Job retention scheme supports business and employees


This Scheme is open to employers who cannot maintain their workforce because their operations have been affected by coronavirus. From 12 June HMRC guidance no longer included the requirement for an employer to be severely affected.

HMRC guidance was updated on 12 June to include details on how the scheme will change from 1 July.

On 25 June the Treasury issued a new (third) Direction to HMRC modifying the previous two Treasury Directions covering the periods up to 30 June and from 1 July to 31 October separately. 

This new Treasury Direction included a statement that it is integral to the purpose of the CJRS 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.

It included the reminder that no CJRS claim may be made in respect of an employee if it is abusive or is otherwise contrary to the exceptional purpose of CJRS.

HMRC guidance was updated on 1 July to include an update on holiday costs and CJRS stating: 'Employees should not be placed on furlough for a period simply because they are on holiday for that period.'

From 1 July:
  • only employees that employers have successfully claimed a previous grant for will be eligible for more grants under the scheme. This means they must have previously been furloughed for at least 3 consecutive weeks taking place any time between 1 March and 30 June 2020. For the minimum 3 consecutive week period to be completed by 30 June, the last day an employee could have started furlough for the first time was 10 June. Employees returning to work from shared parental leave or reservist leave after 10 June may be furloughed if certain criteria are met (see below).
  • employers can furlough employees and apply for a grant to cover a portion of their usual monthly wage costs where they record them as being on furlough. 
  • employers can bring furloughed employees back to work for any amount of time and any work pattern, while still being able to claim the grant for the hours not worked (subject to the limit on grant claim numbers).
  • agreed flexible furlough agreements can last any amount of time. Employees can enter into a flexible furlough agreement more than once.
  • 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. This is the case regardless of whether the 3 consecutive week minimum period ends before or after 1 July. For example, a previously furloughed employee can start a new furlough period on 22 June which would have to continue for at least 3 consecutive weeks ending on or after 12 July. After this the employee can then be flexibly furloughed for any period. However, after 1 July, employers cannot make claims that cross calendar months, so the employer will need to make a separate claim for the period up to 30 June.
  • during hours which the employer records its employee as being on furlough, it cannot ask its employee to do any work for it that:
    • makes money for the employer organisation or any organisation linked or associated with it; or
    • provides services for the employer organisation or any organisation linked or associated with it.
  • if an employee is flexibly furloughed, the employer will need to work out the employee’s usual hours and record the actual hours they work as well as their furloughed hours for each claim period.

There are two different calculations an employer can use to work out an employee’s usual hours, depending on whether they work fixed or variable hours.

  • Employers will be able to make claims for days in July (but see below). Claims for periods in July cannot be made before July.
  • The number of furloughed employees an employer can claim for in any single claim period starting from 1 July cannot exceed the maximum number of employees the employer claimed for under any claim ending by 30 June. For example, where an employer who had previously submitted three claims between 1 March 2020 and 30 June, in which the total number employees furloughed in each respective claim was 30, 20 and 50 employees, the maximum number of employees that employer could furlough (and claim for) in any single claim starting on or after 1 July would be 50.

Employees returning to work from shared parental or reservist leave after 10 June, who may be furloughed if certain criteria are met, are additional to this cap.

  • If an employer flexibly furloughs employees (who qualify for furlough) the employer will need to agree this with the employee (or reach collective agreement with a recognised trade union) and keep the new written agreement that confirms the new furlough arrangement.
  • The employer will need to keep records of how many hours their employees work and the number of hours they are furloughed (i.e. not working).

Friday 31 July is the last day that employers can submit claims for periods ending on or before 30 June.

The Coronavirus Job Retention Scheme is changing:

From 1 July, employers can bring back to work employees that have previously been furloughed for any amount of time and any shift pattern, while still being able to claim CJRS grant for their normal hours not worked, subject to a cap on the numbers in the claim. This is referred to as flexible furloughing. When claiming the CJRS grant for furloughed hours employers will need to report and claim for a minimum period of seven days.

The existing scheme will close to new entrants from 30 June. From this point onwards, employers will only be able to furlough employees that they have furloughed for a full 3 week period prior to 30 June.

