The advice given in this article is correct as of 22nd May 2020. The situation with Coronavirus is developing rapidly, so please do check our COVID-19 Insights Hub for the latest updates.

Please note on 29 May 2020 the Government announced flexible furloughing arrangements and tapering down of the furloughing scheme with closure on 31 October 2020. For further information please see our article here.

The Government announced an extensive package of support on Friday 20 March for employers coping with the commercial difficulties arising from the Coronavirus, Covid-19. Additional guidance (employer’s guidance on the scheme) was published on 27 March, 4 April, 9 April, 15 April, 17 April, 20 April, 23 April, 30 April, 1 May, 13 May and 14 May 2020. The latest information from Government and HMRC can be found here.

Two Treasury Directions have been issued, the first on 15 April can be found here and a second Treasury Direction published on 22 May can be found here.

HMRC also published further guidance, including two guidance documents on 17 April relating to Coronavirus, which have since been updated. One is a ‘step by step’ guide for employers on how to claim under the Scheme. The other is a guide to calculating 80% of an employee’s wages when claiming under the Scheme.

This is clearly a developing area but we set out below the situation as of 22 May:

Key major new recent changes:

  • The portal to claim from HMRC is now open.
  • The eligibility date has moved from 28 February to 19 March 2020.
  • Individuals who started work between 28 February 2020 and 19 March 2020 may now be claimed for provided the employer has submitted real time information payroll data to HMRC by 19 March 2020.
  • The Scheme has been extended until the end of October in its current form, having originally been due to close on 31 May 2020. From August, employers currently using the scheme will have more flexibility to bring employees back to work part time whilst still receiving support from the scheme. For more information on this and FAQs around unfurloughing, please see our article here.
  • The Scheme is NOT limited to those employees who would otherwise have been laid off or made redundant. It applies to any who are furloughed “by reason of circumstances as a result of coronavirus or coronavirus disease”.
  • A very narrow interpretation has been taken of what a furloughed Director can do.
  • There has been recent clarification from HMRC to deal with a seeming discrepancy between claims made under the first Treasury Direction which requires employees to agree to stop all work in writing, and the HMRC Guidance, which states that written agreement from the employee is not necessary. HMRC has now stated that employers should follow the Guidance (and that they will treat applications for reimbursement under the furlough scheme in accordance with the Guidance). So, it seems HMRC will not deny an employer the ability to reclaim funds simply on the basis the employer had not obtained written agreement from the employee to cease all work for the employer. Nevertheless, it remains advisable in all claims for an employer to obtain written agreement from its employees, if possible, to evidence an employee’s agreement to fundamental changes to their contracts of employment, which may include going on furlough leave, a reduction in pay, and reduction in holiday entitlement.
  • For claims made under the second Treasury Direction, the employer must obtain the employee’s consent but this can be recorded in writing by the employer. So, although individual written consent is not required, there should be a valid contractual variation and this agreement should be made or confirmed by the employer. This is an eligibility requirement for accessing the subsidy, and a record must be kept of this correspondence until at least 30 June 2025. The second Treasury Direction applies to claims made on or after 22 May 2020, or on an earlier date if compliant with that direction.
  • If you are claiming for fewer than 100 employees, you will be asked to enter details of each employee you are claiming for directly into the system. This will include their name, NI number, claim period, claim amount and payroll number (optional). If you have more than 100 furloughed staff you will be asked to upload a file with the information. They will accept xls. .xlsx. csv. and ods. document types.
  • You should make the claim using the amounts in your payroll – either shortly before or during running payroll. If appropriate, worker’s wages should be reduced to 80% of their salary within your payroll before they are paid. This adjustment will not be made by HMRC.
  • HMRC are going to treat any abuse very seriously and all monies from the Scheme must be paid to employees or returned.
  • Limited guidance has now been given on the interaction between furlough and annual leave. This has been included in the Government guidance for employees and the HMRC guidance on calculating 80% of an employee’s wages. It confirms that a furloughed employee can take holiday while on furlough. Employees should be paid at their rate of pre-furlough normal remuneration. This suggests that pay must be ‘topped up’ by the employer from 80% to 100% of pay for periods of holiday.

If you need help with template letters or specific guidance on how to address issues arising from the new guidance please do get in touch with our specialist employment team.

Further details on the key questions we’ve been asked on the scheme are below.

Who can claim?

