time (including during the last pay period before 19 March 2020) would not be. It is not clear whether this difference is deliberate or an oversight on the part of the Government but, for the time being, we would suggest that employers simply follow the Government guidance in this regard.

The amended Treasury Direction introduces some potential confusion with regard to furlough pay for salaried/fixed-rate employees for whom the reference salary period (i.e. the last pay period before 19 March 2020) includes a period of statutory leave, as it appears to indicate that rather than their salary, before tax, as stated in the Government guidance, such pay should be determined based on what the employee would have received had they been on paid annual leave under the Working Time Regulations rather than statutory leave at the relevant time. It may be that the confusion is linguistic only, however, since in practice a salaried/fixed-rate employee on annual leave will typically receive their normal salary – i.e. what the Government guidance says their furlough pay should be based on.

When calculating 80% of wages for employees (both salaried/fixed-rate and variable pay) who are furloughed after returning from an unpaid sabbatical or other unpaid leave, the Government guidance states that “you’ll need to use the amount they would have been paid if they were on paid leave”. The amended Treasury Direction specifies that, for a salaried/fixed-rate employee, this means paid annual leave under the Working Time Regulations. The amended Treasury Direction is silent, however, on what it means for a variable pay employee. Given the difference in approach in the Government guidance to calculating furlough pay for the two categories of employee following a period of statutory leave, noted above, we cannot simply assume that employers should take the same approach for variable pay employees as they do for salaried/fixed rate employees in this context.

What is the maximum you can claim?

It is important to remember that, whatever the result of your 80% calculations, the amount you can claim for any employee will always be subject to the specified maximum of £2,500 per month (or £576.92 per week), plus the relevant ENICs and employer pension contributions.

The Government guidance also sets out daily maximum wage amounts that you can use to work out the maximum you can claim for an employee where the length of time you’re claiming for is not one week or one month. To work out the maximum allowable claim amount, you will need to multiply the daily maximum amount by the number of days the employee is furloughed. The daily maximum amount differs depending on the number of days in the month:

• March 2020 – £80.65 per day
• April 2020 – £83.34 per day
• May 2020 – £80.65 per day
• June 2020 – £83.34 per day

If an employee’s furlough leave bridges two calendar months, you will need to calculate the maximum amount you can claim in each month and add them together.

If you are claiming for multiple pay periods in a single claim, the total maximum can be worked out using a mixture of daily, weekly and monthly maximum amounts, as relevant.

The guidance includes a worked example calculation using the daily maximum amounts.

13(c). How do you calculate what ENICs you can claim? (Last updated 16/06/2020)

Once you have worked out how much of an employee’s salary you can claim for, you will then need to work out the amount of ENICs you are entitled to claim.

You can claim under the Scheme for the cost of some or all of the Class 1 ENICs paid on the grant that covers 80% of your employees’ usual monthly wage costs.

You can use either the direct percentage method or the tables method to calculate employer NICs. The difference between the results will be just a few pence. The examples in the Government guidance use the direct percentage method.

The amount of ENICs you claim for in respect of an individual employee should not be higher than 13.8% of the grant for that employee’s wages. The total amount you can claim for ENICs cannot exceed the total amount of ENICs you are due to pay. So, for example, when calculating how much you can claim for ENICs, you will need to subtract any Employment Allowance used to reduce your total ENICs liability in the relevant pay period. If you have not paid, or do not expect to pay, ENICs in a pay period as a result of the Employment Allowance, you should not claim any ENICs costs for furloughed employees in that pay period. If the amount of Employment Allowance you claim will not cover the total ENICs due in a pay period then you can claim the lower of the ENICs grant calculation and the ENICs costs that you paid, or expect to pay, across your entire payroll.

The amount you can claim is calculated differently depending on whether the employee was furloughed for the whole pay period and whether you topped up your employee’s pay.

The Government guidance gives the following instructions on calculating the ENICs you can claim where your employee is furloughed for a whole pay period and you do not top up their pay:

              1. Start with the grant you’re claiming for employee’s wages
              2. Minus the relevant secondary National Insurance Contributions threshold
              3. Multiply this amount by 13.8%

Details of the availability of the Employment Allowance, the applicable National Insurance Contributions thresholds, instructions for the calculation of the ENICs you can claim if your employee is not furloughed for a whole pay period or you top up their pay and worked examples in each scenario, as well as information on calculating ENICs for a company director, are provided in the Government guidance.

As noted above, you can choose to provide top-up salary in addition to the grant, but ENICs on any additional top-up salary will not be funded through the Scheme.

Note that, from August, employers will no longer be able to claim in respect of ENICs under the Revised Scheme – see question 2(a) and our FAQs on ‘Furlough under the Revised Coronavirus Job Retention Scheme’, above.

13(d). What about employer pension contributions? (Last updated 16/06/2020)

The Government guidance makes clear that you will still need to pay employer pension contributions for your furloughed employees and that you can claim for these under the Scheme up to the level of the mandatory automatic enrolment employer pension contributions on the employee’s subsidised furlough pay (3% of income above the lower limit of qualifying earnings, which was £512 per month until 5 April and is £520 per month from 6 April 2020 onwards) – even if the pension you pay into is not an auto-enrolment pension.

In order to calculate how much you can claim, the guidance states that you should:

• Start with the amount you’re claiming for the employee’s wages
• Deduct the minimum amount the employee would have to earn in the claim period to qualify for employer pension contributions (i.e. the lower limit of qualifying earnings, as noted above)
• Multiply by 3%

The guidance specifies that grants for pension contributions can be claimed up to this cap provided the employer pays the whole amount claimed to a pension scheme for the employee as an employer contribution. It includes worked examples for the following scenarios: where an employee is furloughed for the whole pay period and you don’t top up their pay; where you make contributions above the minimum level of auto-enrolment contributions; and where an employee is furloughed part way through a pay period.