This means that the final date by which an employer could furlough an employee for the first time was 10 June, in order for the current three week furlough period to be completed by 30 June (subject to the shared parental and reservist leave exemptions).

Employers will have until 31 July to make any claims in respect of the period to 30 June. 

From August 2020, the level of government grant provided through the job retention scheme will be slowly tapered to reflect that people will be returning to work. That means that for June and July the government will continue to pay 80 per cent of people’s salaries. In the following months, businesses will be asked to contribute a modest share, but crucially individuals will continue to receive that 80 per cent of salary covering the time they are furloughed.

The scheme updates mean that the following will apply for the period people are furloughed:

  • June and July: The Government will pay 80 per cent of wages up to a cap of £2,500 as well as employer National Insurance (ER NICS) and pension contributions. Employers are not required to pay anything.
  • August: The Government will pay 80 per cent of wages up to a cap of £2,500. Employers will pay ER NICs and pension contributions – for the average claim, this represents 5 per cent of the gross employment costs the employer would have incurred had the employee not been furloughed.
  • September: The Government will pay 70 per cent of wages up to a cap of £2,187.50. Employers will pay ER NICs and pension contributions and 10 per cent of wages to make up 80 per cent total up to a cap of £2,500. For the average claim, this represents 14% of the gross employment costs the employer would have incurred had the employee not been furloughed.
  • October: The Government will pay 60 per cent of wages up to a cap of £1,875. Employers will pay ER NICs and pension contributions and 20 per cent of wages to make up 80 per cent total up to a cap of £2,500. For the average claim, this represents 23 per cent of the gross employment costs the employer would have incurred had the employee not been furloughed.

If the scheme is used, care should be taken to understand the regulatory framework in place at the time a claim is made and to ensure there is no abusive use of the scheme.

Government updates April 17, 20, 23, 24, 27, 30 April, 1, 12 and 14 May 2020

HMRC continue to update the Coronavirus Job Retention Scheme (CJRS) by regularly reissuing the guidance with added content. 

On 22 May the Treasury Direction issued to HMRC to implement the CJRS was modified and applies for claims made from that date but expires on 30 June 2020. A further modified Direction is to be expected mandating the version of the Scheme applicable from 1 July 2020 to 31 October 2020.

On 12 May the Chancellor announced that the scheme will be extended in its current form until 31 July and after that in a different form until 31 October 2020 when he said it will end (in fact, whilst support levels will remain until 31 July on 29 May he announced there will be changes from 1 July). He added on 12 May 'Employers will be able to bring furloughed employees back part time. We will ask employers to share the costs of paying people’s salaries.'  On 14 May this was included in the scheme: 'From August [now July - see above], employers currently using the scheme will have more flexibility to bring their furloughed employees back to work part time whilst still receiving support from the scheme. This will run for three months from August through to the end of October. Employers will be asked to pay a percentage towards the salaries of their furloughed staff. The employer payments will substitute the contribution the government is currently making, ensuring that staff continue to receive 80 per cent of their salary, up to £2,500 a month. More specific details and information around its implementation will be made available by the end of May.'

On 1 May there was a change that Maternity Allowance could not be claimed at the same time as furlough pay.

On 30 April HMRC added that:

  • whilst on furlough, employees who are union or non-union representatives may undertake duties and activities for the purpose of individual or collective representation of employees or other workers. However, in doing this, they must not provide services to or generate revenue for, or on behalf of the organisation or a linked or associated organisation; and
  • company directors paid annually are eligible to claim, as long as they meet the relevant conditions. This includes being notified to HMRC on an RTI submission on or before 19 March 2020, which relates to a payment of earnings in the 19/20 tax year. The requirement for there to be payment of earnings in the 19/20 tax year applies for any employee being claimed for under the scheme, irrespective of how frequently they are paid (e.g. weekly, fortnightly or monthly). This will be relevant 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.

On 27 April additional guidance was issued for those claiming for 100 or more furloughed employees.

On 24 April Government announced that furloughed workers planning to take paid parental or adoption leave beginning on or after 25 April will be entitled to pay based on their usual earnings rather than a furloughed pay rate. 

