Furlough under the Revised Coronavirus Job Retention Scheme - to 31 October

Last updated: 17/11/2020

NOTE: NOTE: Furlough under the Coronavirus Job Retention Scheme (CJRS) was due to end on 31 October 2020. However, it has since been extended to 30 April 2021. The FAQs set out below cover the operation of the CJRS in the period 1 July to 31 October 2020. For details of the operation of furlough in the period from 1 November 2020 onwards, see our FAQs on the Extended CJRS.

1. What is the Revised Coronavirus Job Retention Scheme? (Last updated 17/11/2020)

The concept of furlough was first introduced by the Government via the Coronavirus Job Retention Scheme (the ‘Scheme’) in March 2020 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”. Employees furloughed under the Scheme remained employed but could not perform any work for their employer. They were entitled to receive 80% of their regular pay, up to a cap of £2,500 per month, which employers could claim from the Government together with employer National Insurance Contributions and the minimum level of employer automatic enrolment pension contributions on the furlough pay. Employers could choose to fund the difference (or some of the difference) between the 80% / £2,500 payment and an employee’s full salary, but there was no requirement to do so.

The original Scheme was designed to support employers who could not maintain their current workforce because their operations had been severely affected by coronavirus (Covid-19). In the absence of any detailed explanation as to the meaning of ‘severely affected’, it was not always straightforward for companies to determine whether they were eligible to access the Scheme. 

The Scheme was originally intended to run for at least 3 months from 1 March, but was extended twice – first to the end of June and later for a further period from July to the end of October. When announcing this further extension, the Government also announced that there would be adjustments to the Scheme during the July to October period to allow new flexibility and to gradually reduce the level of financial support provided by the Government (the ‘Revised Scheme’). The Government hoped that these adjustments would help to get employees back to work and boost the economy. 

The key changes introduced under the Revised Scheme were as follows:

Closure to new entrants

Under the Revised Scheme, claims were restricted to employers who were already using the Scheme prior to the end of June and to previously furloughed employees. The final date by which an employer could furlough an employee for the first time was 10 June, in order for the minimum three-week furlough period that applied under the original Scheme to be completed by 30 June. It was not necessary for an employee to be on furlough immediately before the changes took effect in order for the employer to be able to claim for them under the Revised Scheme from 1 July onwards; provided an employee had been on furlough for a 3 week period at any time before 30 June, they were eligible to be furloughed under the Revised Scheme. The closure of the Scheme to new entrants was stated to be necessary to enable the introduction of part-time furloughing (see below) and support those already furloughed back to work. However, there was an exemption for parents who had not previously been furloughed if they had been on maternity, paternity, adoption, shared parental or parental bereavement leave, provided that the employer had previously furloughed other employees (see question 3, below). There was also an exception where employees transferred to a new employer under TUPE after 10 June, provided that they had previously been furloughed by their old employer (see question 3, below, under the heading “Employees who transfer under TUPE”). Finally, there was an exception for reservist servicemen and servicewomen who came back to their day job after completing a period of active duty. They could be furloughed by their employer for the first time under the Revised Scheme, provided their employer had previously furloughed other employees (see question 3, below, under the heading “Reservist servicemen and servicewomen”).  

Maximum number of employees in a single claim

Note that the number of employees an employer could claim for in any claim period under the Revised Scheme could not exceed the maximum number they had claimed for under any previous claim under the Scheme in its initial form. Employers had to bear this restriction in mind when determining how they made use of the Revised Scheme from July, as it may, for example, have impacted on a company that had 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 then wished to change so that all of the workforce worked on a part-time basis and received furlough pay for their remaining hours not worked. Indeed, the guidance recognised this issue, giving the example of an employer who has 100 employees and previously submitted claims between 1 March 2020 and 30 June for all of these employees but not all at the same time. Instead of putting all 100 employees on furlough, this employer put 50 employees on furlough and rotated them every three weeks, with a maximum of 50 employees on furlough at any one time. The guidance made clear that the maximum number of employees that this employer could furlough in any single claim starting on or after 1 July was 50, although all 100 employees were eligible for furlough.

However, there were exceptions to the cap where you were furloughing for the first time employees who had previously been on family leave, who transferred to you under TUPE after 10 June, or who were armed forces reservists returning to their job after a period of active duty (see questions 3 and 6, below).

Claim periods cannot overlap months

Employers had until 31 July to make any claims under the Scheme in respect of the period to 30 June. Under the Revised Scheme, employers could still make claims in anticipation of an imminent payroll run, at the point payroll is run or after payroll has been run. From 1 July, claim periods could not overlap months. Employers who previously submitted claims with periods that overlapped calendar months could no longer do this (see question 12, below). 

Flexibility to allow part-time work during furlough

As noted above, under the original Scheme, furloughed employees were not allowed to perform any work for their employer. This lack of flexibility made it difficult for some businesses to get back up and running and, following lobbying by Make UK and other business groups, the Government announced that greater flexibility would be introduced.

From 1 July 2020, under the Revised Scheme, businesses could bring furloughed employees back to work part time – this was referred to by the Government as “flexible furlough”. It is worth highlighting that this flexibility was introduced a month earlier than anticipated, as the Government had initially suggested it would only come into effect in August. 

Employers could decide the hours and shift patterns their furloughed employees worked on their return (although any contractual changes had to be agreed and confirmed in writing, including by collective agreement if relevant – see question 8, below). Employers were responsible for paying employees’ wages while they were in work, i.e. claims under the Revised Scheme only covered the hours for which furloughed employees were not working. 

When they made their claim, employers had 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 were required 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 was a minimum period and employers could make claims for longer periods, e.g. if their employees were on monthly or two weekly cycles.

Gradual reduction in level of financial support

In June and July, the amount that employers could claim under the Revised Scheme remained the same as it was under the original Scheme (although if you brought employees back to work part-time in July, only their non-working (or furloughed) hours would have been covered and the monthly cap on furlough pay would have been proportional to the hours not worked). 

From 1 August 2020, the level of Government grant began slowly tapering down, but employees remained entitled to receive 80% of their normal pay (subject to a monthly cap of £2,500) covering the time they were on furlough from you. (In addition to the tapering of support described below, note that if your furloughed employees were working part-time under the Revised Scheme, the amount of furlough pay you could claim  only covered their non-working hours for you and the monthly cap on furlough pay was proportional to the hours not worked. You were responsible for paying the employees for their working hours).

During August, employers could claim the full 80% of furloughed employees’ wages up to a monthly cap of £2,500 under the Revised Scheme (or pro-rata if employees were on flexible furlough). However, employers could no longer claim for employer NICs or pension contributions and had to fund these themselves.

During September, employers could claim 70% of furloughed employees’ wages up to a monthly cap of £2,187.50 under the Revised Scheme (or pro-rata if employees were on flexible furlough). As well as employer NICs and pension contributions, employers had to fund 10% of the normal wages received by furloughed employees, so that the employees continued to receive 80% of their pay, up to the monthly cap of £2,500 (or pro-rata if employees were on flexible furlough).

During October, employers could claim 60% of furloughed employees’ wages up to a monthly cap of £1,875 under the Revised Scheme (or pro-rata if employees were on flexible furlough). As well as employer NICs and pension contributions, employers had to fund 20% of the normal wages received by furloughed employees, to make up the 80% total to which the employees were entitled subject to the monthly cap of £2,500 (or pro-rata if employees were on flexible furlough).

The Revised Scheme was set to end on 31 October 2020. Any claims under the Revised Scheme had to be submitted by 30 November 2020.

In September, the Government had announced a Job Support Scheme (JSS Open) to follow on from furlough, which would have provided support for businesses to continue employing people in “viable jobs”, but on reduced hours, thereby reducing the need for redundancies. There was also to be a separate JSS Closed, which would have provided a contribution to pay for employees who could not work because their employer’s business was required to close under local lockdown restrictions. 

The Government had also said that it would provide employers with a ‘Job Retention Bonus’ of £1,000 for every furloughed employee whom the employer kept in employment after the furlough scheme came to an end, provided that the employee met the applicable minimum earnings threshold. 

However, on 31 October, the Government announced a second lockdown in England and the extension of furlough for a further month until 2 December. Then, on 5 November, the Government announced a further extension until 31 March 2021 (which we refer to as the ‘Extended CJRS’). As a result, the JSS Open and JSS Closed have both been postponed and the Job Retention Bonus has been shelved – although the Government has said that it intends to deploy some form of retention incentive at an appropriate time in the future.

The remainder of these FAQs cover the operation of the Revised Scheme (i.e. the CJRS as it applied in the period 1 July to 31 October 2020). For information on the CJRS as it applies from 1 November 2020 to 31 March 2021, please refer to our FAQs on the Extended CJRS.

Purpose of the Scheme

The Treasury Direction that underpins the Revised Scheme, published on 26 June, includes the statement that: “Integral to the purpose of CJRS is that the amounts paid to an employer pursuant to a CJRS claim are used by the employer to continue the employment of employees in respect of whom the CJRS claim is made whose employment activities have been adversely affected by the coronavirus and coronavirus disease or the measures taken to prevent or limit its further transmission.” 

This provision, which applies both to the original Scheme and to the Revised Scheme, raised questions about the extent to which employers can use the Scheme to cover the costs of pay for employees who are being made redundant. The name of the Scheme refers to “job retention”, but the current Government guidance does not include any express reference to the Scheme being intended to avoid redundancies and makes clear that employees can be made redundant while on furlough.

The Government guidance ‘Check if you can claim for your employees' wages through the Coronavirus Job Retention Scheme’ was updated on 17 July and provided that “You can continue to claim for a furloughed employee who is serving a statutory or contractual notice period, however grants cannot be used to substitute redundancy payments.” 