The guidance makes clear that the Scheme will not cover any voluntary automatic enrolment contributions above the minimum mandatory employer contribution, or any additional contractual employer pension contributions. This means that employers that have made a contractual commitment to employees to pay employer pension contributions at a rate that is higher than the minimum automatic enrolment rate will have to continue to fund the additional amount themselves (although this will be calculated as a percentage of the employee’s actual pay while on furlough leave). Employers may wish to reduce their contributions during furlough leave to the minimum automatic enrolment rate in order to save costs. The Pensions Regulator has produced guidance highlighting various issues that may arise in this regard, including the possibility that proposing a reduction in pension contributions could trigger pension consultation obligations and is likely to be a contractual change.

The detailed calculation of what you can claim in respect of pension contributions under the Scheme should be referred to your pensions advisers. If you operate salary sacrifice for pension contributions, you may find the Pensions Regulator’s salary sacrifice guidance useful. It explains the impact of pensions salary sacrifice on the calculation of a claim under the Scheme for an employee’s wages and employer pension contributions.

Note that, from August, employers will no longer be able to claim in respect of employer pension contributions under the Revised Scheme – see question 2(a) and our FAQs on ‘Furlough under the Revised Coronavirus Job Retention Scheme’, above. 

13(e). What will you need to make a claim? (Last updated 16/06/2020)

Note, the information below is relevant to making a claim under the Scheme in its initial form only. For guidance on making a claim under the Revised Scheme, see our FAQs on ‘Furlough under the Revised Coronavirus Job Retention Scheme’.

Claims should be made via the portal, which is accessible here. You will need to log in using the Government Gateway user ID and password you use to access PAYE online. You should try to have all necessary information to hand before you begin so that you can complete your application in a single session. If you do not finish your claim in one session, you can save a draft, but you must complete your claim within 7 days of starting it.

The Government guidance on making a claim states that you will need:

• to be registered for PAYE online
• your UK bank account number and sort code (only provide bank account details where a BACS payment can be accepted)
• the billing address on your bank account (this is the address on your bank statements)
• your employer PAYE scheme reference number
• the number of employees being furloughed
• the name and NI number for each employee being furloughed (if you do not have it, you will need to search for it online  – and if one or more of your employees does not have a NI number, you should contact HMRC) 
• the payroll/employee number of each employee being furloughed (optional)
• the start date and end date of the claim
• the full amount you’re claiming for, indicating how much is for each of wages, ENICs and employer pension contributions
• your phone number your Self Assessment unique taxpayer reference, or your Corporation Tax unique taxpayer reference, or your company registration number

If you have 100 or more furloughed staff, you will be asked to upload a file (.xls, .xlsx, .csv, or .ods) containing the following information for each furloughed employee: full name, NI number, furlough start date, furlough end date (if known) and claim amount. You may also provide the payroll/employee number, but this is stated to be optional. When putting this information together, note that you will need to:

• provide only the information requested – if you provide more or less information than required, you may risk delaying your payment and/or be asked to provide the information again;
• submit one line per employee for the whole period;
• do not break up the calculation into multiple periods within the claim; and
• do not split data by contract type.

When submitting your claim, you will need to click to confirm your agreement to a declaration that:

• you are claiming costs of employing furloughed employees arising from the health, social and economic emergency resulting from coronavirus;
• your claim is in accordance with HMRC’s published guidance;
• the information you have provided is correct, to the best of your knowledge;
• all employees have been paid their wages before the claim was submitted, or will be paid in the next payroll; and
• if any of this information changes, you will contact HMRC to amend the claim.

 The guidance flags that you must keep a copy of all records for six years, including: 

• the amount claimed and claim period for each employee;
• your claim reference number for your records; and 
• your calculations in case HMRC need any more information about your claim. 

It also specifies that you should tell your employees you have made a claim and that they do not need to take any action, and pay your employees their wages if you have not done so already. 

13(f). What other restrictions are there and are there any other practical issues to consider when making a claim? (Last updated 16/06/2020)

As specified in the Government guidance on calculating how much you can claim, you can only claim for periods when your employee was on furlough. Claims should be started from the date that the employee finishes work and starts furlough, not when the decision to furlough them is made, or when they are written to confirming their furloughed status.

The guidance also states that you cannot make more than one claim during a claim period and specifies that it “is for you to decide the length of your claim period” and that “claim periods should follow one after another, with no gaps in between, where employees have been continuously furloughed”. It also specifies that “For any claim that you make, the claim end date must be no more than 14 days in the future from the date the claim is made. Any claim period must contain all the furloughed days that the claim amount relates to.” 

In deciding what claim period to use, you should consider how frequently you run your payroll; the length of the claim period will differ for different employers. Since you cannot make more than one claim in a claim period, or make another claim that overlaps with the period of an existing one, you will need to include all of the employees that you want to furlough for that claim period in a single claim. This may cause difficulties for employers who have already furloughed some employees and have put in a claim for them, but then find that they need to furlough a further group of employees in an overlapping period. Such difficulties may be compounded by the fact that it is currently not possible to amend a claim once you have submitted it, although HMRC are looking to develop a process to allow for amendments to be made.  

There is a question-mark around the circumstances in which claims can be backdated. The guidance states: “Claims can be backdated from 1 March 2020 where employees have already been furloughed from that date. A claim cannot start any earlier than the date the employee was first furloughed.” As the Scheme was only announced on 20 March, it is not clear how this should be interpreted. No employees would have technically been furloughed before 20 March as the concept of furlough simply didn’t exist before that. However, we imagine it might allow employers to backdate claims to as early as 1 March where employees had been laid off on full, reduced, or possibly no pay before the scheme was announced.

