Job retention scheme supports business and employees

On 20 March 2020 the Chancellor announced a new job retention scheme for all UK employers with a PAYE scheme, including the public sector, local authorities and NFP, whatever their size. The Scheme content was altered on 26 March and then again on 4 April. Employers who have furloughed staff or who intend to do so should review scheme updates and adjust their arrangements to ensure they meet current claim criteria.

On 20 March the initial scheme version stated that employers can designate those employees who would otherwise have been laid off as being on leave of absence or 'furloughed'. These employees were kept on the payroll and not made redundant. The 26 March Scheme version stated it was designed to support employers whose operations have been severely affected by coronavirus and that it operates by helping those employers who are unable to operate or have no work for employees to do. 

On 4 April 2020 the scheme was repositioned to apply if employers cannot maintain their current workforce because their operations have been severely affected by coronavirus. There is recognition that different businesses will face different impacts from coronavirus. Employers should wisely keep a clear written record, such as by Board Minute of the Scheme’s applicability to their business from time to time at periods when employees are furloughed.

The employer will be able to apply via a new HMRC portal for  a grant that covers  80 per cent of furloughed employees’ usual monthly wage costs up to a cap of £2,500 per month per employee plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that wage.

The payment is a grant to the employer not a direct payment to the employee. To access this reimbursement, the employer can agree with the employee that the paid leave of absence is on existing terms including salary or, if the employee agrees this in writing, to reduce their salary.

This is a temporary scheme for three months from 1 March 2020 to 31 May 2020 but may be extended, if necessary. The employer can use the scheme at any time during this period but an employee must be furloughed for a minimum of three weeks. Claims should be started from the date that the employee finishes work and starts furlough, not when the decision is made, or when they are written to confirming their furloughed status.

The scheme does not apply to the wage cost of employees who joined the claiming employer’s payroll after 28 February 2020 or those who were newly hired after 28 February 2020. If an employee was on the payroll on 28 February 2020 and has since been made redundant, the employer can re-employ them during the scheme period, put them on furlough and can claim for their wages through this scheme. 

As stated an employee must be furloughed for a minimum of three weeks for their employer to be eligible to claim for their cost under this scheme. This requirement is to further the public health imperative for people to stay at home. It is assumed this is a consecutive period of three weeks. A furloughed employee cannot undertake work for or on behalf of the employer during the furlough claim period.

Since a furloughed employee cannot work for their employer during this period, this scheme does not assist those employers wishing to place employees on short time working or reduced pay costs. A furloughed employee can volunteer or train, provided that this does not result in revenue to the employer. 

This scheme aims to support all those engaged and paid through the PAYE system regardless of their contract, including those on zero-hours contracts. Zero-hours and flexible contracts can cover a whole range of working arrangements. For these, the 80 per cent grant is applied to the higher of the same month’s earnings from the previous year or the average monthly earnings from the 2019-20 tax year.

The ability to use furloughing is subject to existing employment law powers and restrictions in the individual contract and other areas. Unilateral terms changes are rarely permitted by contracts, so negotiation with the individual employees and/or workforce representatives will likely be needed. Lay off clauses in contracts are of some help.  

Care is needed so that strategies to conserve cash in a business by reducing workforce costs unilaterally do not result in expensive employment tribunal claims including for wages differentials and business disruption. 

Who can claim?

Any entity with a UK payroll can apply, including:

  • businesses;
  • charities;
  • recruitment agencies (agency workers paid through PAYE); 
  • overseas organisations;
  • public authorities although, due to public funding, their use is expected to be rare; 
  • individuals, such as employers of staff in their household; and
  • administrators of companies in administration, if there is a reasonable likelihood of rehiring the workers, such as to pursue a sale.

The entity must have 

  1. created and started a PAYE payroll scheme on or before 28 February 2020;
  2. enrolled for PAYE online (which can take up to 10 days); and 
  3. a UK bank account.