On 12th May the Chancellor announced the extension of the Coronavirus job retention scheme in its current form until 31 July. From 1 August to 31 October the scheme will continue but with changes to allow for more flexibility to get employees back to work (see above). 

This note reflects the announced position as at 7am on 1 July 2020 and will be kept under review.

History of the scheme

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, on 4 April, 9 April, 15 April, 17, 20, 23, 24, 27 and 30 April, 1, 12, 14, 20, 29 May, 5, 9 and 12 June.

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.

The legislation was enacted under the Coronavirus Act 2020 on 15 April and modified on 20 May for claims made from 22 May and is now the primary source of the Scheme. Legislation is always understood to take priority over executive guidance. 

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. This positioning continued in subsequent versions. On 8 April HMRC confirmed that the reclaim portal would operate 24/7.

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.

Key changes announced on 9 April were:

  • the portal aims to process and pay claims within 4-6 working days but expects high volumes;
  • payroll agents (authorised to act for PAYE purposes) can make claims on clients’ behalf but not file only agents (altered on 23 April);
  • when employees are sick, they can still be furloughed; and
  • furloughed employees who can work elsewhere during furlough cannot do so for a linked or associated employer.

On 15 April at 2pm a new Coronavirus Job Retention Scheme version was published, and that afternoon HM Treasury issued guidance to HMRC on the operation of the Scheme constituting the legislation under the Coronavirus Act 2020.

Key updates from this HMRC material and in the legislation published on 15 April are:

  • it applies to employers who created and started a PAYE payroll scheme on or before 19 March 2020 (identified as a qualifying PAYE scheme);
  • claims must be made separately for individual payrolls;
  • the furlough scheme operates for employees on the claiming employer’s payroll as at 19 March 2020 and who were notified to HMRC on an RTI submission (FPS) on or before 19 March 2020;
  • to be a furloughed employee, the employer and the employee must have agreed in writing (which can be by email) that the employee will cease all work in relation to their employment. This is contained in paragraph 6.7 of the legislation (the scheme stated otherwise from 20 April and reinforced that on that 23 April);
  • claims cannot be made if SSP is being paid or due to be paid for the employee at the time the instruction to stop work is given, even if that SSP is not being reclaimed; and
  • different claim process requirements will be in place for those who have 100 or more furloughed employees who will be asked to upload a file with the information rather than input it directly into the HMRC system.  

Key updates from HMRC material published on 17 and 20 April.

  • The reclaim portal would be open from 20 April.
  • A calculator would be available from 20 April to assist in calculating how much to claim.
  • Piece work payments can be included in the reference salary.
  • The guidance explains who to calculate the amount you can claim with examples.
  • HMRC has issued its own guidance on the interplay between furlough leave and holiday leave and pay.
  • A statement that the requirement that employers must confirm in writing to their employee that they have been furloughed which is consistent with employment law is a valid CJRS claim consent, there needs to be a written record but the employee does not have to provide a written response (reinforced from 23 April). 
  • HMRC will check claims made through the scheme. Payments may be withheld or need to be repaid in full to HMRC if the claim is based on dishonest or inaccurate information or found to be fraudulent.
  • Dishonest or deliberately fraudulent claims put our essential public services and the protection of livelihoods at risk during these challenging times.
  • HMRC has put in place an online portal for employees and the public to report suspected fraud in the Coronavirus Job Retention Scheme.

At the same time, the Government announced the scheme will remain open until 30 June 2020. It was extended again on 12 May.

On 17 April at 5pm and 20 April HMRC issued guidance on how to claim and other guidance. The online claims portal opened on 20 April.

On 23 April further clarification was issued by HMRC. 

Key updates from 23 April (covered in relevant sections below).

  • Changes in the use of agents. 
  • More clarity around qualification for the scheme for those rehired.
  • Documentation on agreement with employees updated.

The scheme will close to new entrants from 30 June. From this point onwards, employers will only be able to furlough employees that they have furloughed for a full three week period prior to 30 June (subject to a shared parental or reservist leave exception).

More details about the scheme

Until 31 July, the employer will be able to apply via a 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 or £576.92 per week per employee (based on calendar days not working days where necessary) plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that subsidised furlough pay.