The guidance emphasises that you must pay the full amount you are claiming as wages to your employee, even if your company is in administration and that the money will be repayable to HMRC if you do not. Similarly, the full amount of ENICs you claim must be paid by you (to HMRC) and the full amount of the pension contributions you claim must be paid into the employee’s pension – both will be repayable to HMRC if you do not adhere to these rules.

As noted above, to be eligible for the grant, you must confirm in writing to employees that they have been furloughed (see question 10, above, for discussion of the implications of the wording of the amended Treasury Direction and whether written agreement is required). You must retain a record of the communication until at least 30 June 2025.

If you use an agent who is authorised to act for you for PAYE purposes, they will be able to make a claim on your behalf. If you would like to use an agent to make a claim, but do not have one authorised to do PAYE online for you, you can authorise an agent via your HMRC online services (you will need the agent’s agent ID for this). You can also remove authorisation from your agent if you do not want it to continue after they have submitted your claim(s).

Be aware that you should receive payment under the Scheme six working days after submitting your application. So, if you wish to receive a payment from the Scheme by the end of a month, you will need to submit your claim at least six working days earlier in order for the money to clear into your bank account.

In view of the forthcoming changes to the operation of the Scheme, the Government has stated that employers will only have until 31 July to make any claims under the Scheme in respect of the period to 30 June. See question 2(a), above and our FAQs on ‘Furlough under the Revised Coronavirus Job Retention Scheme’, for further details of these changes. 

Detailed Government guidance on how to report grant payments under the Scheme in your RTI submissions is available.

Note that, based on the guidance that is currently available, it does not appear that you will have to provide evidence of the need to furlough the employee when you make the claim. The guidance states that the Scheme “is designed to help employers whose operations have been severely affected by coronavirus (COVID-19) 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”.

While the current guidance suggests that employers for whom the current crisis has not caused financial difficulties may not be eligible, and HMRC will retain the right to retrospectively audit all aspects of your claim, given the express recognition that different businesses will be impacted differently, we take the view that it would be unfair for HMRC to subsequently determine that an employer was not eligible and require repayment of amounts claimed under the Scheme based on a previously unspecified financial health criterion. Further express clarification on this from Government would still be welcome. For the time being, it is advisable to at least keep a record of the circumstances that resulted in the furlough in case required in the future.

14. What will be deducted from the furlough payment before it is paid to the employee? (Last updated 01/06/2020)

While on furlough, the employee’s wage will be subject to usual income tax and other deductions. Employees will also continue to pay any employee automatic enrolment contributions on qualifying earnings, unless they have chosen to opt-out or to cease saving into a workplace pension scheme.

What about ENICs and employer pension contributions? The employer remains liable for these costs but, as noted above, the total grant they receive from HMRC will include an amount in respect of the ENICs and minimum automatic enrolment employer pension contributions on the employee’s subsidised furlough pay.  

Note that the Government guidance specifies that where an employee had authorised their employer to make deductions from their salary, these deductions can continue while the employee is furloughed provided that these deductions are not administration charges, fees or other costs in connection with the employment.

15. What is the position with the apprenticeship levy and student loans?

Both the Apprenticeship Levy and Student Loans should continue to be paid as usual. Grants from the Scheme do not cover these.

16. What is the interplay between furlough leave and the National Living Wage / National Minimum Wage?  

The Government guidance confirms that furloughed workers, who are not working, 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 National Living Wage (NLW)/National Minimum Wage (NMW). This is because employees are only entitled to the NLW/ NMW for the hours they are working.

However, if workers (including apprentices) are required to undertake training whilst they are furloughed, then they must be paid at least the NLW/NMW for the time spent training, even if this is more than the 80% of their wage  that will be subsidised (under the current Scheme rules) – see question 19, below.

17. How long does furlough leave last? Can you furlough employees multiple times? And can you rotate employees between periods of furlough and periods of work? (Last updated 16/06/2020)

As noted above, the Government guidance provides that any period of furlough leave must be for a minimum of three consecutive weeks. The guidance also notes that when an employee returns to work, they must be taken off furlough, but an employer can place an employee on furlough more than once. The 30 April update to the guidance makes clear that while an employee is on furlough, their furlough period can be extended by any amount of time while the Scheme remains in operation. However, if an employee comes back to work before being furloughed again, the next period of furlough leave must be at least three consecutive weeks. The Government originally stated that the Scheme would be open for at least 3 months (i.e. to at least the end of May 2020) but that it would be extended if necessary.  On 17 April the Chancellor announced an extension of the Scheme to the end of June 2020.  On 12 May, the Government announced that the Scheme will continue until the end of October (the ‘Further Extension’), with some adjustments which will take effect from August to allow new flexibility (the ‘Revised Scheme’). As discussed at question 2(a), above and in our FAQs on ‘Furlough under the Revised Coronavirus Job Retention Scheme’, these changes include the closure of the Scheme to new entrants from 30 June, which means that the latest date from which an employee can be furloughed for the first time is 10 June, in order to meet the 3 week minimum furlough period requirement before 30 June. Parents on family leave who return to work in the coming months can be furloughed and are exempt from the 10 June cut-off date, provided the employer has previously furloughed employees.

Note that, if when you placed an employee on furlough you provided that this would last for a specified period, you will need to write to the employee to confirm any extension of their furlough leave. Depending on how your original furlough letter was phrased, you may need to seek the employee’s agreement to the extension. If you used our template furlough letter, these issues should not arise as the wording in our letter provides for furlough to continue until one of a number of specified events occurs. However, you may wish to write to employees to update them on your intentions regarding the duration of furlough, in view of the Government’s announcement of the Further Extension and the Revised Scheme. We have produced a template furlough update letter for this purpose.