The latest Government guidance refers to businesses that have been “severely affected” by coronavirus but in principle, any UK organisation that had a PAYE payroll on or before 19 March 2020, which has enrolled for PAYE online and has a UK bank account can claim. Note however that public sector organisations are not expected to claim if they continue to use public funding for staff costs or if they are receiving funding specifically to respond to the coronavirus.

The guidance has confirmed that individuals who, for example, employ a nanny can furlough employees provided they are paid through PAYE and sent HMRC a RTI submission notifying a payment in respect of the employee on or before 19 March 2020.

Confirmation has also come that if an administrator is appointed to take charge of a business, they will be able to access the scheme, though it is anticipated that that will only be permitted if there is a reasonable likelihood of employees being rehired (for example, following a sale and purchase of the business whilst under the administrator’s care).

Who can you claim for?

Only employees who have been on your payroll on or before 19 March 2020 and who were notified to HMRC on an RTI submission on or before 19 March 2020. This excludes new employees since that date.

Employees with part time, zero hour contracts or flexible contracts are included. Note that for fixed term employees, you can furlough and claim their wages during the fixed term period but if that period comes to an end because it is not extended or renewed, you will no longer be able to claim for them under the scheme. You can choose to extend the existing fixed term period to avoid this. Make a careful diary note of the non renewal date! (See below for further information on fixed term employees.)

As well as employees, the following groups can also fall within the scheme provided they are paid via PAYE: office holders (including company directors and individuals who are directors of their own personal service company), salaried members of LLPs, agency workers and ‘limb (b)’ workers.

If you intend to furlough a company director or an LLP member, these arrangements should be formally noted and adopted as a decision of the company or LLP. Consideration should be given to whether any amendments might be needed to the terms of the LLP agreement to confirm that the member will not be performing any duties. The agreed arrangements should be set out in writing to the director or member in the same way as you would for an employee. The calculations on what can be claimed are complex so do refer to the guidance or take specific legal advice.

Employees on agency contracts are covered including where employed by umbrella companies provided, again, they are paid through PAYE. Furlough should be agreed between the agency and the worker though the intention to furlough will inevitably need to be discussed with the end user as well. If the agency arrangements involve an umbrella company, it will be this company which takes the necessary steps to furlough.

Limb (b) workers are a specific category of worker in employment law who are in effect contractors who are classed as being part of another business providing a service to a third party. They would not otherwise not be regarded as employees for employment law purposes but if they are paid through PAYE, they are covered by the scheme. Employment status can be a tricky area and if you are in any doubt as to whether an individual is a worker or genuinely self-employed, you should take advice.

Apprentices can also be furloughed as your other employees, but you are obliged to pay at least the apprenticeship minimum wage, which could mean that you make up the difference. They may continue training and you would need to pay them whilst they are training. See the Gov.uk guidance for special information around apprentices.

Agency workers may be furloughed where they are paid through PAYE. NB: furloughs are agreed between the supplying agency and the worker. Once furloughed, the worker cannot carry out work for that agency even for other clients of the agency.

Foreign nationals regardless of their category of Visa who are employees may also be furloughed.

Those who are genuinely self-employed may be eligible through the Self-Employed Income Support Scheme. You can read more about that in our article here.

You cannot claim for anyone who is working but on reduced hours or for reduced pay. Be careful to consider what is best for your business and your employees, as you may have thought that a reduction in hours or pay for everyone works best and is fairer – but would preclude you from using the scheme. If you agree such reductions with an employee you cannot furlough them as well, as they would be continuing to do work for you.

What about employees who have TUPE’d into a business after 28 February 2020?

Employees who transfer under TUPE may now be covered. TUPE transfers by way of a business transfer are referred to in the government guidance and Treasury Direction, although those transfers that only qualify as a service provision change are arguably not covered by the relevant wording. So if you bought or took over a business with employees or took on an outsourced service since 28 February, you may be able to furlough those employees. There are also special provisions around change of ownership and payroll consolidation – see the Gov.uk guidance.

See also our separate articles here in relation to TUPE in this context:

Can employees do any work whilst furloughed?

Until the beginning of August 2020, employees cannot do any work for the business from which they are furloughed or any linked or associated business during their furlough. Work will include anything which provides services to or generates revenue for a business. We understand that this will be interpreted very strictly by HMRC. Employees can however do training when furloughed (see details below).

While on furlough employees who are union or non-union representatives may undertake duties and activities for the purpose of individual and collective representation of employees and other workers, subject to the other rules of the scheme. This could, for example, include accompanying an employee at a disciplinary, grievance or redundancy consultation meeting.