In view of this clarification, it is clear that employers can continue to use the Scheme in a redundancy situation, including where employees dismissed for redundancy are serving their notice. 

(We note that the 3 August update to the Government guidance ‘Check if you can claim for your employees' wages through the Coronavirus Job Retention Scheme’ appears to have removed the very recent addition of the reference to contractual notice periods. However, the reference to claims being permitted during contractual notice periods remains in place in the latest version of the guidance for employees. Accordingly, we assume that its removal from the employer guidance is an error and will be rectified in due course.) 

2. What official guidance is there on the Revised Scheme? (Last updated 03/08/2020)

Government guidance on the Scheme was first published on 26 March and has been through numerous iterations since then. The 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.

There is also a webpage with guidance on the Scheme for employees. 

Together, these webpages are referred to in these FAQs as the “Government guidance”. Note that the Government guidance has been amended numerous times since the Scheme was first launched. While we endeavour to keep these FAQs up to date, we do encourage employers to check the Government guidance for the very latest information.
 
In addition, guidance on holiday entitlement and pay during coronavirus, which deals with holidays for all employees, both those who are working and those who are on furlough, was published on 13 May. 

Technical details of the Revised Scheme are set out in the Treasury Direction published on 26 June. The Treasury Direction is not a piece of legislation, but it is an exercise of ministerial authority conferred by an Act of Parliament and is legislative in nature. Accordingly, in the event of any 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.

That said, it was sometimes the case that, under the Scheme in its original form, the Government would publish guidance that appeared to conflict with the original Treasury Direction, which we thought suggested that, where they were inconsistent, HMRC may not have been intending strictly to enforce the requirements of the Treasury Direction. Should future Government guidance on the Revised Scheme appear to contradict the latest Treasury Direction, it is possible that this may indicate a similar intention on the part of HMRC. 

3. Who can be furloughed under the Revised Scheme? (Last updated 03/08/2020)

As noted above, in order to be furloughed under the Revised Scheme, an employee must previously have been furloughed for at least a three week period under the original Scheme, meaning that the last date on which an employee could be furloughed for the first time was 10 June 2020. However, there is an exemption for parents who have not previously been furloughed if they have been on maternity, paternity, adoption, shared parental or parental bereavement leave, provided that the employer has previously furloughed other employees. There are also exceptions where you are furloughing employees who transferred to you under TUPE after 10 June, or armed forces reservists who are returning to their job after a period of active service – see under the headings “Employees who transfer under TUPE” and “Reservist servicemen and servicewomen”, below.

Note that the number of employees an employer can claim for in any claim period under the Revised Scheme cannot exceed the maximum number they have claimed for under any previous claim under the Scheme in its initial form. Employers need to bear this restriction in mind when determining how they make use of the Revised Scheme, as it may, for example, impact on a company that had 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 now wishes to change so that all of the workforce works on a part-time basis and receives furlough pay for their remaining hours not worked. Indeed, the guidance recognises this issue, giving the example of an employer who has 100 employees and previously submitted claims between 1 March 2020 and 30 June for all of these employees but not all at the same time. Instead of putting all 100 employees on furlough, this employer put 50 employees on furlough and rotated them every three weeks, with a maximum of 50 employees on furlough at any one time. The guidance makes clear that the maximum number of employees that this employer could furlough in any single claim starting on or after 1 July would be 50, although all 100 employees are eligible for furlough.

However, there is an exception to the cap where you are furloughing for the first time employees who have previously been on family leave. The guidance provides that when calculating the maximum number of employees you can claim for, the number of employees you are furloughing for the first time due to them returning from family leave should be added to any previous maximum. This means the maximum number of employees you can claim for in these circumstances, is the maximum you claimed for in any one claim before 30 June, plus any employees that you are furloughing for the first time due to them returning from family leave. There are also exceptions where you are furloughing employees who transferred to you under TUPE after 10 June, or armed forces reservists who are returning to their job after a period of active service – see under the headings “Employees who transfer under TUPE” and “Reservist servicemen and servicewomen”, below.

By way of reminder, to be furloughed under the original Scheme, employees must have been on the employer’s PAYE payroll on or before 19 March 2020 and have been notified to HMRC on an RTI submission on or before 19 March 2020. They could 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 could be renewed or extended during the furlough period without breaking the terms of the Scheme. 

In addition, the following categories of individuals were 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.

Foreign nationals

Foreign nationals were eligible to be furloughed. Grants under the scheme are not counted as ‘access to public funds’, and you could furlough employees on all categories of visa. This includes employees on Tier 2 visas and those 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. 

Former employees

It was also possible to use the Scheme to furlough employees who had left your business on or after 28 February, i.e. you could rehire them in order to put them on furlough. However, there were two main exceptions to this:

• if an employee had multiple employers over the past year, had only worked for one of them at any one time, and was being furloughed by their current employer, their former employer(s) were not permitted to rehire them, put them on furlough and claim for their wages through the Scheme; and
• if an employee’s contract both started and ended between 28 February 2020 and 19 March 2020, they could not be furloughed under the Scheme. 

Employees in their notice period

The Government guidance on the Scheme did not specifically consider whether employees who were serving their notice period could be furloughed. However, our view was that if an employee had resigned or been given notice of dismissal and was working out their notice period, but you no longer had work for them to do due to Covid-19, you could have agreed with them that they would be furloughed for the remainder of their notice period. (It is likely that the majority of these employees will now have left as their notice will have expired, so you will not be continuing to furlough them under the Revised Scheme.)

Employees who transfer under TUPE

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. A new employer could 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 applied to the change in ownership.  

Note that a new employer is also eligible to claim under the Revised Scheme in respect of employees who transferred to it under TUPE or the PAYE business succession rules after 10 June 2020 as long as the employees being claimed for previously had a claim submitted for them by their prior employer in relation to a furlough period of at least 3 consecutive weeks taking place any time between 1 March 2020 and 30 June. In these circumstances, the maximum number of employees that the new employer can claim for is the total of both:

• the maximum number of employees the new employer had claimed for in any one claim ending on or before 30 June; and 
• the number of employees that are transferred to the new employer who have had a claim submitted for them in relation to a furlough period of at least 3 consecutive weeks taking place any time between 1 March 2020 and 30 June. 

Employees with an annual pay period

You could furlough employees – such as some company directors – with an annual pay period, as long as they met the relevant conditions. This included being notified to HMRC on an RTI submission on or before 19 March 2020, which related to a payment of earnings in the 2019 - 20 tax year. This means that you could not 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.

Employees who were on sick-leave / self-isolating

The Government guidance pointed out that the Scheme was not intended to be used by employers for short-term absences from work due to sickness. This made sense given the three week minimum furlough period. However, the Government guidance did permit you to furlough an employee who was on short or long term sick leave if you had a business reason for doing so. In such cases, the employee would no longer receive sick pay and would be classified as a furloughed employee.

Note that this explanation remains in the Government guidance so, if you have previously furloughed an employee and brought them back to work, but they then go off sick or have to self-isolate, you could potentially furlough them again under the Revised Scheme, if you have a business reason for doing so.

Employees with childcare needs

The Scheme was expressly stated to be available for those who were unable to work because they had caring responsibilities resulting from coronavirus, such as the need to look after children. This appeared to be regardless of whether you would otherwise have furloughed them or had work for them to do. 

The current guidance makes clear that employees who are unable to work because they have caring responsibilities resulting from coronavirus, including employees who need to look after children, can still be furloughed under the Revised Scheme so long as they had previously been furloughed for at least a 3 week period between 1 March and 30 June.

Shielding employees and those who live with shielders

The Scheme was expressly stated to be available to employees who were shielding in line with public health guidance and those who needed to stay at home with someone who was shielding.

Shielding employees are those extremely vulnerable individuals who are most at risk of suffering severe and life-threatening symptoms if they contract Covid-19 and whom the NHS contacted individually in March to advise them to remain at home. From 1 August the guidance for clinically extremely vulnerable individuals has been relaxed so that they are no longer advised to shield. Accordingly, from 1 August, these individuals can return to the workplace if they cannot work from home, provided that their workplace is Covid-secure in accordance with available guidance. That said, individuals who have been shielding are still advised to remain cautious after 1 August as they remain at risk of severe illness if they catch coronavirus, so the advice is to stay at home where possible and, if they do go out, follow strict social distancing. We assume from the wording of the guidance as updated on 3 August that those who have been shielding, or those who need to stay at home with someone who has been shielding and are therefore unable to work remain eligible for furlough, notwithstanding the relaxation of the guidance to allow shielders to return to the workplace.  

Vulnerable employees or those otherwise reluctant to attend work for a coronavirus reason

The Government guidance did not expressly address whether an employer could furlough vulnerable employees (i.e. those who were not required to shield but are still at significant risk if they contract Covid-19 so were advised to practice strict social distancing), those living with a vulnerable person, or those who were simply nervous about attending work in the circumstances of the pandemic, where they would otherwise have had work for those employees to do. 

In our view, whether or not you could furlough these employees where you would otherwise have had work for them to do would have been dependent on the interpretation of references in the Government guidance about the circumstances in which employers could access the Scheme. Employers would have had to make a judgment call based on whether they could say that their operations were severely affected by Covid-19. If, for example, a business found that its operations were severely affected, the fact that it still had work for some production operatives to do and it needed to backfill for any of them who could not come into work should not, of itself, have meant that it would not be eligible under the Scheme. 

We assume that such employees can continue to be furloughed if they remain unable to attend work.