It can reasonably be assumed the second criterion must be satisfied when the payroll to which the reclaim payments relate is made and the latter at any reclaim date.

Who can be furloughed or put on (paid) leave of absence?

  • The employees that can be furloughed are those on any type of employment contract and include:
    • full-time employees;
    • part-time employees;
    • employees on agency contracts who are not working; and
    • employees on flexible or zero-hour contracts.
  • Foreign nationals are eligible to be furloughed.
  • As well as employees, and provided they are paid via PAYE or on payroll, the grant can be claimed for:
    • office holders, including directors;
    • salaried company directors;
    • salaried members of LLPs
    • workers under a contract (other than a contract of employment), where the individual undertakes to do or perform personally any work or services for another party to the contract and that other party’s status is not by virtue of the contract that of a client or customer of any profession or business undertaking carried on by the individual. These workers must be paid through PAYE. 
  • The furlough scheme operates for employees on the claiming employer’s payroll as at 28 February 2020 and hired by 28 February 2020.

The 80 per cent wage cost reimbursement grant will not cover those who are self-employed. There is a separate scheme for the self -employed and no claim can be made under the job retention scheme for their employment cost. 

Minimum furlough periods  

To be able to claim the grant, employees must be furloughed for a minimum period of three consecutive weeks. When they return to work, they must be taken off furlough. Employees can be furloughed multiple times, but each separate time must be for a minimum period of three consecutive weeks.

Impact of taking annual leave or bank holidays on minimum furlough periods

The scheme does not cover either of these specifically but from 6 April 2020 the ACAS website provided guidance that if an employee is furloughed, they can still request and take their holiday in the usual way and that this includes taking bank holidays. It also says ‘employees and workers may still be required to use a day’s paid holiday for bank holidays, including when they’re furloughed.

This specifically confirms that taking bank holiday leave does not break up a period of furlough and suggests the position to be the same with the remainder of annual leave. It also supports the position that annual leave and furlough are not mutually exclusive and can co-exist. 

ACAS also states that employers have the right to request that holiday is taken during furlough leave using the employer’s standard contractual, holiday scheme and statutory rights to require their staff to take their holiday. However, ACAS also recognises the temporary new law effective from 26 March 2020 to allow employees and workers to carry over up to four weeks’ paid holiday over a two-holiday year period. This law applies for any holiday the employee does not take because of coronavirus, stated by ACAS to be, for example if:

  • they are self-isolating or too sick to take holiday before the end of their leave year;
  • they’ve been temporarily sent home as there’s no work (‘laid off’ or ‘put on furlough’); or
  • they’ve had to continue working and could not take paid holiday.;

There are also restrictions in this temporary new law on the employer’s ability to refuse an employee’s request to take any of their up to 4 weeks of carried over holiday. However, that will not be pertinent for employers whose holiday years have not expired during the current coronavirus pandemic where no carry over would yet have taken place.


Apprentices can be furloughed and can continue to train whilst furloughed.

Apprentices must be paid at least the Apprenticeship Minimum Wage (AMW), National Living Wage (NLW) or National Minimum Wage (NMW) as appropriate for all the time they spend training. The employer must pay any shortfall between the amount it can claim for their wages through this scheme and their appropriate minimum wage.

Office holders including directors

The act of furlough and the payment during furlough need to be agreed between the office holder and the party who operates PAYE on the income they receive for holding the office. This furlough arrangement should be adopted formally as a decision of the company - with a Board Minute as the preferable record.

Salaried Company directors 

Where a board of directors considers it to be in compliance with the statutory duties of one or more of its salaried directors, the board can decide that one or more directors can be furloughed. This decision should be formally adopted by the board, noted in the company records and communicated in writing to the director(s) concerned. During a furlough period, to maintain the ability to claim the grant for the wage cost of that director, they should not do work of a kind they would carry out in normal circumstances to generate commercial revenue or provide services to or on behalf of the company. However, they can fulfil their statutory duties, for example, to maintain statutory filings under the Companies Act. Directors of their own personal service companies can also do this.
Salaried members of Limited Liability Partnerships (LLPs).