Company directors and LLP members owe specific statutory obligations to the company/LLP. The latest guidance expressly confirms that they may continue to fulfil those obligations provided they do no more than would reasonably be judged necessary for that purpose. They must not, in fulfilling those obligations, be carrying out their normal work or doing anything which generates commercial revenue or provides services to or on behalf of the company. The Treasury Direction appears to give a narrower interpretation of what will be permitted and states that furloughed directors may only fulfil a duty or other obligation arising by or under an Act of Parliament relating to the filing of company accounts or provision of other information relating to the administration of the director’s company. This applies equally to those who are directors of their own service company.

For agency workers, no work can be performed for, through or on behalf of the agency that has furloughed them, including for any of the agency’s clients.

How do you furlough an employee?

You need to discuss the situation with them. You then need to make any changes to their employment contract by agreement and it is strongly advisable, if possible, to get their express written consent. For example, by way of an e-mail. HMRC has confirmed this is not a requirement to make a claim under the furlough scheme. But, if you have made material changes to an employee’s contract of employment, such as putting them on furlough leave, possibly reducing their pay and paid holiday entitlement, it would be advisable to have written confirmation an employee has agreed to this to avoid potential misunderstandings or claims.

Employers need to confirm in writing to employees that they have been furloughed and that communication must be kept for five years. We can provide you with a template letter if you need one – please ask.

Our view is that even if you have a contractual right to lay off an employee, you will still need to instruct them to cease all work and secure their consent to furlough them. This is because furlough is a new concept and your lay-off clause is unlikely to cover this.

We strongly recommend you take legal advice before seeking consent or to check your paperwork will comply with what is needed. If you need guidance on how to make the required changes or template letters you may find our Employers’ Toolkit helpful.

Note – you may need to undertake collective consultation if more than 20 employees reject your request to furlough them, as otherwise you may need to make them redundant or take other action. The penalties for not doing this collective consultation are significant (criminal offence and up to 90 days pay per employee) so please do seek advice on whether you need to do this and how to do so.

Note – it is also now possible for an employer and trade union to reach a collective agreement around placing employees on furlough. The employee should still however be notified that they have been furloughed and to stop work.

Do I have to furlough all my employees?

No, you can choose some employees to furlough but not others. If not all employees in the organisation or a team are being furloughed, you will need to ensure that you use a fair selection process as the Government has flagged that equality and discrimination laws would apply in the usual way. We understand that this can be a simplified selection matrix or criteria similar to a redundancy selection criteria. For more assistance on this tricky areas please get in touch. The above Toolkit also contains templates to assist with selection and clauses that may be useful to get your wider workforce to agree, in case you need to furlough them later.

What if your employee had already agreed or been placed on unpaid leave?

If the employee started unpaid leave after 28 February 2020 you can furlough them instead. If they went on unpaid leave on or before 28 February 2020, you cannot furlough them until the date on which it was agreed they would return from unpaid leave.

What if you have already made employees redundant?

Employees made redundant (or who stopped working for you) on or after 28 February 2020 can be re-employed. You can furlough them and claim their wages through the scheme, subject to qualifying under the rules of the scheme.

What if you have an employee who has a fixed term contract?

An employee on a fixed term contract can be re-employed, furloughed and claimed for if either:

  • their contract expired after 28 February 2020 and an RTI payment submission for the employee was notified to HMRC on or before 28 February 2020
  • their contract expired after 19 March 2020 and an RTI payment submission for the employee was notified to HMRC on or before 19 March 2020

If the employee’s fixed term contract has not already expired, it can be extended, or renewed. You can claim for them if an RTI payment submission for the employee was notified to HMRC on or before 19 March 2020.

Employees that started and ended the same contract between 28 February 2020 and 19 March 2020 will not qualify for this scheme. This is not specific to employees on fixed-term contracts, the same would apply to employees on all other contracts.

What if your employee is sick or self isolating as someone they live with has symptoms?

Employees sick with Coronavirus should get Statutory Sick Pay (SSP) from day one of their absence at £95.85 per week.

Smaller employers can claim up to two weeks of that SSP back from the Government, although please note that SSP can continue to be claimed by the employee for a longer period if they need to. You can ask your employee for a self isolation note if you want proof that they do need to self isolate.