The payment is a grant to the employer not a direct payment to the employee. Its purpose is that amounts are only paid to an employer as reimbursement for specific wages expenditure incurred or to be incurred by an employer in respect of its furloughed employees. Persons making a claim do so accepting that a payment is only made for this purpose and that it must be returned to HMRC if the employer is unable or unwilling to use it for the CJRS. 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 an eight month scheme is in two parts. The first part for four months from 1 March 2020 to 30 June 2020 and the second part on different  terms until 31 July when it will again adapt, ending on 31 October 2020. The scheme will close to new entrants from 30 June (subject to a shared parental and reservist leave exception). From this point onwards, employers will only be able to furlough employees that they have furloughed for a full 3 week period prior to 30 June. Subject to that, the employer can use the scheme at any time during this period, but up to 30 June an employee must be furloughed for a minimum of three weeks for a claim to be made for them. Claims can be started from the date that the employee finishes work and starts furlough, not when the decision is made, when they are written to confirming their furloughed status or when they give their written agreement to the furlough. 

The scheme does not apply to the wage cost of employees who joined the claiming employer’s payroll after 19 March 2020. A new employer is eligible to claim under the scheme in respect of the employees of a previous business transferred after 28 February 2020 if either the TUPE or PAYE business succession rules apply to the change in ownership. A PAYE business succession is when the ownership of a business changes from one legal entity to another (for example, by a business transfer operating under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE)) and the new owner takes responsibility for the pay records.

The furlough scheme operates for employees on the claiming employer’s payroll as at 19 March 2020 and which were notified to HMRC on an RTI submission (FPS) on or before 19 March 2020.

As stated, up to 30 June 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 was to further the public health imperative for people to stay at home. This had to be consecutive period of three weeks (21 calendar days). This meant that the final date by which an employer could furlough an employee for the first time was 10 June (subject to a shared parental and reservist leave exception), in order for the current 3 week furlough period to be completed by 30 June. Employers will have until 31 July to make any claims in respect of the period to 30 June.

From 1 July employers can bring furloughed employees back to work for any amount of time and any work pattern, while still able to claim the grant for the hours not worked (subject to the limit on grant claim numbers). 

Until 1 July furloughed employee cannot undertake work for or on behalf of the employer or a linked or associated organisation during the furlough claim period. However, a three-week furlough grant period could be extended without having to be restarted. 

Since a furloughed employee cannot work for their employer during this period, this scheme does not (until 1 July) assist those employers wishing to place employees on short time working. A furloughed employee can volunteer, train or, from 22 May, study, provided that this does not result in revenue to the employer or a linked or connected employer. They can only volunteer for another employer or organisation. 

This scheme aims to support all those engaged and paid through the PAYE system regardless of their contract type, 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 for wages costs paid is applied to the higher of the same month’s earnings from the same period in 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 to achieve agreement will likely be needed. Lay off clauses in contracts are of some help.  Furlough agreements or notifications must be agreed in writing and retained for five years.

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.

Find out how you can mitigate the risks of implementing the scheme, and how to feel confident that you are complying here.

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.

If an employer has staff costs that are publicly funded (even if it is not in the public sector), it should use that money to continue paying its staff and not furlough staff.

Organisations can use the scheme if they are not fully funded by public grants and HMRC state they should contact their sponsor department or respective administration for further guidance.

The entity must have 

  1. a PAYE payroll scheme registered on HMRC’s real time information (RTI) system for PAYE on 19 March 2020;
  2. enrolled for PAYE online; and 
  3. a UK bank account. 

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

Furloughed employees

It is stated in the legislation which applies until 30 June that employees are furloughed employees if:

  • the employee has been instructed by the employer to cease all work in relation to their employment;
  • the period for which the employee has ceased or will have ceased all work for the employer is 21 calendar days or more (provided it is not an unpaid sabbatical). (This is not met if the employee works for a person connected with the employer or otherwise works indirectly for the employer or if SSP is being paid for the employee at the time the instruction to stop work is given even if that SSP is not being reclaimed);
  • the instruction is given by reason of circumstances arising as a result of coronavirus or coronavirus disease; and
  • the employer and the employee have agreed in writing (which can be by email) that the employee will cease all work in relation to their employment. It should be noted that the HMRC scheme is not so prescriptive (see below).