Some employers have been rotating groups of employees on furlough leave – for example, placing half of the workforce on furlough for three weeks while the other half works, then switching the groups over. This sort of arrangement is understandably appealing to employers from a fairness perspective. Representatives from HMRC giving evidence on the Scheme to the Parliamentary Treasury Committee on 8 April confirmed that the Scheme does permit such rotation arrangements, provided that employees who are furloughed are furloughed for at least three consecutive weeks. 

18. Can employees work either for you or elsewhere - whilst on furlough leave? (Last updated 16/06/2020)     

Under the current scheme, an employee cannot undertake any work, provide services, or generate revenue for you or on your behalf, or for a linked or associated organisation of yours whilst they are on furlough leave. If an employee is working for you, but on reduced hours, or for reduced pay, they will not be eligible under the Scheme in its current form (although from July 2020, the Scheme will be modified to allow some part-time working, with furlough pay covering only non-working hours and employers responsible for paying employees for the time that they work – see question 2(a), above and our FAQs on ‘Furlough under the Revised Coronavirus Job Retention Scheme’).   

However, employers are likely to want to keep in touch with furloughed employees, both from a wellbeing perspective and to provide updates on any developments within the business, or to bring furlough leave to an end in the event that business picks up and they need employees back at work. In our view, such communications would not infringe the rule that employees cannot work for you during furlough leave. Our template furlough letter for use under the original Scheme therefore makes clear that employees will not be provided with work during furlough leave, but specifies that the company will send communications via email and requires employees to check their emails regularly. 

As with employees, agency workers should perform no work for, through, or on behalf of the agency that has furloughed them while they are furloughed, including for the agency’s clients. 

Where furloughed directors need to carry out particular duties to fulfil the statutory obligations they owe to their company, the Government guidance indicates that they may do so provided they do no more than would be judged reasonably necessary for the purposes, such as, they should not do work of a kind they would carry out in normal circumstances to generate commercial revenue or provides services to or on behalf of their company. This also applies to salaried individuals who are directors of their own personal service company (PSC). The amended Treasury Direction provides that as well as undertaking work to “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 director’s company”, a director who is on furlough will be permitted to make a claim under the Scheme in respect of the employees of their company and pay those employees’ wages.

The amended Treasury Direction also makes clear that employees who are trustees or managers of their employer’s occupational pension scheme can undertake work for the sole purpose of fulfilling their trustee/manager duties while they are on furlough, unless the employer’s business is the provision of occupational pension scheme independent trustee services.

An employee who has more than one job can continue to work for and be paid by their second employer. They can be furloughed for each job, but each job is separate, and the furlough pay cap applies to each employer individually. 

The Government guidance states that an employee is permitted to undertake paid work for another organisation or on their own account during furlough leave where this is allowed under their employment contract and that this will not affect your entitlement to claim 80% of their pay under the Scheme. However, the guidance for employees notes that the employee needs to be able to return to work for you if you decide to stop furloughing them, and must be able to undertake any training you require them to do while on furlough. Our template furlough letter for use under the original Scheme therefore provides that an employee who undertakes new paid work during furlough leave cannot do so without the employer’s permission and reminds them that they may need to be available to undertake training, or to return to work for you at short notice. 

19. Can employees and apprentices undertake training at home whilst on furlough leave? (Last updated 26/05/2020)

Yes. The Government guidance provides that furloughed employees can undertake training so long as this does not involve providing services to or generating revenue for or on behalf of the employer or a linked or associated employer. The amended Treasury Direction expands on this, specifying that study or training will be permitted if its purpose is to improve the employee’s effectiveness in the employer’s business or the performance of the employer’s business, so long as the study or training does not provide a service to the employer, contribute to business activities, generate income or profit, or significantly contribute to the production of goods or services for sale.

It is worth noting that the Government guidance states that furloughed employees should be encouraged to undertake training. However, if employees are required to undertake training whilst they are furloughed, for instance, if they are required to complete online training courses, then they must be paid at least the NLW/NMW for the time spent training. Time spent training is treated as working time for the purposes of the minimum wage calculations and must be paid at the appropriate minimum wage rate, taking into account the increase in these rates from 1 April 2020. As noted in the Government guidance, employers will need to ensure that the furlough payment provides sufficient monies to cover these training hours. In most cases, the furlough payment of 80% of an employee’s regular wage, up to the value of £2,500, will provide sufficient monies to cover these training hours. However, where the furlough payment is less than the appropriate minimum wage entitlement for the training hours, the employer will need to pay the additional wages to ensure at least the appropriate minimum wage is paid for 100% of the training time.

Note that apprentices can be furloughed in the same way as other employees and they can continue to train whilst furloughed. However, as with other employees, you must pay your Apprentices at least the Apprenticeship Minimum Wage, National Living Wage or National Minimum Wage (AMW/NLW/NMW) as appropriate for all the time they spend training. Government guidance on changes in apprenticeship learning arrangements due to Covid-19 is available online for England, Scotland, Wales and Northern Ireland.

20. Can employees undertake voluntary work whilst on furlough leave? (Last updated 13/05/2020)

Yes. Furloughed employees can undertake voluntary work while they are on furlough leave, provided that this:

• does not involve providing services to or generating revenue for or on behalf of your organisation or a linked or associated organisation;
• does not involve volunteering for you in an alternative role; and
• is in accordance with applicable public health guidance (e.g. on social distancing and self-isolation).

21. Do employees on furlough leave continue to accrue holiday? (Last updated 13/05/2020)

The 17 April update to the Government guidance finally provided some detail on the interaction between furlough and holiday rights. It specifies that furloughed employees will continue to accrue holiday in the usual way and that there is a minimum statutory entitlement to 5.6 weeks’ annual leave per year which employees cannot be deprived of. This point is also reflected in the specific guidance on holiday entitlement and pay during coronavirus.