Reservist servicemen and servicewomen

Some armed forces reservists will have been in active service during the coronavirus outbreak and will be returning to work after the closure of the Scheme to new entrants. The Government has therefore exempted such employees from the closure of the Scheme to new entrants. The guidance provides that you can furlough an employee who is a military reservist returning to work after a period of mobilisation after 10 June, even if you are furloughing them for the first time, so long as:

• you have already claimed for another employee for a furlough period of at least 3 consecutive weeks, between 1 March 2020 and 30 June;
• the employee was away on a period of mobilisation that started before 10 June and returned from that mobilisation after 10 June; and
• the employee was on your PAYE payroll and you submitted an RTI submission for them on or before 19 March 2020.

If you are furloughing employees that are military reservists for the first time, you should add this number to your previous maximum when calculating the maximum number of employees you can claim for.

4. What if an employee becomes sick/needs to self-isolate while furloughed? (Last updated 14/09/2020)

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/support bubble, have symptoms of Covid-19, because they have been told to self-isolate under the NHS test and trace programme, or because they have been advised by a medical practitioner to self-isolate in advance of an operation, 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 Government guidance on that scheme for details). Most employees will also be better off staying on furlough, as furlough pay will be higher than SSP. (Note that the 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. 

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 who are fully furloughed and not flexibly furloughed and working part-time under the Revised Scheme from telling the employer that they are sick, so that they do not use up their company sick pay entitlement.)

5. 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 03/08/2020)

The Government guidance on the Scheme does not directly address this question, although it does note that employees whom you have previously furloughed, e.g. because they are shielding, or are unable to work due to childcare needs, can remain on full furlough under the Revised Scheme. Further, 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 noted above, from 1 August the guidance for clinically extremely vulnerable individuals has been relaxed so that they are no longer advised to shield. Accordingly, from 1 August, these individuals can return to the workplace if they cannot work from home, provided that their workplace is Covid-secure in accordance with available guidance. That said, individuals who have been shielding are advised to remain cautious after 1 August as they are still at risk of severe illness if they catch coronavirus, so the advice is to stay at home where possible and, if they do go out, follow strict social distancing.  We assume from the wording of the guidance as updated on 3 August that those who have been shielding, or those who need to stay at home with someone who has been shielding and are therefore unable to work remain eligible for furlough, notwithstanding the relaxation of the guidance to allow shielders to return to the workplace.   

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 and the FAQs on ‘Employees unable or unwilling to attend work’ for consideration of employees’ entitlement to pay where they cannot or will not come to work and furlough is not available.

6. How will furlough affect those on maternity leave or due to go on maternity leave? (Last updated 01/07/2020) 

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 begin her 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 latest Government guidance indicates that an employee can be on furlough and maternity leave at the same time. However, employers can only claim under the Scheme for the enhanced contractual element of maternity pay and not for SMP. Accordingly, for an employee who is only entitled to SMP, there would be no practical benefit to remaining on furlough during her maternity leave.

Note that the ability for employers to claim back the enhanced contractual element of maternity pay under the Scheme appears to apply a different rule about what furlough pay employees on maternity leave 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, 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.

The Government guidance 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. 

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

As noted at question 3, above, you can furlough an employee returning from statutory family leave after 10 June even if you are furloughing them for the first time. The Government guidance states that you may do this provided that:

• you have previously submitted a claim for any other employee in your organisation in relation to a furlough period of at least 3 consecutive weeks taking place any time between 1 March 2020 and 30 June;
• the employee you wish to furlough for the first time started maternity, shared parental, adoption, paternity, or parental bereavement leave before 10 June and has returned from that leave after 10 June; and
• the employee was on your PAYE payroll 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.

Furlough pay for employees who are furloughed on return from family leave is discussed at question 15, below.     

7. How do you choose whom to offer part-time work during furlough if you only have work for some employees to do? 

The Covid-19 crisis means that many employers do not have enough work for all of their employees, even as they move towards recovery, so employers that have furloughed large numbers of employees may only be able to offer part-time work during furlough to some of them. The Government guidance makes clear that when employers are making decisions in relation to furlough, equality and discrimination laws will apply in the usual way.

As a first step, employers need to think carefully about what roles they now require employees to perform and the numbers they need in each role. For example, an employer seeking to restart its production will require a certain number of supervisors to work, in addition to the production operatives.

Employers will also have to consider the cost of recalling particular employees back to work part-time during furlough, as furlough pay for such employees under the Revised Scheme will cover non-working (i.e. furloughed) hours only, with the cap of £2,500 per month adjusted proportionately. Employers will be fully responsible for paying employees for the part-time work that they do. In addition, the level of support that the Government provides under the Revised Scheme began to reduce gradually from August – see question 1, above, and 11, below.

Having identified the numbers it needs to recall from furlough on a part-time basis in particular roles, and the associated costs, 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 return to work part-time to top up their pay, while others (in particular those who fall into a vulnerable category, or who have childcare needs) may prefer to remain at home on full furlough. Assuming that the employer is not proposing to top up employees’ furlough pay above the amount that it can recover from the Government under the Revised Scheme, whether employees would prefer to remain fully furloughed or to return to work part-time during furlough may also be influenced by how much they are normally paid. The Scheme provides for employees to receive up to 80% of their gross pay, capped at £2,500 per month. 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 have suffered more than a 20% pay cut and therefore might be less keen to remain fully furloughed than those for whom the pay cut was limited to 20%. In addition, those whose pay cut was limited to 20% might not feel that it is worth it for them to return to work on a part-time basis as the amount by which their pay would increase would be limited. That said, many employees on lower pay may have been unable to afford even a 20% pay cut and therefore may be keen to return to whatever work is available. All of these factors are likely to influence the number of willing volunteers you have when asking employees if they wish to return to work part-time during furlough.

Where an employer receives more volunteers than it needs to return, 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 perform part-time work while 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, it will have to look at each of the roles for which it needs employees to work and apply appropriate selection criteria. As an alternative in either case, the employer may wish to consider asking more employees to return part-time, but with each of them working fewer hours than it had originally envisaged – although this may not be practicable in some workplaces, given the social distancing measures that may be required from a health and safety perspective, and the cap on the number of employees who can be claimed for in a single claim under the Revised Scheme (see question 3, above). A further possible alternative may be a rotational furlough arrangement, whereby some employees are kept on full furlough while others return to work full-time, and then the groups are switched over (see question 21, below).

The safest approach when deciding whom to have back at work on a part-time basis during 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 have the best employees back but, in reality, practical considerations as to which employees are still able to work, as well as employee relations issues, will probably take precedence.  

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 end some employees’ furlough and have them back at work on a full-time basis, bring more people back to part-time work during furlough, or agree to increase or reduce the part-time working hours of employees on furlough, as things evolve. 

8. What process should you follow to place an employee on furlough, including where you wish the employee to work part-time during furlough? (Last updated 01/07/2020)

In our view, it is important that employees agree to any arrangements to go on furlough leave, or to undertake part-time work during furlough leave (referred to in the Government guidance as “flexible furlough”), as both involve a change in terms and conditions. 

The Government guidance on placing employees on furlough notes that employers must have confirmed to their employee (or reached collective agreement with a trade union) in writing that they have been furloughed. It specifies that the agreement must be consistent with employment, equality and discrimination laws, but indicates that the employee does not have to provide a written response. (In practice, we would nonetheless recommend that employers who are re-furloughing employees going forwards do try to obtain their written agreement to be furloughed where possible.)

However, subsequent paragraphs that focus on flexible furlough state that employers will need to agree this with the employee (or reach collective agreement with a trade union) and keep a new written agreement that confirms the new furlough arrangement. The reference to the requirement to comply with employment, equality and discrimination laws is repeated, but there is no repetition of the statement that the employee does not have to provide a written response. It is not clear whether this is a deliberate difference, i.e. whether the Government intends that employees agreeing to flexible furlough be required to provide a written response, whereas those agreeing to be returned to full furlough are not. We hope that this point will be clarified by the Government, although the Treasury Direction that underpins the Revised Scheme does not shed any further light on it.

The 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 do no work, or that the employee will not work the full amount of their usual hours, and that such agreement must:

• specify the main terms and conditions on which the employee will do no work/not work the full amount of their usual hours;
• be made before the beginning of the period to which an employer’s claim under the Revised Scheme relates (although the agreement may subsequently be varied to reflect any variation agreed between the employer and employee during that period);
• 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 is sufficient to cover the extent to which the employee’s normal terms and conditions (e.g. as to hours of work, 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 flexible furlough letter template includes these details and is designed to enable you to agree with an employee, that they will go on flexible furlough. It can be used both for employees who are currently on full furlough and for those who have previously been on furlough but are currently working. We have also produced a template letter for use when you wish to place an employee who has previously been on furlough but is currently working back onto full furlough under the Revised Scheme. This letter – together with our Template Furlough Update Letter (to update employees who remain on furlough about the changes to the Scheme) and our Template Return From Furlough Letter (to bring a furloughed employee back to work) – forms part of our ‘Furlough letters and resources’ pack, which Make UK members can access via the Coronavirus Support tab in the HR & Legal Resources section of our website. Non-members can purchase the 'Furlough letters and resources' pack. 

In practice, given the unprecedented circumstances of the Covid-19 crisis, it is likely that many employees will agree to be furloughed again, or to work part-time during furlough (particularly if flexible furlough will increase the total amount of pay they receive). Good communication is key in order to encourage agreement. While in-person meetings with all affected staff might still not be possible 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 full or flexible 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 arrangements 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 by email to employees who are not currently in the workplace (e.g. because they are working remotely, or they are currently on full furlough), 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, 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 furlough and any part-time working arrangements that will apply during furlough. The Government guidance for employers expressly recognises that a collective agreement reached with a trade union can be used to agree furlough arrangements, including flexible furlough. The Government guidance for employees also acknowledges that a collective agreement can be used, but specifies that the employer must confirm the arrangement to the employee in writing. 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. The Treasury Direction expressly recognises that the agreement to full or flexible furlough can be a collective agreement between the employer and a trade union. (Note, also see above discussion of whether employees need to provide a written response for flexible furlough agreements).