For claims made prior to 22 May any training activities were required both to be directly relevant to an employee’s employment and agreed between the employer and the employee in advance of being undertaken can be disregarded as 'work'. From 22 May in the (second) Treasury Direction, study or training must be disregarded as work where the study or training has certain specific purposes (see below).Work by a company director to fulfill a statutory duty relating to filing the company’s accounts, providing other information relating to the administration of the company, making a CJRS claim in respect of an employee of the director’s company or making a payment of wages or salary of an employee of the company can also be disregarded as work.

From 1 July, employers can bring back to work employees that have previously been furloughed for any amount of time and any shift pattern, while still being able to claim CJRS grant for their normal hours not worked. This is referred to as flexible furloughing. When claiming the CJRS grant for furloughed hours employers will need to report and claim for a minimum period of seven days.

Which furloughed employees can be claimed for under the Job Retention Scheme?

  • The furloughed employees that can be claimed for 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. 

After 1 July there is the added requirement of the employee have previously been a claimed for furloughed employee (with limited exceptions).

Can you furlough an employee who has returned from maternity, shared parental, adoption, paternity or parental bereavement leave after 10 June?

An employer can furlough an employee returning from statutory parental leave after 10 June even if they are furloughing them for the first time provided that:

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

When calculating the maximum number of employees an employer can claim for, the number of employees the employer is furloughing for the first time due to them returning from parental or reservist leave should be added to any previous maximum. This means the maximum number of employees an employer can claim for in these circumstances, is the maximum they claimed for in any one claim before 30 June, plus any employees that the employer is furloughing for the first time due to them returning from parental or reservist leave. A new employer is eligible to claim under the CJRS in respect of the employees of a previous business transferred after 28 February 2020 if either the TUPE or PAYE business succession rules apply to the change in ownership and there are special rules to allow this to operate if the new employer’s PAYE scheme is not a qualifying PAYE scheme solely because the employer’s PAYE scheme was registered on  HMRC’s real time information for PAYE after 19 March 2020. Where a group of companies have multiple PAYE schemes and there is a transfer of all employees from these schemes into a new consolidated PAYE scheme after 28 February 2020, the new scheme will be eligible to furlough those employees and claim the grants available under the CJRS.

The furlough scheme operates for employees on the claiming employer’s payroll as at 19 March 2020 and who were notified to HMRC on an RTI submission (FPS) on or before 19 March 2020 (a qualifying PAYE). 

HMRC says that employees that were employed as of 19 March 2020 and on payroll (i.e. notified to HMRC on an RTI submission (FPS) on or before 19 March) and were made redundant or stopped working for the employer on or after 19 March 2020, can also qualify for the scheme if the employer re-employs them and they then agree furlough leave with the employer. Also, this applies to employees that were made redundant or stopped working for the employer after 28 February, even if that employer does not re-employ them until after 19 March as long as the employee was on that employer’s payroll as at 28 February and had been notified to HMRC on an RTI submission on or before 28 February 2020. 

Company directors paid annually are eligible to claim, as long as they meet the relevant conditions. This includes being notified to HMRC on an RTI submission on or before 19 March 2020, which relates to a payment of earnings in the 19/20 tax year. The requirement for there to be payment of earnings in the 19/20 tax year applies for any employee being claimed for under the scheme, irrespective of how frequently they are paid (e.g. weekly, fortnightly or monthly). This will be relevant 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.

The 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  

Up to 30 June to be able to claim the grant, employees must be furloughed for a minimum period of three consecutive weeks (21 days). 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 to support a claim.

From 1 July, agreed flexible furlough agreements can last any amount of time. Employees can enter into a flexible furlough agreement more than once.

Where a previously furloughed employee starts a new furlough period before 1 July this furlough period must be for a minimum of 3 consecutive weeks. This is the case regardless of whether the 3 consecutive week minimum period ends before or after 1 July.