The Government guidance also acknowledges that employers could potentially agree with employees a variation to any additional contractual holiday entitlement. One way to do this might be to provide that the number of days of additional contractual holiday the employee accrues over the year will be reduced in proportion to the amount of time they spend on furlough leave – and our template furlough letter includes optional wording to effect such a change. However, it is worth noting that the more severely an employer tries to remove or restrict benefits during furlough leave, the more likely it is that employees might refuse to agree to the proposed changes – see question 11, above, for further information.

21(a). Can employees be on annual leave and furlough leave at the same time? And what is the position on holiday pay? (Last updated 11/06/2020)

As noted above, the updated Government guidance now provides some information on the interaction between furlough leave and holidays. In common with the ACAS guidance on Covid-19 and holidays, it confirms that an employee can take holiday while on furlough and that, if they do, the employer should pay their usual holiday pay in accordance with the Working Time Regulations (the WTR) – see further below. This point is also reflected in the specific guidance on holiday entitlement and pay during coronavirus.

On the issue of bank holidays, the Government guidance indicates that if the employee usually works on bank holidays, “the employer can agree that this is included in the grant payment.” The guidance on holiday entitlement and pay during coronavirus specifies that where a bank holiday falls inside a worker’s period of furlough and the worker would have usually worked the bank holiday, their furlough will be unaffected by the bank holiday. Accordingly, a furloughed employee who usually works on a bank holiday will simply remain on furlough and in receipt of furlough pay for the bank holiday, as if it were any other normal working day.

If an employee usually takes the bank holiday as leave, the Government guidance provides that the employer will either have to top up their furlough pay to provide a day’s holiday pay (see further below), or give the employee a day of holiday in lieu. On this point, the guidance on holiday entitlement and pay during coronavirus permits either of these options. However, it slightly complicates matters by suggesting that in order for the bank holiday to be taken as leave while the employee is on furlough (with topped up pay), the parties must agree to this or the employer must give notice for the employee to take it as holiday under the WTR. In most cases where employees usually have bank holidays as leave, this is provided for in their contract of employment. The guidance could potentially be read as requiring a specific agreement that a bank holiday is to be taken as holiday while the employee is on furlough. However, if employers have provided in their furlough letter that, other than any changes in respect of pay, etc. the employee’s other contract terms will continue to apply, we would assume that the existing provision in the employee’s contract would suffice as agreement for the bank holiday to be taken as leave even while the employee is on furlough. Our Make UK template furlough letter includes such wording.

With regard to holiday pay when employees are on furlough, the Government guidance and the guidance on holiday entitlement and pay during coronavirus make clear that employers must comply with the WTR – i.e. holiday pay must be paid at the employee’s normal rate of pay or, where the employee has variable pay, must be calculated on the basis of the employee’s average pay over the previous 52 week reference period. Obviously, the impact of having been on furlough leave will affect the calculation of holiday pay for those with variable pay moving forwards, which may potentially be inconsistent with the Working Time Directive. This issue may be the subject of litigation in the future.

The Government guidance states that when a furloughed employee takes holiday the employer “will be obliged to pay additional amounts over the grant” and the guidance on holiday entitlement and pay during coronavirus provides that employees on furlough “can take holiday without disrupting their furlough”. Accordingly, it is clear that days of holiday will not ‘interrupt’ or ‘break’ a period of furlough and the employer will still be able to claim under the Scheme in respect of such days.

It is interesting to note that the Government guidance expressly refers to the employer’s WTR right to restrict when annual leave can be taken if there is a business need – both for the furlough period and the recovery period. We assume that this serves two purposes:

• it recognises that some employers whose business has been severely affected by the Covid-19 crisis would be unable to afford to top up furlough pay to meet the WTR holiday pay requirements, and may therefore need to specify that employees cannot take holiday while they are on furlough; and
• the reference to restricting holiday during the “recovery period” sets expectations that business may be very busy when the country starts to recover from the current crisis – employers may need all hands on deck and be unable to grant holiday requests.

In this regard, it is also worth noting the existence of special regulations which provide that up to four weeks’ paid holiday can be carried over into the next two holiday years if it cannot be taken due to coronavirus. The ACAS guidance gives the following examples of why an employee may be unable to take their holiday:

• the employee was self-isolating or too sick to take holiday before the end of the leave year;
• the employee had to continue working and could not take paid holiday; or
• the employee was furloughed and could not ‘reasonably’ use their holiday in the leave year.

The guidance on holiday entitlement and pay during coronavirus expands on this, listing various factors that an employer should take into account when deciding whether it is reasonably practicable for an employee to take their annual leave in the current leave year. On the issue of furlough, it states that employees 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 (in most cases at least). However, to do so they must be paid the correct holiday pay which is likely to be higher than the rate of pay that will be covered by the grant under the Scheme, with the employer making up the difference. The guidance notes that if, due to the impact of coronavirus on operations, the employer is unable to fund the difference, it is likely that this would make it not reasonably practicable for the employee to take their leave, enabling the employee to carry their annual leave forwards. In this situation, the employee must still be given the opportunity to take their annual leave, at the correct rate of holiday pay, before the carried forward annual leave is lost at the end of the next 2 leave years.

While the Government guidance on furlough still remains silent on whether employers can require furloughed employees to take any specified days as annual leave, this issue is now addressed by the guidance on holiday entitlement and pay during coronavirus. That guidance makes clear that employers can require furloughed employees to take specified days as annual leave while they are on furlough, provided they give notice in the usual way in accordance with the WTR and pay holiday pay at the appropriate rate, which may require them to top up the employee’s furlough pay. However, the guidance advises that employers should engage with their workforce and explain reasons for wanting them to take leave before requiring them to do so. It also cautions that if an employer requires an employee to take holiday while on furlough, the employer should consider whether any restrictions the employee is under, such as the need to socially distance or self-isolate, would prevent the worker from resting, relaxing and enjoying leisure time, which is the fundamental purpose of holiday.