If an employer with a unionised workforce needs to speed up the process of getting employees’ agreement to be furloughed again, or to part-time working arrangements during furlough, we would suggest that the employer impress upon the union the and time-critical circumstances, e.g. emphasising the need to restart the business in a sustainable but efficient manner to enable recovery. 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 relatively 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 get employees to go on furlough again, or to go back to part-time working during furlough leave, need to truncate the normal process they would follow when seeking employees’ agreement to a significant contractual change. In practice, however, if employees are not willing to accept the proposals, some may simply not attend at work when required. Please email our HR and legal experts or call our National Adviceline on 0333 202 2221 if you need our support.

(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 return employees to furlough or get employees to work part-time while 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.)

9. What happens to an employee’s terms and conditions of employment during furlough leave? 

The Government guidance states that employees who have been furloughed have the same rights as they did previously, including statutory sick pay entitlement, maternity rights, other parental rights, rights against unfair dismissal and rights to redundancy payments. Accordingly, all statutory and employment rights will continue during furlough leave. 
 
However, employers may have sought to agree changes to contractual benefits that would apply during the period of furlough when they sought employees’ agreement to furlough leave, for example changes to bonus schemes, or the suspension of other benefits. Since the Government guidance indicates that it is for the employer to decide whether to move furloughed employees who fall ill or need to self-isolate onto SSP, or keep them on furlough leave and furlough pay, we suggested that employers that operate a contractual sick pay scheme confirm to employees that contractual sick pay during furlough leave will be payable at the furlough rate of pay.

In theory, an employer could have agreed any changes it wished with the employees it placed on furlough. But in practice, the more severely the employer tried to remove or restrict benefits during furlough leave, the more likely it was that employees might refuse to agree to the proposed changes. Employees may have been more likely to agree to otherwise unpalatable changes where the employer was in difficult financial circumstances and could 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 would have been important for the employer to communicate with its employees so that they understood the changes the employer sought to make and why it needed to make them.

Similarly, when agreeing with an employee that they will go onto furlough leave again, or return to part-time working while on furlough leave, an employer will need to specify any changes to other terms that it wishes to implement during this period. In theory, an employer could seek to changes to any terms it wishes, but in practice, the greater the detriment to the employee, the less likely they are to agree. 

Employers cannot place employees on furlough without their agreement, so would have needed to weigh up the importance of additional contractual changes against the likelihood of employees refusing to agree – and the potential complications that would cause. The same is true when seeking to bring employees back to work part-time during furlough.

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

10. What if employees don't agree to the employer’s proposed furlough arrangements, including any flexible furlough? 

If employees do not agree to the employer’s proposed furlough arrangements, whether that involves going on furlough leave again, or working on a part-time basis during their furlough leave, the first step for an employer would be to engage with employees if possible, explaining the need for the proposed arrangements, the benefits to employees and the alternatives. If employees still do not agree, the employer can:

• keep any employees who are currently furloughed on full furlough (if in accordance with the furlough agreement they had previously reached); or
• consider lay-off or short-time working (which would be less attractive to employees and which cannot normally be imposed without agreement either); or
• require employees whom it wished to return to full furlough to take annual leave (giving the requisite notice under the Working Time Regulations, and paying holiday pay in full – although employees are unlikely to be keen to use up their holiday entitlement in this way); or
• move to redundancies, if the conditions for redundancy are met in the usual way (note that the usual employment law requirements of redundancy consultation will still apply, including collective consultation if the relevant thresholds are met – see below). 

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 return to furlough 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 full or flexible 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.

11. What can you claim under the Revised Scheme and how do you do it? (Last updated 07/10/2020)

Under the original Scheme, employers could 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. 

In June and July, the amount that employers could claim remained the same (although if you brought employees back to work part-time in July, only their non-working (or furloughed) hours would have been covered and the monthly cap on furlough pay would have been proportional to the hours not worked). 

From 1 August to the end of October under the Revised Scheme, 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, as described below. In addition to this tapering of support, note that 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.

During August, employers could claim 80% of furloughed employees’ wages up to a monthly cap of £2,500 under the Revised Scheme (pro rata if the employee was flexibly furloughed). However, employers could no longer claim for employer NICs or pension contributions and must fund these themselves.

During September, employers could claim 70% of furloughed employees’ wages up to a monthly cap of £2,187.50 under the Revised Scheme (pro rata if the employee is flexibly furloughed). As well as employer NICs and pension contributions, employers had to fund 10% of the normal wages received by furloughed employees, so that the employees continued to receive 80% of their pay, up to the monthly cap of £2,500 (pro rata if the employee was flexibly furloughed).

During October, employers can claim 60% of furloughed employees’ wages up to a monthly cap of £1,875 under the Revised Scheme (pro rata if the employee is flexibly furloughed). As well as employer NICs and pension contributions, employers must 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 (pro rata if the employee is flexibly furloughed). 

In order to claim, employers must: 

• determine the length of their claim period;
• work out which elements of pay they must include;
• for employees who are on flexible furlough, work out the employee’s usual hours and furloughed hours; and
• calculate the relevant percentage of in-scope pay (i.e. 80% until the end of August, 70% in September, and 60% in October) for furloughed hours in the claim period.

in accordance with the Government guidance on how to do the calculation. We have summarised key points in the questions below. However, the applicable formulae are set out in full in the Treasury Direction and there is a lot more detailed information in the various bits of Government guidance, including in-depth worked examples, and you will need to read and digest this before you make your claim. The complexity of the calculations, particularly in relation to flexible furlough, means that HR will need help from payroll to ensure that any claims are correctly calculated. All claims must be submitted by 30 November 2020.

Note that while an employer can choose to top up an employee’s salary for furloughed hours 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.)

12. How do you decide the length of your claim period? (Last updated 03/08/2020)

The Government guidance makes clear that it is for an employer to decide on the length of its claim periods. A claim period is made up of the days for which the employer is claiming a grant under the Scheme. 

Note that, because of the changes to the Scheme that took effect from 1 July, it was not possible to use a claim period that ran over from June into July. This was the case even where an employee who was on furlough in June continued to be furloughed on a full-time basis in July. In such a case, you would have needed to submit separate claims to cover the days in June and the days in July that you wanted to claim for, even if employees were furloughed continuously. This may mean that your claim periods differed from the pay periods you use.

Also due to the changes that took effect from 1 July, any claims for periods ending on or before 30 June had to be made by 31 July 2020. It is important to note the statement in the Government guidance on what to do if you have over- or under-claimed under the Scheme that, after 31 July, you can no longer amend a claim relating to the period up to 30 June to add an employee that should have been included on a claim submitted before that date. (However, amendments for other errors you may have made that resulted in you not claiming enough in a claim relating to the period up to 30 June are still permitted after 31 July.)

Claim periods that begin on or after 1 July must start and end within the same calendar month and must last at least seven days unless you are claiming for the first few days or the last few days in a month. You can only claim for a period of fewer than seven days if the period you are claiming for includes either the first or last day of the calendar month, and you have already claimed for the period ending immediately before it. For example, an employer that decided to use seven day claim periods, beginning on 1 July, would claim for each of the seven day claim periods 1 to 7 July, 8 to 14 July, 15 to 21 July and 22 to 28 July. Because a claim period cannot cross calendar months, the employer would then need to claim for the shorter period of 29 to 31 July, before returning to seven day claim periods from 1 August. (Alternatively, the employer could combine the 29 to 31 July period into a single claim with the previous 22 to 28 July period.)  

The Government guidance suggests matching your claim period to the dates you process your payroll, if you can. You can only make one claim for any claim period, so you must include all your fully furloughed and flexibly furloughed employees in one claim, even if you pay them at different times. If you make more than one claim, your subsequent claim cannot overlap with any other claim that you make. This may cause difficulties for employers who have 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. Where employees have been furloughed continuously (whether on full or flexible furlough, or a combination of the two), the claim periods must follow on from each other with no gaps in between the dates.

You can claim before, during or after you process your payroll; you can usually make your claim up to 14 days before your claim period end date and do not have to wait until the end of a claim period to make your next claim. However, when claiming for employees who are flexibly furloughed, you can only claim for furloughed hours (i.e. the number of their usual hours for which the employee does not work during the claim period). In order to avoid any errors, you therefore should not claim until you are sure of the exact number of hours they will have worked during the claim period (see further question 14, below).

13. What elements of pay should you include? (Last updated 03/08/2020)

Government guidance for employers on what to include when calculating wages provides that the relevant percentage 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 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 reflects 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.” It is also 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 Treasury Direction also makes clear 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 the relevant percentage 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.

Under the Scheme in its original form, there was initially quite a lot of uncertainty as to which elements of pay should and should not be included when calculating furlough pay, but most of these questions were settled following the publication of a second Treasury Direction on 22 May. Employers who had included payments such as overtime pay, commission, etc. in their calculations of furlough pay were reassured that the Scheme would cover them and it was unlikely that HMRC would refuse to pay out or seek to claw back such payments at a later date. Employers who had initially been excluding certain payments from the calculation of furlough pay may have needed to consider changing their approach to the calculation.