The position for employees who are not working from home and eligible for SSP is not clear. The question is can they be furloughed, as the Government guidance and Treasury Direction can be seen as contradictory on this point. Urgent clarification is required from the Government on this.

What if your employee is shielding?

Employees that are shielding in line with Public Health Guidance because they fall into the high risk categories (or who need to stay at home with someone who is shielding) can be placed on furlough if they are able to work from home and provided they do not fall into another excluded category. The position is less clear if they are at home and eligible for sick pay instead. These persons are strongly advised to stay at home at all times and avoid any face-to-face contact for a period of at least 12 weeks from the day they receive the letter. Details on who this applies to can be found here.

What if your employee is at home to look after children or has other caring responsibilities?

If this situation has arisen because of Coronavirus, for example because schools remain closed, those individuals can be furloughed. If the employee is key to the organisation and is needed at work, then they may need to take unpaid leave to fulfil their caring responsibilities if you are unwilling to furlough them. This may of course affect the relationship between the parties.

What if they have a job with another employer?

You can furlough them and they can still continue to work in that other job and be paid as normal, so long as the roles are separate.

Can a furloughed worker volunteer or work elsewhere?

A furloughed employee can take part in volunteer work, as long as it does not provide services to or generate revenue for, or on behalf of your organisation. You cannot furlough someone and then have them volunteer for you in the same or different role. An organisation can agree to find furloughed employees new work or volunteering opportunities whilst furloughed, providing doing so is in line with public health guidance.

The guidance also expressly confirms that a furloughed employee is permitted to work for another employer whilst you have furloughed them. An employee can therefore be furloughed from their usual job but can take up paid work elsewhere, whether or not they already had another job. Doing so is subject to any contractual restrictions and it would therefore be open to an organisation to enforce existing or impose new limitations on individuals doing so, if they wished.

Can a furloughed worker undertake training?

If workers are required to, for example, complete online training courses whilst they are furloughed, that will be permitted if it does not provide services to or generate revenue for, or on behalf of your organisation. The guidance encourages furloughed employees to undertake training.

The Treasury Directions require certain conditions to be met for training to not qualify as ‘working’ (and therefore not disqualify an employee from furlough).

For claims made under the first Treasury Direction, these conditions are that the training is ‘directly relevant’ to an employee’s employment and agreed between the employer and employee before being undertaken.

For claims made under the second Treasury Direction (which applies to claims made on or after 22 May 2020, or on an earlier date if compliant with that direction), there is no requirement for the training to be directly relevant to the employee’s employment or agreed with them before being undertaken. The second Treasury Direction provides that the purpose of the training undertaken must be to improve the employee’s effectiveness in the employer’s business, or to improve the employer’s business. It therefore allows a wider range of training to be undertaken.

Furloughed employees undertaking training must be paid at least the NLW/NMW for the time spent training, even if this is more than the 80% of their wage that will be subsidised. Also see Apprenticeships (above).

What about those on maternity or other family leave?

The normal rules for maternity, adoption, paternity and shared parental leave continue to apply and statutory pay arrangements will continue (with the pre-existing rules on reclaiming such pay). See the Government guidance for some specific rules around what to pay. The guidance confirms that employers can claim through the scheme for enhanced contractual arrangements for maternity, adoption, paternity and shared parental pay.

There is certainly nothing in the guidance to prohibit those on leave agreeing to return to work early and then being furloughed, or electing to change to shared parental leave and then being furloughed. This may be of benefit to individuals who might otherwise only be receiving statutory pay.

The employees who are furloughed on returning from such leave should have their 80%/£2,500 calculated against their original gross salary, not the pay they received whilst on statutory leave. If they had variable pay you use either:

  • the same month’s earning from the previous year
  • average monthly earnings from the 2019-20 tax year

Can you put people on and off furlough?

Yes. The minimum length of time an employee can be furloughed for is three consecutive weeks. The Treasury Direction clarifies that three weeks means 21 calendar days. The Employers’ CJRS guidance was updated on 30 April 2020 to confirm that each period of furlough can be extended by any amount of time while the employee is on furlough. However, the scheme end date is the last day that an employer can claim for through the CJRS.

Does holiday accrue through the period of furlough?

The Government guidance has confirmed that workers continue to accrue annual leave during furlough and that they are entitled to take leave during this time. 

What can you claim and what do you pay furloughed employees?

You will receive 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 and minimum automatic enrolment employer pension contributions on that subsidised wage.