It is helpful to have this express clarification that employers can require furloughed employees to take holiday by giving the requisite notice under the WTR. This, combined with the position noted above regarding carry forward of annual leave being unnecessary for most furloughed employees, would seem to support the view that employers can effectively require employees on furlough to use up at least a proportionate amount of their annual leave as it accrues.

The recommendation that the employer should take account of the impact of social distancing and self-isolation on the employee’s ability to enjoy a period of leisure seems well-intentioned and hints at the view (based on case law establishing that employees cannot be required to take annual leave while off sick, or on maternity leave), that being required to take annual leave while on furlough, in the circumstances of the current lockdown, may in some cases be incompatible with the purpose of annual leave. However, as lockdown measures are gradually eased, it seems unlikely to be relevant for most employees, other than perhaps those who are shielding and essentially confined to their home. If an employer does decide that it should not require such employees to use up annual leave while on furlough, and is then faced with them having significant amounts of leave which it cannot enable them to use before the end of the holiday year, it can permit them to carry over up to four weeks of leave under the regulations mentioned above.

Given the somewhat mixed messages in the guidance, our tentative view is that while it is unlikely to be problematic for employers to require most furloughed employees to take holiday over the Easter, May and August bank holidays, or scheduled Easter and Summer shutdowns (which they would have been required to take in any event had they not been furloughed), they should consider employees’ individual circumstances where relevant. In addition, as a matter of good practice, we recommend that employers take a reasonable approach and avoid requiring employees to take a disproportionate amount of annual leave while on furlough.

Note also that the Government guidance states that the policy on holiday pay during furlough is being kept under review during this unprecedented time. 

22. Can employees participate in disciplinary and grievance proceedings while on furlough? (Last updated 06/05/2020)

As noted above, one of the conditions for furlough leave is that an employee cannot do any work for their employer during the furlough leave period and work is defined to include generating revenue for or providing services to the employer or an associated organisation. Accordingly, we do not think it would be possible for an HR manager or line manager to run a grievance or disciplinary process while on furlough leave. We note that ACAS guidance on disciplinary and grievance processes during coronavirus suggests that employees on furlough can take part in disciplinary and grievance proceedings, including (among other things) chairing and taking notes on behalf of the employer at a hearing, provided they do so voluntarily and in accordance with public health guidelines. However, in our view, carrying out these tasks would clearly amount to providing services for the employer even if the employee concerned could be said to be acting voluntarily. We would therefore caution employers against relying on this ACAS guidance to claim furlough pay under the Scheme in respect of HR and line managers who perform these tasks in any continuing disciplinary or grievance proceedings.  

For the aggrieved employee, or the employee who is the subject of disciplinary proceedings, we think that participating in a grievance or disciplinary hearing is unlikely to amount to ‘work’, and that such participation should therefore be possible while the employee is on furlough leave. The ACAS guidance indicates that this is possible provided the employee is acting voluntarily. This is potentially problematic, as there may be cases in which an aggrieved employee, or one who is the subject of disciplinary proceedings, is far from a willing volunteer. However, in practice, if an employee is not willing, they are likely to simply refuse to engage in the process at all. In these circumstances, the employee’s furlough will not be broken, but the employer will need to consider whether it is possible to conduct a fair process in the employee’s absence or whether the process needs to be suspended to give the employee a chance to change their mind about participating.

As for the employee’s companion, the 30 April update to the Government guidance confirms that employees who are union or non-union representatives may undertake duties and activities for the purpose of individual or collective representation of employees, so long as they do not thereby provide services to or generate revenue for or on behalf of the employer or a linked organisation. Again, the ACAS guidance notes that an employee acting as a companion may do so while on furlough provided they are acting voluntarily. This is not likely to present a problem in practice as employees choose their own companions, companions typically only act as such if they are willing to do so and, in so acting, they provide a service to the employee not to the employer.

Finally, the ACAS guidance also indicates that an employee on furlough can be interviewed as part of an investigation and can be a witness at a hearing, provided they do so voluntarily. Although some employees may well be willing to be interviewed in an investigation, or to be a witness at a hearing, we think it is arguable that doing so could amount to providing services to the employer and therefore not be permitted during furlough. Whether or not this is the case will depend on the individual circumstances.

Given the above, provided that the relevant HR and line managers are not on furlough and depending on whether witnesses need to be interviewed and/or participate at a hearing, it should in most cases be possible to continue with disciplinary and grievance processes while the employees concerned are on furlough. That said, it is also important to bear in mind the practicalities of conducting such processes remotely and the difficulties this may cause in relation to ensuring a full investigation and fair hearing – see the FAQs on ‘Managing employees during the pandemic’ for more information. In some cases, it may be necessary to suspend the relevant process until after the Covid-19 crisis has passed. We recommend seeking advice on your particular circumstances.

23. What happens at the end of furlough leave? (Last updated 16/06/2020)

Furlough leave may end either because the Scheme has ended, because an employee no longer meets the criteria under the Scheme, because you have work for the employee to do and so ask them to return to work (whether or not at home), or because the employee’s employment terminates (whether due to resignation or dismissal for any reason). The Government guidance does not specify the amount of notice required to end furlough leave, but we suggest employers give as much notice as they can – and, in the case of dismissal, employers must give notice in accordance with the employee’s contract (or statutory minimum notice, if greater) unless the employer is dismissing summarily for gross misconduct.

Since terms and conditions other than those relating to salary and the requirement to work subsist during furlough leave, employees will be entitled to return to the same job on the same terms and conditions as before they started furlough leave – unless the Government provides any guidance to the contrary or unless the employee agreed to changes to terms and conditions at the same time as agreeing to furlough leave. (However, as noted above, we do not think it would be appropriate for an employer seeking employees’ agreement to go on furlough leave to seek to make permanent changes to employees’ contractual terms that will continue to apply after furlough leave ends as part of that process.)