The Treasury Direction that underpins the Revised Scheme did not make any changes to the provisions on the types of pay to be included and there may still be some scope for dispute as to the correct interpretation of these provisions. It is likely that any remaining ambiguities will be 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.

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.

14. How should you work out usual hours and furloughed hours for employees on flexible furlough? (Last updated 14/09/2020)

The Government guidance explains that you do not need to work out usual and furloughed hours for employees who are fully furloughed.

However, if your employee is flexibly furloughed, you will need to work out their usual hours and record the actual hours they work as well as their furloughed hours for each claim period. The Treasury Direction includes detailed formulae setting out how to do this. 

The Government guidance indicates that you can calculate an employee’s usual hours for the entire claim period or for each pay period, or part of a pay period, that falls within that claim period. The guidance assumes that you will calculate usual hours on a pay period basis, but confirms that either method is acceptable.

If you calculate an employee’s usual hours for the entire claim period and the result is not a whole number, you should round it up to the next whole number. If you calculate the employee’s usual hours on a pay period basis, you should round the result up or down to the nearest whole number.

According to the Government guidance, you should follow the instructions for working out usual hours for employees who work variable hours, if either:

• your employee is not contracted to a fixed number of hours; or
• your employee’s pay depends on the number of hours they work.

If neither of these apply, you should follow the instructions for working out usual hours for employees who are contracted for a fixed number of hours.

The Government guidance states that the employee’s working pattern does not have to match their pay period (for example, an employee could be contracted to fixed 40 hours a week, but be paid a variable monthly amount because of shift allowances).

Note that working out usual hours for employees who work variable hours involves looking back at hours they have worked in the past. The Government guidance notes that employers are likely to have records of hours worked, e.g. in pay records, time sheets and other records which show time worked. If these aren’t available then the guidance suggests using other records, such as rotas or work diaries. If those records are not available, the guidance states that employers may use the employee’s pay rate to work back from gross pay. 

You are likely to have agreed how many hours you intend an employee on flexible furlough to work in any given claim period (see question 8, above). The employee will be furloughed and eligible for furlough pay under the Scheme for the rest of their usual hours. 

However, note that the instructions given in the Government guidance indicate that to calculate the number of furloughed hours, you should subtract from the employee’s usual hours the number of hours they actually worked in the claim period – even if this is different from what you had agreed.

If you claim in advance based on the number of hours you had agreed that the employee would work, and your employee in fact works for more hours than this, then you will have to pay some of the grant back to HMRC. The Government guidance therefore advises against claiming until you have certainty about the number of hours your employees are working during the claim period. There is specific Government guidance on what to do if you have made an error in your claim (and see further question 17, below).

14(a) What if an employee is only furloughed or flexibly furloughed for part of a claim period? (Last updated 14/09/2020)

The Government guidance acknowledges that some employees may come off full furlough or flexible furlough part way through a claim period. In these circumstances, the guidance specifies that, when calculating the number of furloughed hours you can claim for, you must:

• for a flexibly furloughed employee, only calculate the employee’s usual hours (see question 14, above) up to the last day of furlough, instead of to the end of the claim period; and 
• not include any working hours after the last day of furlough.

This applies even if your claim period includes days after the employee’s last day of furlough (for example, because you’re claiming for multiple employees and some of them stay on furlough).

These instructions were first included in the Government guidance as updated on 11 September. The guidance therefore reassures employers that they do not need to amend any previous claims submitted prior to 14 September 2020 to take account of them. However, employers should use this calculation for any claims from 14 September 2020, for any employee who stops being furloughed or flexibly furloughed part way through a claim period.

15. How should you calculate how much furlough pay an employee is entitled to and the relevant percentage that you can claim under the Scheme? (Last updated 13/08/2020)

The way you should calculate how much an employee is entitled to as furlough pay and the relevant percentage that you can claim for under the Scheme differs depending on whether the employee is salaried, or on variable pay (and on whether they are on full or flexible furlough – see question 14, above). When deciding whether to treat an employee as salaried or on variable pay, note that the Government guidance highlights that the way you work out 80% of an employee’s usual wages might not be the same as the way you work out their usual hours. It also reassures employers that HMRC will not decline or seek repayment of any grant based solely on the particular choice of pay calculation, as long as your choice of approach is reasonable.

That said, the 7 August update to the Government guidance indicates that if a salaried/fixed pay employee has worked enough overtime in the tax year 2019 to 2020 to have a significant effect on the amount you need to claim, you should calculate 80% of their usual wages using the method for employees whose pay varies. Examples of situations where overtime could have a significant effect on the claim amount include where the employee worked overtime:

• in the last pay period ending on or before 19 March 2020;
• in the corresponding calendar period to the period you are claiming for; or
• a lot, or often, in the tax year 2019 to 2020.

The guidance makes clear that you do not need to amend any previous claims, but specifies that if these circumstances apply to any employees whom you have been treating as salaried/fixed pay then you should use the calculation for employees whose pay varies for any future claims for those employees.

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; 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 can currently be used to calculate claims for claim periods ending on or before 31 October. However, if you are claiming for an employee who is flexibly furloughed, you will need to work out their usual hours before you use the calculator. 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 question 13, above). 

The method for calculating the relevant percentage 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 on or 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 sets out examples of the calculation for fully and flexibly furloughed employees.  

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 notes that, for a flexibly furloughed employee, you will have completed a similar comparison to work out the employee’s usual hours (see question 14, above), but the outcome may be different.

It 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%

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.

The guidance sets out examples of the calculation for fully and flexibly furloughed employees. The guidance notes that the examples demonstrate the full sequence of calculation steps that you must take when claiming through the scheme. They are based on claim periods in July and August using a common scenario in which the employee has a fixed monthly salary, fixed working hours, and is flexibly furloughed. The guidance acknowledges that these examples may not directly reflect your circumstances, but states that it may still be helpful to see examples of a full calculation.

(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 who receive a statutory payment in the claim period

The Government guidance notes that if an employee receives a ‘statutory payment’ (i.e. a payment of statutory maternity pay, statutory adoption pay, statutory paternity pay, statutory shared parental pay, or statutory parental bereavement pay) during the claim period, you cannot claim in respect of such a payment under the Scheme, so you will need to subtract it from the amount you are claiming. 

This will be relevant, for example, where an employee who is on furlough goes on maternity leave and receives enhanced company maternity pay during that period. As noted at question 6, above, you can claim under the Scheme in respect of the enhanced element of maternity pay, but not for statutory maternity pay.

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 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 Treasury Direction specifies that, for a salaried/fixed-rate employee, this means paid annual leave under the Working Time Regulations. The 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.

Calculating minimum furlough pay and identifying how much of this you can claim

The minimum furlough pay to which a fully furloughed employee is entitled is the lower of either:

• 80% of their usual wage; or
• the maximum wage amount.

If an employee is flexibly furloughed, their minimum furlough pay entitlement depends on their working and furloughed hours. To work out their minimum furlough pay entitlement, you should start with the lesser of 80% of their usual wages and the maximum wage amount. Multiply this by the employee’s furloughed hours and divide the resulting figure by the employee’s usual hours. This is the minimum amount you must pay your employee for the time they are recorded as being on furlough. 

The Government guidance indicates that employers can choose to pay more than the minimum furlough pay entitlement, but do not have to.

If an employee takes any furlough hours as paid holiday/annual leave, you need to top up the pay for these hours to the employee’s full contracted rate.

For periods ending on or before 31 August 2020 you could claim a grant for the full amount of the minimum furlough pay. However, in line with the gradual tapering of Government support under the Scheme, for periods starting on or after 1 September you will need to calculate the grant amount as follows:

• start with the amount of minimum furlough pay;
• divide by 80; and 
• depending on which month you’re claiming for, multiply by 70 for September, or 60 for October.

The guidance sets out examples of the calculation for fully and flexibly furloughed employees.

What is the maximum you can claim?

It is important to remember that, whatever the result of your relevant percentage calculations, the amount you can claim for any employee will always be subject to the specified maximum (£2,500 per month (or £576.92 per week) until the end of August, reducing to £2,187.50 per month in September and £1,875 per month in October). 

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
• July 2020 – £80.65 per day
• August 2020 – £80.65 per day
• September 2020 – £83.34 per day*
• October 2020 – £80.65 per day*

*For September and October, this is the maximum amount you will have to pay a furloughed employee. The amount that you can claim for will be lower (see questions 1 and 11, above). 

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.

Note also that these maximum amounts are applicable for employees who are fully furloughed. If an employee is on flexible furlough, the maximum amount you can claim is reduced pro rata based on the hours the employee works during the claim period.

15(a). How should you calculate the Employer National Insurance Contributions (ENICs) and minimum auto-enrolment employer pension contributions that you can claim until 31 July?

For claims covering periods up to 31 July, 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, as well as the mandatory automatic enrolment employer pension contributions on that subsidised furlough pay.

Calculating your claim for ENICs

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. 

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

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, as well as instructions on adjusting the applicable secondary NICs threshold where your employee is on flexible furlough during July, and worked examples in each scenario, 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.

Calculating your claim for employer pension contributions

The Government guidance makes clear that you will still need to pay employer pension contributions for your furloughed employees and until 31 July 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 is £520 per month) – even if the pension you pay into is not an auto-enrolment pension.

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; where an employee is furloughed part way through a pay period; and where an employee is on flexible furlough during July so you can only claim towards pension contributions you make on the gross pay grant for the hours they are furloughed.

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.