For example, a previously furloughed employee can start a new furlough period on 22 June which would have to continue for at least 3 consecutive weeks ending on or after 12 July. After this the employee can they can then be flexibly furloughed for any period. However, after 1 July, employers cannot make claims that cross calendar months, so the employer will need to make a separate claim for the period up to 30 June.

Impact of taking annual leave or bank holidays on minimum furlough periods before 30 June 2020

The BEIS Department issued guidance on 13 May outlining how employers can operate workers’ holiday entitlement and holiday pay during the coronavirus pandemic. It is designed to help employers understand their legal obligations, in terms of workers who:

  • continue to work; and 
  • have been placed on furlough as part of the CJRS.

It contains detailed guidance whilst accepting it is not legal advice. The broad guidance it gives is that an employee taking annual leave during a period of furlough leave will not impact on the employer’s ability to make a furlough reclaim even when that leave is during the minimum three week furlough leave period. In terms of pay it confirms holiday pay rates still need to meet the existing legal requirements even if the worker has agreed a lower salary during furlough leave. Care should be taken against abusive use of CJRS in respect of holiday periods alone (see below as to flexi furlough leave).

Prior to that guidance, HMRC published its view on this on 17 April (see below).

Since there were both Bank Holidays and annual leave taken after the scheme was announced and before the 17 April guidance, we have retained here the position as it has developed. Whilst the legislation published on 15 April does not cover either of these specifically, 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 confirmed our view that taking bank holiday leave does not break up a period of furlough and suggests the position could 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 guidance also said that ‘employers can still require employees and workers to take paid holiday on a bank holiday, unless they’re off sick’ as long as they give the required notice. Whilst this guidance previously stated that this could be done during a period of furlough leave, it was updated on 9 April and the reference to ‘furlough leave’ removed without explanation.

ACAS 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 had to continue working and could not take paid holiday; or
  • they’ve been ‘furloughed’ and cannot reasonably use it in their holiday year.

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. 

The amount of holiday pay is governed by regulations and case law and for the first 4 weeks holiday (including Bank Holidays where a Bank Holiday is not a normal working day) holiday pay is to be paid at normal remuneration. In an update to their website dated 9 April ACAS stated: 'Furloughed workers must get their usual pay in full, for any holiday they take'.

On 17 April HMRC stated in their guidance on how to claim under the Scheme:

  • 'Furloughed employees continue to accrue leave as per their employment contract.
  • The employer and employee can agree to vary holiday entitlement as part of the furlough agreement, however almost all workers are entitled to 5.6 weeks of statutory paid annual leave each year which they cannot go below.
  • Employees can take holiday whilst on furlough. 
  • Working Time Regulations require holiday pay to be paid at the employee’s normal rate of pay or, where the rate of pay varies, calculated on the basis of the average pay received by the employee in the previous 52 working weeks. Therefore, if a furloughed employee takes holiday, the employer should pay their usual holiday pay in accordance with the Working Time Regulations.
  • Employers will be obliged to pay additional amounts over the grant, though will have the flexibility to restrict when leave can be taken if there is a business need. This applies for both the furlough period and the recovery period.
  • If an employee usually works bank holidays then the employer can agree that this is included in the grant payment. If the employee usually takes the bank holiday as leave then the employer would either have to top up their usual holiday pay, or give the employee a day of holiday in lieu.
  • During this unprecedented time, we are keeping the policy on holiday pay during furlough under review.'

For completeness, there is a contrary view that furlough leave and annual leave cannot be taken over the same period. If that is accepted as correct by court decision in due course, this may impact on the amount of annual leave taken or remaining, but, as a result of HMRC’s clarification on 17 April, it would not appear to impact on the government’s furlough cost reclaim rules. It is also not reflected in the BEIS guidance on holiday issued on 13 May 2020. 

What if an employee takes leave while they are flexibly furloughed?

Employers cannot claim for an employee under the scheme for any time they are on unpaid leave or statutory sick pay related leave.

Employers can claim for an employee who is on:

  • annual leave
  • leave taken on account of time worked under a flexible work time arrangement (flexi-leave)
  • family related statutory leave
  • reduced rate paid leave following a period of family related statutory leave

Any time an employee is on these types of leave while flexibly furloughed counts as furloughed hours and does not count as time actually worked.