At a minimum, employers must pay their employee the lower of 80% of their regular wage or £2,500 per month. An employer can also choose to top up an employee’s salary beyond this (say to their usual salary) but is not obliged to under this scheme.

HMRC has published a guide to calculating 80% of an employee’s wages for the purpose of claiming under the Scheme, including guidance on calculating NI and pensions. A calculator is available to assist employers in how much they can claim. 

For full and part time salaried employees you can still base this on their actual salary before tax, in the last pay period prior to 19 March 2020. If, based on previous guidance, you have calculated a claim based on salary as at 28 February 2020 (and this differs from the last pay period prior to 19 March 2020), you can choose to use this calculation for your first claim.

For employees whose pay varies, this depends on their length of service and reference should be made to the HMRC guidance on calculating 80% of pay. If claiming for a furloughed LLP member treated as an employee (because of salaried members rules), you must only include payments that are either fixed, variable (but are varied without reference to the overall amount of the profits or losses of the LLP), and not affected by the overall amount of the LLP’s profits or losses.

Employees pay tax and employee’s National Insurance on the payment to them in the usual way. Similarly, any deductions made for student loans should continue to be paid as normal.

Please note there may be some fine difference in claims made depending on if the first or second Treasury direction applies. The first Treasury direction applies to claims submitted before 22 May 2020 that are not compliant with the second Treasury direction. Otherwise, the second Treasury direction applies, but only up to and including 30 June 2020.

What about overtime, fees, commission, bonuses and non-cash payments?

The scheme covers any ‘regular’ payments you are obliged to pay employees. Payment should be made for certain ‘non discretionary’ payments including overtime that you are contractually obliged to pay, fees and compulsory (namely contractual) commission. It is unclear what HMRC envisage by “fees”. It does not include tips, discretionary bonuses and discretionary commission payments or any non-cash payments.

What about benefits in kind and salary sacrifice arrangements?

Non-monetary benefits should not be included in the reference salary for the scheme. Similarly, if salary sacrifice arrangements are in place which reduce an employee’s taxable pay, they should not be included.

Note that HMRC have agreed that coronavirus counts as a life event that could warrant changes to salary sacrifice arrangements. The documentation would need to be updated and we would recommend that you speak with your payroll provider or accountant to ensure you are compliant with the rules in this area.

Do I have to pay more to the employee than the grant will pay me?

You can pay a furloughed worker simply 80% of an employee’s regular wage or £2,500 per month (whichever is lower) subject to contractual terms you have in place with the employee.

You will then be able to claim that amount plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions (3%) on that furlough wage, subject to the rules of the Scheme. You may also be able to claim up to the mandatory employer contribution even if it’s not an auto enrolment pension. See the HMRC guidance published on working out 80% of your employees’ wages to claim through the Scheme for further information on Employer National Insurance and pension contributions.

If you want to pay more (or top up) you can do so, but be aware you would be paying not only the top up wage but also the additional Employers’ NI contribution and additional employer pension scheme contribution.

It is possible (yet to be clarified) that employers may have to top up notice pay to 100%.

What if an employee on furlough is then below National Living Wage/National Minimum Wage?

This is permissible provided you are paying them in accordance with the scheme. Note however the need to pay NLW/NMW if they are doing training for you during that time.

How will the claim process work?

HMRC has published a step by step guide for employers on how to claim under the Scheme, setting out the information that they will need to provide and the processes they will need to follow.

What will happen when the scheme ends?

We are currently awaiting guidance on how the extension of the scheme for August to October will work.

When the scheme ends, you must then make the decision as to whether employees can return to their previous duties and pay. If not, you may then need to consider making them redundant or agreeing a reduction in pay and hours with them. If you have a lay off or short-term working clause in their contract you may also be able to use this at that stage. Please seek our advice at that stage so we can guide you on avoiding any pitfalls.

The usual rules on redundancy would then apply and the grant for that employee would then stop.

We anticipate HMRC will provide further details in due course and we will provide updates regularly. In the interim we recommend you regularly check the Gov.uk website which is being updated most days. Do also check our Covid-19 Insights Hub for other useful information relevant to businesses and individuals.

It is important to remember that the HMRC guidance is just that – guidance. It is not regulations and does not alter existing law. Neither have we had the benefit of months of consultation to iron out any queries – for obvious reasons. Therefore the best we can do is give our opinion on what HMRC means and what approach they are likely to take but many points are still awaiting clarification. Detailed guidance can be found on the Government’s website.