16. What will you need to make a claim? (Last updated 14/09/2020)

Claims should be made via the portal. 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 has a temporary NI number or has never had a NI number at all, 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, including wages, ENICs (up to 31 July) and employer pension contributions (up to 31 July)
• your phone number and contact name
• your Self Assessment unique taxpayer reference, or your Corporation Tax unique taxpayer reference, or your company registration number

If you’re claiming for employees who are on flexible furlough, you will need to have agreed the furlough arrangement (with the employee or via a collective agreement with a trade union) and keep a written agreement confirming this. You will need to provide the following additional information for the claim period:

• the number of usual hours the flexibly furloughed employee would work in the claim period; 
• the number of hours the flexibly furloughed employee has worked or will work in the claim period; and
• the number of hours the flexibly furloughed employee has been furloughed in the claim period (i.e. their usual hours minus the hours worked), which you will have to keep a record of.

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 (for example, those paid weekly and monthly should be claimed for together).

HMRC has created a file upload template to complete for claim periods starting on or after 1 July. Claims templates are available in .xls, .xlsx, .csv and .ods formats. The Government guidance recommends using this template to help ensure that your claim is processed quickly and successfully and flags that your claim may be rejected if you do not give the information in the right format.

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; 
• your calculations in case HMRC need any more information about your claim;
• for employees on flexible furlough, usual hours worked (including your calculations), and actual hours worked . 

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. 

17. What other restrictions are there and are there any other practical issues to consider when making a claim? (Last updated 07/10/2020)

As specified in the Government guidance, 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 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, for periods up to 31 July, 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 8, above, for discussion of whether written agreement is required). You must retain a record of the communication for at least five years.

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.

Employers had to make any claims under the Scheme in respect of the period to 30 June on or before 31 July. It is now no longer possible to make claims under the Scheme in respect of the period to 30 June. All claims for periods between 1 July and the Scheme's closure on 31 October must be submitted by 30 November, or they will not be accepted.

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 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 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.

If you realise you have made an error in your claim, the online portal now allows you to delete the claim if you do so within 72 hours of submitting it. Failing that, the system allows you to provide details of any overclaimed amount when you make your next claim; your next claim will then be reduced to reflect the overclaimed amount. If you have overclaimed but you are not submitting another claim, you will need to contact HMRC to repay the overclaimed amount. 

If you have made a mistake which means you have underclaimed, you will need to contact HMRC to amend your claim and your increased claim will be subject to additional checks. As noted at question 12, above, after 31 July, you can no longer amend a claim relating to the period up to 30 June to add an employee that should have been included on a claim submitted before that date. (However, amendments for other errors you may have made that resulted in you not claiming enough in a claim relating to the period up to 30 June will still be permitted after 31 July - although, as noted above, all claims must be submitted by 30 November 2020.) 

There is specific Government guidance on what to do if you have made an error in your claim.  

• 90 days after the date you received the grant you were not entitled to;
• 90 days after the date you received the grant you were no longer entitled to keep because of a change in your circumstances; or
• 20 October 2020 (i.e. 90 days after the Finance Act came into force). 

If you fail to notify HMRC within the applicable timeframe, in addition to repaying the overclaimed amount via the tax system, you may have to pay a penalty. When determining the amount of any penalty, HMRC will take account of whether you knew you were not entitled to the grant when you received it, or you knew when it became repayable or chargeable to tax because your circumstances changed. If you knew you were not entitled to your grant when you received it or knew when you had stopped being entitled to it because of a change of circumstances and didn’t tell HMRC in the notification period then your failure to notify will be treated as deliberate and concealed. This means that you could be charged a penalty of up to 100% on the amount of the grant that you were not entitled to receive or keep and had not repaid by the last day of the notification period. The Government has produced further guidance on penalties, which includes information on how HMRC decides on the amount of a penalty, when a penalty may be payable and how to appeal against a penalty.

As we have highlighted elsewhere in these FAQs, there are areas of ambiguity in the Government guidance on what you can claim for under the Scheme. Some employers may therefore be concerned that they might innocently have overclaimed based on an erroneous but good faith interpretation of the guidance. It is thus reassuring to note the indication from HRMC that its priority is to address deliberate non-compliance and criminal attacks, and that it will use its powers to assess overpayments accordingly, but will not actively be looking for innocent errors as part of its compliance approach. HMRC has also confirmed that it will not charge a penalty if an employer did not know it had been overpaid a grant at the time the employer received it, or at the time that circumstances changed meaning that the employer stopped being entitled to it and if the employer has repaid it within the relevant time period.

18. What will be deducted from the furlough payment before it is paid to the employee? 

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 and, under the Revised Scheme, will not receive any subsidy for them from the Government for periods after 31 July.  

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.

19. 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.

20. 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 work on a part-time basis, or undertake training, whilst they are furloughed, then they must be paid their contractual rate (and at least the NLW/NMW) for the time spent working or training.

21. How long does furlough leave last? What about flexible furlough? Can you furlough employees (fully or flexibly) multiple times? And can you still rotate employees between periods of full furlough and periods of work? (Last updated 03/08/2020)

Under the Scheme in its initial form, the minimum period of furlough was 3 consecutive weeks. Accordingly, where a previously furloughed employee started a new furlough period before 1 July, this furlough period had to be for a minimum of 3 consecutive weeks, even if the 3 week period ended after 1 July. However, since 1 July, employers have not been able to make claims that cross calendar months, so the employer would have needed to make a separate claim for the period up to 30 June (see question 12, above).

Under the Revised Scheme, there is no minimum furlough period for either full or flexible furlough (although the minimum length of any claim period is seven days, except at the beginning or end of a month – see question 12, above).

While an employee is on furlough, their furlough period can be extended by any amount of time while the Scheme remains in operation. If when you placed an employee on furlough you provided that this would last for a specified period, you would 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. 

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 in its initial form did permit such rotation arrangements, provided that employees who were furloughed were furloughed for at least three consecutive weeks. Rotational furlough arrangements remain possible under the Revised Scheme, although there is now no minimum furlough period so the rotation of groups of employees on and off furlough could be more frequent than every three weeks. 

22. Can employees work either for you or elsewhere whilst on furlough leave?   

Under the original Scheme, an employee could not 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 were on furlough leave. If an employee was working for you, but on reduced hours, or for reduced pay, they were not eligible under the original Scheme. However from July 2020, the Revised Scheme allows part-time working, with furlough pay covering only non-working hours and employers responsible for paying employees for the time that they work. 

Employees who are fully furloughed are still unable to 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.

For employees who are on flexible furlough, during hours which you record your employee as being on furlough, you cannot ask your employee to do any work for you that:

• makes money for your organisation or any organisation linked or associated with your organisation; or
• provides services for your organisation or any organisation linked or associated with your organisation.

However, employees on full or flexible furlough can still during their furlough hours:

• take part in training; 
• volunteer for another employer or organisation; and
• work for another employer (if permitted under their employment contract).

The Government guidance makes clear that an employee undertaking paid work for another organisation or on their own account during furlough leave (where this is allowed under their employment contract) will not affect your entitlement to claim in respect of them 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, or start flexibly furloughing them, and must be able to undertake any training you require them to do while on furlough.

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

23. Can employees and apprentices undertake training whilst on furlough leave? (Last updated 01/07/2020)

Yes. The Government guidance provides that fully or flexibly furloughed employees can undertake training during furlough 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 Treasury Direction specifies 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. 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 (pro-rated where the employee is on flexible furlough), 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.

24. Can employees undertake voluntary work whilst on furlough leave? 

Yes. Fully or flexibly furloughed employees can undertake voluntary work while they are on furlough, 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).

25. Do employees on furlough leave continue to accrue holiday?

The Government guidance specifies that furloughed employees 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. 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 9, above, for further information. In addition, if employees are working part-time while on flexible furlough, it may seem unfair to suspend their accrual of contractual holiday. 

26. Can employees be on annual leave and furlough leave at the same time? And what is the position on holiday pay? (Last updated 03/08/2020)

In common with the ACAS guidance on Covid-19 and holidays, the Government guidance 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)  This point is also reflected in the specific guidance on holiday entitlement and pay during coronavirus.

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 and lead to challenges from employees. (Note that the Employment Rights Act 1996 (Coronavirus, Calculation of a Week’s Pay) Regulations 2020 (discussed further at questions 29, 29(a) and 30, below), which are intended to ensure that the employee does not lose out as a result of having been on furlough where payments to which they are entitled are calculated on the basis of the ERA week’s pay provisions, do not apply to the calculation of holiday pay). 

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. However, it is worth noting that the 1 July update to the Government guidance saw the addition of a warning that employees “should not be placed on furlough for a period simply because they are on holiday for that period.” This is presumably intended to prevent employers from using the Scheme where they do not otherwise need it, simply to subsidise the cost of employees’ holiday pay now that there is no minimum furlough period and we discuss the implications of this further at question 26(c), below.

With regard to flexibly furloughed employees, the Government guidance notes that any hours taken as holiday during the claim period should be counted as furloughed hours rather than working hours. This means that the employer can claim under the Scheme (up to the relevant cap) in respect of holiday taken, whether the holiday is taken on a day that would otherwise be a work day, or a day that would otherwise be a furlough day.

Note that while there have been some small additions to the Government guidance to reflect how the interaction between holiday and flexible furlough should be dealt with, the specific guidance on holiday entitlement and pay during coronavirus has not yet been updated to reflect this. 

We consider particular aspects of the interaction between holiday and furlough in questions 26(a) to 26(d), below.

26(a). What is the position on bank holidays that fall while employees are on furlough? (Last updated 16/07/2020)

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 question 26, above), 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

26(b). Can we require furloughed employees to use their holiday entitlement while they are on furlough? (Last updated 16/07/2020)

The guidance on holiday entitlement and pay during coronavirus 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, it 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. This recommendation 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 may in some cases be incompatible with the purpose of annual leave. Employers may therefore have felt that it would be inappropriate to require employees to use much holiday while lockdown was fully in force, but since many employees are now able to travel on holiday if they choose to, we think it is likely to have somewhat less of an impact going forwards. 