Members of LLPs designated as employees for tax purposes (and not self-employed members for tax purposes, for whom the self-employed income scheme may apply) can be furloughed. For an LLP member who is treated as being employed by the LLP (in accordance with s863A of ITTOIA 2005), the reference salary for this scheme is the LLP member’s profit allocation, excluding any amounts which are determined by the LLP member’s performance, or the overall performance of the LLP.

Agency workers (including those employed by umbrella companies)

Agency workers paid through PAYE, are eligible to be furloughed, including where they are employed by umbrella companies.

Furlough should be agreed between the agency, as the deemed employer, and the worker, and discussing the need to furlough with any end clients is advised. Agency workers should perform no work for, through or on behalf of the agency that has furloughed them while they are furloughed, including for the agency’s clients.

If agencies supply clients with workers employed by an umbrella company that operates the PAYE, it will be for the umbrella company and the worker to agree whether to furlough the worker.
Income Tax Self-Assessment .

Those who pay tax on their trading profits through Income Tax Self-Assessment cannot claim under this scheme but may instead be eligible for the Self-Employed Income Support Scheme (SEISS), announced by the Chancellor on 26 March 2020.  

Contingent workers in the public sector

Separate rules outside the scheme apply to payments to suppliers of contingent workers impacted by coronavirus where the recipient of the contingent worker’s services is a Central Government Department, an Executive Agency of a Central Government Department or a Non-Departmental Public Body.

Those rules apply to agency workers paid through PAYE, as well as those paid through umbrella companies on PAYE and off-payroll workers supplying their services through a Personal Service Company (PSC).

Employees with caring responsibilities

From 4 April 2020 the Scheme stated that employees who are unable to work because they have caring responsibilities such as for childcare, can be furloughed. It must be assumed that this is to reassure employers about the cost reclaimability in respect of employees furloughed who spend their furlough period undertaking caring or childcaring. 

Do employees have to agree to be furloughed?

Yes, employees will likely agree to being furloughed to undertake no work or only training on their existing contract terms including salary and (all save non-operational) benefits since redundancy or lay off may require resort to the benefits system for income replacement. In a minority of cases there may have to be negotiation. 

Where any changes to the employment contract are proposed by the employer during the furlough period, such as a reduction in wages, these should be agreed with the employee and any existing applicable workforce collective consultation agreements met. Equality and discrimination laws will apply when employers make decisions in relation to the furlough process, including when deciding to whom they offer furlough. It is wise to select furloughed employees using good business reasons.

To be eligible for the grant, employers must confirm in writing to their employee that they have been furloughed and keep a record of this communication for five years.

Changing employment terms is always subject to employment law.

What if an employee doesn’t agree to be furloughed?

If employees do not agree to be furloughed, employers can dismiss by reason of redundancy if the redundancy definitions are met and a proper process followed or may instead chose to operate lay off with the statutory lay off and guarantee payments applicable.

Must an employer pay a furloughed employee before they can claim?

This may depend on timing. Currently, yes. The claim portal is expected to be operational by 30 April 2020. Deferring payments due to employees in April until a claim has been made and the grant paid to the employer would be an employment contract breach and a serious one. Also, a key purpose of the scheme is to protect the UK economy and, we assume, to relieve claims on the state benefits system which employers deferring payments to staff would undermine.  

Is the employer required to supplement pay for a furloughed employee?

An employer can choose to top up the employee’s salary above the grant claim figure, but the employer does not have to do so in order to claim the grant. If the employer chooses to top pay up to 100 per cent, it will not be able to claim reimbursement for the top up cost. This is separate to the employer’s employment contract obligations - see above.

This ability to use the furlough scheme and/or to top up wages may depend on the organisation’s overall health and cashflow affecting the ability to fund payments. There are a number of other areas of support which might help an organisation with cash flow.