If you are bringing employees’ furlough leave to an end because you now have work for them to do, e.g. if you had closed your business but are now reopening, or if you remained open with a skeleton staff but have now seen an increase in demand, you will need to consider what approach you wish to take to an employee who says that they are unable to return. This could be for a variety of reasons, e.g. they are shielding and cannot work from home, they have young children whose school remains closed, or they are not willing to return due to concerns about the safety of the workplace. All of these issues are discussed in the FAQs on 'Employees unable or unwilling to attend work’.   

Although the Scheme supports employers to maintain jobs during the pandemic, it may become clear before the Scheme comes to an end that a business will continue to experience reduced work and/or that closure of the workplace is necessary. It is also possible that the gradual reduction of the financial support provided under the Scheme from August (see question 2(a) above and our FAQs on ‘Furlough under the Revised Coronavirus Job Retention Scheme’)  may mean that some employers can no longer afford to keep employees on furlough. In such circumstances, the redundancy option will still be open to employers. Our template furlough letter and our template furlough update letter (see question 24 below) therefore reassure employees that when the Scheme in its current form ends it is hoped that the business will be in a position where the employee can return to work – but if this is not possible and redundancies become necessary, the employer will consult with the employee at the relevant time – including potentially while the Scheme in some form is still in operation.

If you need to consult with employees about redundancy, our view is that you can do so whilst employees are on furlough. We do not think that engaging in a consultation process will count as ‘work’ and the 30 April update to the Government guidance confirms that union and employee representatives may undertake duties and activities for the purpose of individual or collective representation of employees, so long as they do not thereby provide services to or generate revenue for or on behalf of the employer or a linked organisation. That said, managers and HR who are running the consultation process will be working and so cannot be on furlough. In addition, employers must bear in mind that consulting remotely clearly poses practical difficulties and they will have to ensure that the process they adopt for such remote consultation is thorough and fair.

Note that if you are proposing to dismiss 20 or more employees at a single establishment within a 90 day period, you will need to carry out collective, as well as individual, consultation. The minimum statutory collective consultation periods are 30 days where 20 to 99 redundancies are proposed, or 45 days where 100 or more redundancies are proposed. As mentioned at question 12, above, employers can shorten the timeframe of their statutory collective consultation if the “special circumstances” defence applies, i.e. where it was not reasonably practicable to comply with the collective consultation requirements in full and that the circumstances behind this were “special”. This could relate both to the practicability of electing employee representatives and running an election and consultation process remotely and the employer’s solvency while consultation is ongoing.

It is possible that an employment tribunal would agree that the impact of the Covid-19 crisis on a business amounted to “special circumstances”, but this is not guaranteed. However, they might not agree that it was not reasonably practicable to comply with collective consultation requirements. There is case law suggesting that, in some circumstances, it is not reasonably practicable to comply with the collective consultation requirements because the employer cannot stay solvent during the consultation period. However, the possibility of retaining employees on furlough under the Scheme may make this a more difficult argument to run. That said, the current Scheme does not cover all costs of employment (e.g. you may still have additional pensions and benefit costs, as well as overhead costs) and the level of financial support provided under the Scheme is set to gradually reduce from August (see question 2(a), above), so the possibility of furlough does not rule out the special circumstances defence entirely. Depending on the characteristics of the workforce, it might also possible to argue that it was not practicable to elect employee representatives and run a consultation process remotely but, given today’s IT options, this type of argument may only rarely be relevant.

It is also important to be aware that the special circumstances defence does not remove the requirement to consult entirely – you will still be expected to complete as much consultation as is practicable in your circumstances and you could be liable for protective awards if you fail to do so. We suggest you consult your Make UK adviser if you are considering relying on the special circumstances defence to reduce the amount of collective consultation you carry out.

23(a). What notice pay must you provide if you dismiss employees as redundant during furlough leave? (Last updated 16/06/2020)

The Government guidance states that an employer can dismiss an employee as redundant during furlough or afterwards, although this will be subject to the employee’s ordinary statutory employment rights (i.e. the right not to be unfairly dismissed and the right to a statutory redundancy payment, if applicable).

When dismissing employees as redundant, it is common for employers to do so with immediate effect and pay in lieu of notice. However, the Scheme would not appear to permit recovery of payments in lieu of notice. Accordingly, it would be more advantageous for the employer to serve notice of dismissal and continue to claim for the employee under the Scheme during the notice period, at least for any part of the notice period for which the Scheme remains in operation.

If you did serve an employee with notice of dismissal during furlough, what notice pay they would be entitled to would depend on the terms of their furlough, their contract and the statutory right to notice pay under the Employment Rights Act (the ERA).

An employee whose contractual notice period is less than one week more than the statutory minimum notice period will benefit from a specific provision of the ERA which entitles them to their full pay for the statutory notice period, even if they are on furlough and not working, so long as they are otherwise ready and willing to work. Most employees who are furloughed would be considered ready and willing to work – but we suggest you speak to your Make UK adviser if you have concerns about this.

For the purposes of these special ERA notice pay entitlement provisions, notice pay is calculated based on a week’s pay, determined in accordance with the ERA:

• for employees with normal working hours whose pay does not vary, a week’s pay would be their normal remuneration for working their normal hours in a week. Arguably, being on furlough does not alter what normal working hours are – so the amount of notice pay will not be impacted by the employee having been on furlough;

• for employees who have normal working hours but whose pay varies with the time of work (shift workers), you use the 12 week reference period before notice was given, but whole weeks of no work are excluded from the calculation so whole weeks of furlough leave will not be counted – so the amount of notice pay will not be impacted by the employee having been on furlough; and

• for employees with no normal working hours, you also use the 12 week reference period before notice was given, but weeks of no work still count if some remuneration is received. We assume that furlough pay will count as remuneration – so, depending on how long they’ve been furloughed, the amount of notice pay the employee is entitled to might be reduced as a result, unless the employer has been topping up furlough pay to full pay.