It is helpful to have the express clarification that employers can require furloughed employees to take holiday by giving the requisite notice under the WTR. In addition, the guidance on holiday entitlement and pay during coronavirus notes that, in most cases, employees who are on furlough will be able to take their holiday during their furlough so are unlikely to need to make use of the regulations that permit the carry forward of up to four weeks’ annual leave into the next two leave years where it has not been reasonably practicable for employees to take that leave due to coronavirus (on which see further question 26(d), below). Together, these two aspects of the guidance 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.

That said, while it is unlikely to be problematic for employers to require most furloughed employees to take holiday over the August bank holiday, or scheduled Summer shutdowns (which they would have been required to take in any event had they not been furloughed), in view of the recommendation to consider the impact of social distancing / self-isolation requirements on employees’ ability to rest, relax and enjoy leisure time, they should still consider employees’ individual circumstances where relevant. 

Note that we do not think the warning introduced into the Government guidance on 1 July that employees “should not be placed on furlough for a period simply because they are on holiday for that period” is intended to prevent employers from continuing to claim under the Scheme during the period of a planned annual shutdown in respect of employees who remain fully furloughed both before and after the shutdown due to a lack of work caused by the coronavirus pandemic, as in this situation the employer is not using furlough “simply” because employees are on holiday for the period of the shutdown. This is different from the situation where employees are working normally and the employer wishes to place them on furlough to cover an annual shutdown period – on which see question 26(c), below. 

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. 

Employers should also take note that the ACAS guidance encourages employers and employees, as a matter of best practice, to be as flexible as they can about holiday during the coronavirus pandemic. In particular, the guidance recommends: talking about plans to use or cancel holiday as soon as possible; discussing the reasons why holiday might need to be taken or cancelled; listening to each other’s concerns and welcoming ideas for alternatives; considering everyone’s physical and mental wellbeing; and being aware that it’s a difficult time for both employers and staff. 

26(c). Our employees are currently working. Can we furlough them when they take holiday, or during our planned annual shutdown? What if we need to implement a longer shutdown than usual due to coronavirus? (Last updated 16/07/2020)

26(d). What if we can’t afford for furloughed employees to take holiday? (Last updated 16/07/2020)

In this regard, it is 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.

For further discussion of an employer’s ability to prevent employees from taking holiday on specified dates and the regulations that permit the carry forward of leave that an employee has been unable to take due to coronavirus, see our FAQs on ‘Managing employees during the pandemic’. Members can also access guidance on how to handle holiday that has been carried forward in the HR & Legal Resources section of our website.

27. Can employees participate in disciplinary and grievance proceedings while on furlough? (Last updated 17/08/2020)

As noted above, one of the conditions for full furlough leave is that an employee cannot do any work for their employer during the furlough leave period, and for flexible furlough that an employee cannot do any work for their employer during the hours they are recorded as being on furlough. 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 full furlough/during their furloughed hours on flexible furlough.  

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 full furlough/during their furloughed hours on flexible furlough. Note that, in practice, if a fully furloughed employee is not willing to participate, 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 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. 

Given the above, provided that the relevant HR and line managers are not on full furlough, it should in most cases be possible to continue with disciplinary and grievance processes while the employees concerned are on full or flexible furlough. That said, it is also important to bear in mind the practicalities of conducting such processes remotely if your workplace remains closed and/or any of the employees involved is unable to attend the workplace for face-to-face meetings 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.

28. What happens at the end of furlough leave? (Last updated 22/10/2020)

Furlough leave may end either because the Scheme has ended, because an employee no longer meets the criteria under the Scheme, because you have enough work for the employee to do to fill their normal working hours 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 enough work for them to do to return to their normal working hours, 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’. (As noted above, from 1 August the guidance for clinically extremely vulnerable individuals has been relaxed so that they are no longer advised to shield. Accordingly, from 1 August, these individuals can return to the workplace if they cannot work from home, provided that their workplace is Covid-secure in accordance with available guidance. That said, individuals who have been shielding are advised to remain cautious after 1 August as they are still at risk of severe illness if they catch coronavirus, so the advice is to stay at home where possible and, if they do go out, follow strict social distancing. We assume from the wording of the guidance as updated on 3 August that those who have been shielding, or those who need to stay at home with someone who has been shielding and are therefore unable to work remain eligible for furlough, notwithstanding the relaxation of the guidance to allow shielders to return to the workplace).  

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 11 above) 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. Indeed, the Government guidance specifies that employers can make employees redundant during furlough or afterwards. Although the Treasury Direction published that underpins the Revised Scheme includes the statement that it is: “integral to the purpose” of the Scheme that the amounts paid to an employer are used “to continue the employment of employees in respect of whom the CJRS claim is made”, as explained at question 1 above, following clarification in Government guidance on 17 July, it is clear that this wording is not intended to prevent employers from claiming under the Scheme in a redundancy situation/in respect of employees who are dismissed for redundancy and serving out their notice. 

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 10, 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 began gradually reducing from August (see question 11, 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.

Note that employees whom you dismiss as redundant during furlough or after the Scheme comes to an end will, if they have at least two years’ service, have the right to bring a claim for unfair dismissal. The fairness of the dismissal would be determined by the employment tribunal in accordance with the normal principles that apply under the Employment Rights Act (the ERA). In the event that an employee succeeds in such a claim, their basic award would be calculated in accordance with the Employment Rights Act 1996 (Coronavirus, Calculation of a Week’s Pay) Regulations 2020  (discussed further at questions 29, 29(a) and 30, below), which are intended to ensure that the employee does not lose out as a result of having been on furlough where payments to which they are entitled are calculated on the basis of the ERA week’s pay provisions – the basic award in an unfair dismissal claim is one such payment. 

29. What notice pay must you provide if you dismiss employees as redundant during furlough leave? (Last updated 31/07/2020)

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 do serve an employee with notice of dismissal during furlough, what notice pay they would be entitled to will depend on the terms of their furlough, their contract and the statutory right to notice pay under the Employment Rights Act (the ERA). It is important to check employees’ notice periods, as the method of calculating notice pay will differ depending on whether or not the employee’s contractual notice entitlement is at least a week more than the statutory minimum. We explain each approach at questions 29(a) and 29(b), below. 

As explained at question 1, above, following clarification in Government guidance on 17 July, it is clear that the wording in the Treasury Direction that underpins the Revised Scheme regarding the purpose of the Scheme being “to continue the employment” of employees in respect of whom a claim is made does not prevent an employer claiming under the Scheme in a redundancy situation. Note, however, that if an employee remains on furlough and not working at all during their notice period, the employer would only be able to claim under the Scheme for the relevant percentage of the employee’s notice pay, even if the notice provisions of the ERA require the employer to pay full pay during the notice period.  

Finally, note that the 31 July Regulations discussed at question 29(a) below also apply to the calculation of pay for redundant employees who make use of their statutory entitlement to time off during the notice period to look for alternative employment or arrange training.

29(a). How do you calculate notice pay where contractual notice is less than one week more than the statutory minimum notice period? (Last updated 17/08/2020)

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 was amended with effect from 31 July) 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.  A week’s pay is determined in accordance with the ERA and, with effect from 31 July, the Employment Rights Act 1996 (Coronavirus, Calculation of a Week’s Pay) Regulations 2020  (referred to below as the 31 July Regulations). These were introduced to address concerns that employees who had been furloughed were losing out on notice pay due to the way in which the ERA week’s pay provisions operate. The effect of these new provisions is that any reduction in pay the employee has been subject to as a result of being furloughed is ignored when conducting the relevant calculations, so the amount of notice pay the employee is entitled to will not be affected by them having been on full or flexible furlough.

The week’s pay provisions have the following effect on the calculation of statutory notice pay:

Employees with normal working hours whose pay does not vary (salaried employees)

A week’s pay would be the employee’s normal remuneration for working their normal hours in a week. Prior to the introduction of the 31 July Regulations, our view was that being on furlough did not alter what normal working hours are (and we thought this would remain the case even if an employee had been working for the employer part-time on flexible furlough as permitted from 1 July under the Revised Scheme) – so the amount of notice pay would not be impacted by the employee having been on furlough. 

The 31 July Regulations reinforce this, as normal working hours are deemed to include any furloughed hours and the amount payable is to be calculated disregarding any reduction in pay as a result of the employee being fully or flexibly furloughed. 

Employees who have normal working hours but whose pay varies with the time of work (shift workers)

A week’s pay is the amount of remuneration for the average number of weekly normal working hours at the average hourly rate of pay over the 12 week reference period before notice was given. However, whole weeks of no work are excluded from the calculation so whole weeks of furlough leave under the original Scheme were not counted and the amount of notice pay was not impacted by the employee having been on furlough under the original Scheme. However, if an employee had been working for the employer part-time under the Revised Scheme, those weeks would be counted so, prior to the introduction of the 31 July Regulations, the amount of notice pay the employee was entitled to may have been impacted by them having been on furlough unless the employer had been topping up furlough pay to full pay. 

Under the 31 July Regulations, however, if the employee was furloughed during any part of the reference period, normal working hours are deemed to include furloughed hours and the hourly rate of remuneration for that part of the reference period is the amount payable under the employee’s contract, disregarding any reduction in pay as a result of the employee being furloughed. Effectively, this means that the amount of notice pay the employee is entitled to will not be affected by them having been on full or flexible furlough.