Will all furloughed employees have to be paid up to £2,500?

The employer will receive a grant from HMRC to cover the lower of 80 per cent of an employee’s regular wage or £2,500 per month, plus the associated Employer National Insurance contributions of 13.8 percentage and minimum automatic enrolment employer pension contributions of 3 percent on that subsidised wage. 

Therefore, furloughed employees, who are not working, can with their agreement be paid the lower of 80 per cent of their salary, or £2,500 even if, based on their usual working hours, this would be below NLW/NMW.

What figures do employers use to calculate the 80 per cent?

For full time and part time salaried employees the employee’s actual salary before tax, as of 28 February 2020 should be used to calculate the 80 per cent. An employer can also claim for any regular payments they are obliged to pay an employee. This includes wages, past overtime, fees and compulsory commission payments. However, discretionary bonus (including tips) and commission payments and non-cash payments should be excluded from the claim.

For employees whose pay varies, if they have been employed for a full twelve months prior to the claim, the employer can claim for the higher of either:

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

If the employee has been employed for less than a year, the employer can claim for 80 per cent of their average monthly earnings since they started work.

If the employee only started in February 2020, the employer can use a pro-rata for their earnings so far and claim for 80 per cent.

Once an employer has worked out how much of an employee’s salary they can claim for, it must then work out the amount of Employer National Insurance Contributions and minimum automatic enrolment employer pension contributions it is entitled to claim on that amount.

Are employer NIC and Pension Contributions still to be paid?

Yes, all employers remain liable for associated Employer National Insurance contributions, Apprenticeship Levy (where due) and employer pension contributions on behalf of their furloughed employees.

Employers can claim a grant from HMRC to cover wages for a furloughed employee, equal to the lower of 80 per cent of an employee’s regular salary or £2,500 per month, plus the associated Employer National Insurance contributions (13.8 percent) and minimum automatic enrolment employer pension contributions (3 per cent) on paying those wages.

The employer can choose to provide top-up salary in addition to the grant. Employer National Insurance Contributions and pension contributions on any additional top-up salary (or where over the auto enrolment amount) will not be funded through this scheme. 

Nor will any voluntary automatic enrolment contributions above the minimum mandatory employer contribution of 3 per cent of income above the lower limit of qualifying earnings (which is £512 per month until 5th April and will be £520 per month from 6th April 2020 onwards).

Benefits in kind and Salary Sacrifice Schemes  

The reference salary should not include the cost of non-monetary benefits provided to employees, including taxable benefits in kind. 

Similarly, benefits provided through salary sacrifice schemes (including pension contributions) that reduce an employee’s taxable pay should also not be included in the salary used for the furlough calculation. Where an employer provides benefits to furloughed employees, this should be in addition to the wages that must be paid under the terms of the Job Retention Scheme.

Normally, an employee cannot switch freely out of a salary sacrifice scheme unless there is a life event. However, HMRC have agreed that coronavirus counts as a life event that could warrant changes to salary sacrifice arrangements, if the relevant employment contract is amended accordingly.

Apprenticeship Levy and Student Loans

Grants do not cover the Apprenticeship Levy or Student Loans which should continue to be paid as usual. 

Do employers whose employees agree to reduce wages to 80 per cent still have to pay National Minimum Wages rates even though employees are not working?

No. NMW is only paid for hours when an employee is working, and the employee must not work for their employer during a furlough period, save as to training - see below where the then current NMW pay rates do apply.  

Can employees work when furloughed?

To qualify for the scheme, employees cannot undertake any work for the employer who has furloughed them. This includes providing services or generating revenue for the employer. 

Employers can require furloughed employees to undertake training from home, provided it complies with the above. However, if workers are required for example, to complete online training courses whilst they are furloughed, then they must be paid at least the then current NLW/NMW rate for the time spent training, even if this is more than the 80 per cent of their wage that will be subsidised. 
If contractually allowed either in the employment contract or in a variation to it in the furlough agreement, employees are permitted to work for another employer whilst on furlough. 