However, if the employee remains on furlough and not working during their notice period, the employer would only be able to claim under the Scheme for 80% of the employee’s notice pay (based on the existing Scheme rules and subject to the £2,500 cap), even if the notice provisions of the ERA require the employer to pay full pay during the notice period. 

An employee whose contractual notice period is at least a week more than the statutory minimum notice period will not benefit from the special notice pay entitlement provisions of the ERA. Accordingly, their notice pay will be based on their contract terms, so if the employee remains on furlough during their notice period, they would only be entitled to notice pay at their furlough rate of pay. 

Note also that if an employee works for you part-time during their furlough, as permitted under the Revised Scheme from 1 July 2020 (see question 2(a), above and our FAQs on ‘Furlough under the Revised Coronavirus Job Retention Scheme'), but you do not require them to do any work during their notice period, this may affect the calculation of their notice pay under the ERA provisions set out above. If they continue to work for you part-time during their notice period, the ERA provisions described above would not apply and instead they would be entitled to receive pay at their normal rate for their working time, plus furlough pay in respect of their non-working hours.

23(b). How do you calculate redundancy pay for an employee who is dismissed during (or shortly after) furlough? (Last updated 16/06/2020)

Statutory redundancy pay is calculated based on an employee’s length of service, age and week’s pay (calculated in accordance with the ERA provisions and subject to a statutory cap – currently £538 per week). As explained at question 23(a), above, in respect of notice pay under the special ERA provisions on notice, the calculation method for a week’s pay varies depending on whether or not an employee has normal working hours and whether their pay varies:

• For employees who have normal working hours and whose pay does not vary with the amount of work done or the time of work (salaried employees), a week’s pay is the employee’s basic pay for their normal working hours. Arguably, an employee’s normal working hours have not changed just because they are on furlough, so it is likely that a week’s pay for the purposes of the statutory redundancy pay calculation would be their normal week’s pay rate and not their temporary furlough pay rate.

• For employees who have normal working hours but whose pay varies with the time of work (shift workers), a week’s pay is based on their pay over a 12 week reference period, divided by hours worked during that period and multiplied by an average week’s hours. However, whole weeks of no work are excluded from the calculation, even where the employee received some pay. Accordingly, whole weeks of furlough leave will not be counted and a week’s pay for the purposes of the statutory redundancy pay calculation would be based on the relevant reference period before the employee went on furlough leave. The amount of their redundancy pay therefore shouldn’t be affected (or any impact will be very minor, e.g. if the employee was furloughed for part of one of the weeks that is included in the 12 week reference period).

• For employees who have no normal working hours, a week’s pay is based on all pay received over the 12 week reference period, divided by all hours worked over that period. Weeks of no work are still counted, provided that the employee received some remuneration during those weeks. Assuming that furlough pay counts as ‘remuneration’ for these purposes, then weeks spent on furlough will be counted. This means that statutory redundancy pay for employees with no normal working hours may be reduced as a result of the time spent on furlough, unless the employer has been topping up furlough pay to full pay.

Note that if an employee works for you part-time during their furlough, as permitted under the Revised Scheme from 1 July 2020 (see question 2(a), above and our FAQs on ‘Furlough under the Revised Coronavirus Job Retention Scheme’), this may affect the calculation of their redundancy pay under the above provisions.

24. What documents are needed to put an employee on furlough leave? (Last updated 17/06/2020)

We produced a template letter for employers to use when seeking to put employees on furlough leave under the Scheme. The last version of this letter was based on the Government guidance available as at 1 June. In view of the closure of the Scheme to new entrants from 30 June (see question 2(a) above and our FAQs on ‘Furlough under the Revised Coronavirus Job Retention Scheme’), this letter should no longer be used. We have a range of current template furlough letters in our Furlough letters and resources support pack, available to purchase here. (Make UK members can access these letters and resources via the HR & Legal Resources section of our website).  
 
When using our template letters, please note that wording in square brackets will require tailoring to reflect your company’s approach. We have also included some brief drafting notes in red text for your information, which should be removed prior to sending any of our template letters to an employee.

We are aware that thousands of you have already downloaded and used previous versions of the template furlough letter. Please note that the most recent version reflects changes that have been made to the Government guidance on various occasions since we first produced a template letter. If you used a previous version of the letter to place employees on furlough, you may wish to revert to them to clarify certain points, for example: the types of pay that will be counted when calculating furlough pay; the relevant date for the calculation of furlough pay for salaried employees; employees’ ability to undertake other paid work while on furlough; and, if you operate a contractual sick pay scheme, that sick pay during furlough leave will be payable at the furlough rate.

In addition, you may wish to update employees who are currently on furlough on your intentions regarding the duration of furlough, in view of the Government’s announcement on 12 May that the Scheme will be extended to the end of October 2020 and that certain changes will be made to allow greater flexibility and to require employers to make some contribution towards the cost of furlough pay (see question 2(a), above and our FAQs on ‘Furlough under the Revised Coronavirus Job Retention Scheme’ for details of these changes). We have produced a template furlough update letter for this purpose. 

(Please also note that previous versions of our template letter referred to the possibility of backdating furlough leave where you were furloughing a former employee whom you had rehired in order to furlough them. This option was based on our understanding of the guidance available at the time. However, it appears from the latest guidance that this may not, in fact, be possible. The circumstances in which claims can be backdated are currently unclear – see also question 13(f), above. Government clarification on this issue would be welcome).

Note that HMRC require you to keep a record of the employee’s agreement to furlough until at least 30 June 2025.