Employees with no normal working hours

A week’s pay is the amount of average weekly remuneration in the 12 week reference period before notice was given. However, weeks of no work still count if some remuneration is received. We assume that furlough pay counts as remuneration – so, depending on how long they had been furloughed, the amount of notice pay the employee was entitled to might have been reduced as a result, unless the employer had been topping up furlough pay to full pay. (The reduction may have been lower where an employee had been working for the employer part-time under the Revised Scheme, since they would have been paid their normal rate for the working hours plus furlough pay under the Revised Scheme for the non-working hours). 

Under the 31 July Regulations, however, if the employee was furloughed during any part of the reference period, their weekly pay attributable to being furloughed is the amount they would have been paid under the Scheme if calculated in accordance with their reference salary (i.e. the higher of their average pay over the 2019-20 tax year or pay in the corresponding pay period last year – see question 15, above), but using their full reference salary (i.e. not the 80% they get under the Scheme) and not applying the Scheme cap. Effectively, this means that the amount of notice pay the employee is entitled to will not be affected by them having been on full or flexible furlough.

When do the 31 July Regulations apply to your notice pay calculations?

As explained above, where the ERA notice pay provisions apply, for employees who have normal working hours but whose pay varies according to the time of work (shift workers) and for employees with normal working hours, a week’s pay for the purposes of calculating notice pay is worked out using a reference period of 12 weeks, looking backwards from the day immediately preceding the first day of the statutory notice period.

The 31 July Regulations came into force on 31 July and do not state that they have any retrospective effect. If you gave notice on or after 31 July, then it is clear that you must calculate employees’ notice payments in accordance with the 31 July Regulations, whereas if you gave notice before 31 July it appears that you will not be bound by them, so you should not need to go back and recalculate employees’ notice pay, even if employees are still serving their notice after the 31 July Regulations’ entry into force.

However, this does not seem to accord with the sentiment in the Government’s press release announcing the 31 July Regulations, which indicated that their intention was to ensure that “all furloughed employees who are being made redundant receive their full entitlement”. It is therefore possible that the Government may make further changes to the law to address this. In addition, we are aware of legal commentators taking different views on the application of the 31 July Regulations in different circumstances. For example, some suggest that employers should recalculate notice pay in accordance with the Regulations for any period of notice that falls on or after 31 July, even if the employee began serving their notice before 31 July, while others argue that all employees who were furloughed for any part of the 12 week reference period should benefit from the Regulations, even if their notice period ended before 31 July. 

While we think that the strict legal position is that the Regulations do not have retrospective effect, in view of the uncertainty as to their interpretation, you may choose to take a more “generous” approach to employees on whom you served notice before 31 July depending on your circumstances.

29(b). How do you calculate notice pay where contractual notice is at least one week more than the statutory minimum notice period?

An employee whose contractual notice period is at least a week more than the statutory minimum notice period is not covered by the special notice pay entitlement provisions of the ERA or the 31 July Regulations. Accordingly, their notice pay will be based on their contract terms, so if the employee remains on full or flexible furlough during their notice period, they would only be entitled to notice pay in accordance with their furlough terms, i.e. for flexible furlough they would get pay for any part-time work, plus furlough pay for non-working hours (and the employer could claim under the Scheme for the relevant percentage of that furlough pay). 

Note that it appeared from the press release announcing the 31 July Regulations that the Government had intended for all furloughed employees to be entitled to full pay during their notice period and we are aware that HMRC representatives have been advising that this should be the case. However, the 31 July Regulations themselves do not appear to alter the application of the special notice pay entitlement provisions of the ERA, only the method of calculation used to determine the amount of a week’s pay when they do apply. On the face of the legislation, therefore, employers could still choose to pay employees whose contractual notice period is at least a week more than the statutory minimum in accordance with their furlough terms (even if they give notice on or after 31 July). As a matter of good practice, however, we would recommend paying these employee full pay during the notice period if you can afford to do so.

30. How do you calculate redundancy pay for an employee who is dismissed during (or shortly after) furlough? (Last updated 17/08/2020)

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 29, above, the Government introduced the 31 July Regulations because the operation of the week’s pay calculation provisions in the ERA meant that some employees who had been furloughed could potentially lose out on notice pay – and the same is true for redundancy pay. 

The intended effect of these new provisions is that any reduction in pay the employee has been subject to as a result of being furloughed is ignored when conducting the relevant calculations, so the amount of redundancy pay the employee is entitled to will not be affected by them having been on full or flexible furlough. Indeed, the Government guidance for employees states, in relation to the 31 July Regulations: “If you’re made redundant, there is new legislation that ensures you are entitled to received redundancy pay based on your normal wage and not the reduced furlough rate.”

As noted at question 29(a) above, the calculation method for a week’s pay under the ERA varies depending on whether or not an employee has normal working hours and whether their pay varies. Accordingly, the 31 July Regulations specify a different method of calculation for each type of employee, as explained below. 

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 (and we thought this would remain the case even if an employee had been working for the employer part-time during furlough as permitted from 1 July under the Revised Scheme), so 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. 

The 31 July Regulations reinforce this, as normal working hours are deemed to include any furloughed hours and the amount payable is to be calculated disregarding any reduction in pay as a result of the employee being fully or flexibly furloughed.

Employees who have normal working hours but whose pay varies with the time of work (shift workers)

A week’s pay is based on the employee’s pay over the 12 week reference period prior to the calculation date, 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 under the original Scheme were not counted and a week’s pay for the purposes of the statutory redundancy pay calculation was based on the relevant reference period before the employee went on furlough leave. The amount of their redundancy pay therefore wouldn’t have been affected by full furlough leave (or any impact would have been very minor, e.g. if the employee had been furloughed for part of one of the weeks that was included in the 12 week reference period). However, if an employee had been working for the employer part-time under the Revised Scheme, those weeks would have been counted, so the amount of redundancy pay the employee was entitled to may have been impacted by them having been on flexible furlough unless the employer had been topping up furlough pay to full pay.

Under the 31 July Regulations, however, if the employee was furloughed during any part of the reference period, normal working hours are deemed to include furloughed hours and the hourly rate of remuneration for that part of the reference period is the amount payable under the employee’s contract, disregarding any reduction in pay as a result of the employee being furloughed. Effectively, this means that the amount of redundancy pay the employee is entitled to will not be affected by them having been on full or flexible furlough.

Employees who have no normal working hours

A week’s pay is based on all pay received over the 12 week reference period prior to the calculation date, 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 full furlough would be counted. This means that statutory redundancy pay for employees with no normal working hours may have been reduced as a result of the time spent on furlough, unless the employer had been topping up furlough pay to full pay. Note that the reduction may have been lower where an employee had been flexibly furloughed and working for the employer part-time under the Revised Scheme, since they would have been paid their normal rate for the working hours plus furlough pay under the Revised Scheme for the non-working hours. 

Under the 31 July Regulations, however, if the employee was furloughed during any part of the reference period, their weekly pay attributable to being furloughed is the amount they would have been paid under the Scheme if calculated in accordance with their reference salary (i.e. the higher of their average pay over the 2019-20 tax year or pay in the corresponding pay period last year – see question 15, above), but using their full reference salary (i.e. not the 80% they get under the Scheme) and not applying the Scheme cap. Effectively, this means that the amount of redundancy pay the employee is entitled to will not be affected by them having been on full or flexible furlough.

When do the 31 July Regulations apply to your redundancy pay calculations? 

Redundancy pay is based on a week’s pay as at the “calculation date”, i.e.

• if the employee was dismissed without notice or with less than statutory minimum notice, the date on which their employment would have ended had statutory notice been given; or 
• in all other cases, the date on which, counting backwards from the date of termination, the employer would have had to give notice to comply with the statutory minimum notice period 

The 31 July Regulations came into force on 31 July and do not state that they have any retrospective effect. If your calculation date falls on or after 31 July, then it is clear that you must calculate employees’ redundancy payments in accordance with the 31 July Regulations. By contrast, if your calculation date fell before 31 July it appears that you will not be bound by the 31 July Regulations, so you should not need to go back and recalculate employees’ redundancy payments, even if their employment only terminates on or after 31 July.

In practice, if you are currently part way through a redundancy exercise and you have already given at-risk employees an illustration of their redundancy pay entitlements, but the statutory calculation date is on or after 31 July, you will need to do your calculations again in accordance with the 31 July Regulations and provide employees with a revised illustration of their redundancy pay entitlement.

However, the lack of retrospective effect does not seem to accord with the sentiment in the Government’s press release announcing the 31 July Regulations, which indicated that their intention was to ensure that “all furloughed employees who are being made redundant receive their full entitlement”, or with the broad statement in the Government guidance that “If you’re made redundant, there is new legislation that ensures you are entitled to received redundancy pay based on your normal wage and not the reduced furlough rate”. It is therefore possible that the Government may make further changes to the law to address this. In addition, we are aware of legal commentators taking different views on the application of the 31 July Regulations in different circumstances (see question 29(a), above). Accordingly, you might choose to take a more “generous” approach for employees whose calculation date fell before 31 July depending on your circumstances.

What about enhanced redundancy payments?

The 31 July Regulations do not directly address the issue of enhanced redundancy payments and they are unlikely to impact many enhanced redundancy schemes.

However, if the calculation of your enhanced redundancy pay is based on the statutory calculation of a week’s pay or the amount of an employee’s statutory redundancy payment then whether or not the 31 July Regulations will affect your enhanced redundancy pay calculations will be a question of contractual interpretation. Accordingly, if you have an enhanced redundancy pay scheme under which redundancy pay is calculated based on the statutory payments, we suggest that you seek advice on how the 31 July Regulations may affect you.