For any employer that takes on a new employee, the new employer should ensure they complete the starter checklist form correctly. If the new employee is furloughed from another employment, they should complete Statement C.

Can employees volunteer while furloughed?

A furloughed employee can take part in volunteer work, provided it does not provide services to or generate revenue for the furloughing employer. The employer can agree to find furloughed employees new work or volunteering opportunities whilst on furlough if this is in line with public health guidance.

Can employees take emergency volunteering leave while furloughed?

During an employee’s Emergency Volunteering leave to help in medical or social care in the current coronavirus crisis, the employer’s obligation to pay remuneration to that employee is suspended (and, if they would have lost income, the state pays them compensation). It should be assumed that the employer’s ability to claim for that employee’s furlough leave cost to the employer during their emergency volunteering leave is also removed since the employee is not paid by their employer and the state is compensating the employee.

Can employees undertake training while furloughed?

Furloughed employees can engage in training, as long as in undertaking the training the employee does not provide services to, or generate revenue for, or on behalf of their employer. Furloughed employees should be encouraged by their employer to undertake training.

Furloughed employees who undertake training, at the request of their employer, are entitled to their appropriate national living/minimum wage rate then applicable for this training time. It should be assumed that training cannot be required to be undertaken during any period that is designated as annual leave during furlough (once Government clarity on the ability to take annual leave during furlough is provided).

If an employee has more than one job

If an employee has more than one employer, they can be furloughed for each job. Each job is separate, and the cap applies to each employer individually.

Employees on unpaid leave

Employees on unpaid leave cannot be furloughed, unless they were placed on unpaid leave after 28 February 2020.

Employees on fixed term contracts

Employees on fixed term contracts can be furloughed and their contracts can be extended or renewed during a furlough period, but no grant can be claimed for a period after their contract has ended.

What if the employee is on Statutory Sick Pay?

Employees on sick leave or self-isolating should get Statutory Sick Pay but can be furloughed after this. An employer cannot claim for employees who are being paid statutory sick pay. Since contractual sick pay generally includes statutory sick pay, employers should take care in paying contractual sick pay top ups or a period of sick leave occurring after the commencement of furlough leave period may break the period of eligibility for claim.

Employees who are shielding in line with public health guidance (or who need to stay at home with someone who is shielding - the shielded can be placed on furlough if they are unable to work from home and the employer would otherwise have to make them redundant. It is not clear why the ability to reclaim in respect of the shielded is different but, as a result, careful record keeping is advised for the shielded element of furloughed employees.

How do we make a claim?

It is stated by Government that the new reimbursement claim portal will be up and running by the end of April 2020 requiring businesses to bear these wages costs until then, subject to support from other financial measures. See for how to make a claim.

You will need to be registered for PAYE online and have a UK bank account to make a claim.

What can I do in the meantime?

For example, in the interim, employers can apply for a business interruption loan, if required. However, the business interruption loan is only available to employers who meet certain criteria. 

What if we need assistance before the funds are available to assist us in paying for furloughed employees?

There are a number of services available to help while you wait for funds to be available .  

  • A small business grant funding of £10,000 for all business receiving small business rate relief or rural rate relief.
  • A Coronavirus Business Interruption Loan Scheme offering loans of up to £5 million for SMEs through the British Business Bank.
  • A new lending facility from the Bank of England to help support liquidity among larger firms, to bridge coronavirus disruption to cash flow.
  • Deferral of VAT and Income Tax payments.
  • The HMRC Time To Pay Scheme.

What other support is available for organisations?

The support available for employers and individuals to cope with the coronavirus pandemic is changing almost daily. Keep checking the Government website for the latest information.

For further guidance on the above, please contact

Carolyn Brown Carolyn Brown

Partner, Head of Client Legal Services

Steve Sweetlove Steve Sweetlove


Susan Ball Susan Ball