If an employee is flexibly furloughed, then any hours taken as holiday during the claim period should be counted as furloughed hours rather than working hours.

Employees should not be placed on furlough for a period simply because they are on holiday for that period.

Apprentices

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. Work by a company director to fulfill a statutory duty relating to filing the company’s accounts or providing other information relating to the administration of the company can also be disregarded as 'work'.

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. Work by a company director to fulfill a statutory duty relating to filing the company’s accounts or providing other information relating to the administration of the company can also be disregarded as “work”.

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. The LLP Agreement terms may need to be varied by a formal decision of the LLP to cover the requirement to do no work during the furlough leave period.

If a member of an LLP is 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; or
  • not affected by the overall amount of the LLP’s profits or losses.

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).

Contractors with public sector engagements in scope of IR35 off payroll working rules

For organisations not primarily funded by the government and whose staff cannot be redeployed to assist with the coronavirus response, it may be appropriate to claim under the CJRS. Contractors who are deemed employees according to the off-payroll working rules and are therefore on a payroll with deductions under PAYE might be eligible for this scheme.

In this case, if the public sector organisation wished to furlough a contractor, they would have to confirm this with both the contractor’s Personal Service Company (PSC) and the fee-payer (as set out in the off-payroll working rules, usually the agency paying the contractor’s PSC). It should be formally agreed between these parties that the contractor is to do no work for the public sector organisation during their period of furlough. The fee-payer would be able to apply for the furlough payment of 80 per cent of the monthly contract value, up to a maximum of £2,500 or £576.92 per week, as well as the employer NICs payable on that subsidised wage. The fee-payer would then pay at least the amount of wage-grant received to the PSC and report the payment via PAYE using the contractor’s details, making the usual tax and National Insurance contributions (NICs) deductions for contracts in scope of the off-payroll rules. The PSC would then be required to report the amount it pays to the contractor as deemed employment income via PAYE using box 58A on the PAYE RTI return.

Where a contractor is continuing to receive payments from a public sector client (including through the CJRS or other any other scheme), income from this client should be excluded from any calculation of the reference pay for the purposes of the CJRS if the contractor also decides to furlough themselves as an employee or director of their own company

Employees with caring responsibilities

Employees who are unable to work because they have caring responsibilities resulting from coronavirus such as for childcare, can be furloughed. This reassures 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 cease all work?

Up to June 30, yes - this is a specified requirement in the legislation. Employees will likely agree to being furloughed to undertake no work or only study or 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. From 1 July, during hours which the employer records its employees as being on furlough, it cannot ask its employee to do any work for it that: 

  • makes money for the employer organisation or any organisation linked or associated with it; or
  • provides services for the employer organisation or any organisation linked or associated with it.

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. 

The legislation as changed for claim on 22 May requires that the employer and the employee have agreed in writing or it has been confirmed in writing (each of which can be by email) by the employer the terms and conditions on which the employee will cease all work in relation to their employment, and that agreement is incorporated in the employee’s contract of employment. Such agreement can be made by collective agreement with a recognised trade union. 

Employers must keep this agreement until at least 30 June 2025.

Also, for claims from 22 May 2020 the legislation stated that work undertaken by an employee for the sole purpose of fulfilling their duties as a trustee or manager under an occupational pension scheme must be disregarded for the purposes of a CJRS claim. 

However, as at 20 April, the HMRC Scheme guidance stated:

'To be eligible for the grant employers must confirm in writing to their employee confirming that they have been furloughed. If this is done in a way that is consistent with employment law, that consent is valid for the purposes of claiming the CJRS. There needs to be a written record, but the employee does not have to provide a written response.'

The Head of HMRC stated by letter issued on 23 April:

'the employer and the employee must reach an agreement and an auditable written record of this agreement must be retained. It does not necessarily follow that the employee will have provided written confirmation that such an agreement was reached in all cases'

and there was added to the 23 April version of the scheme:

'collective agreement reached between an employer and a trade union is also acceptable for the purpose of such a claim'.

and on 24 April:

'there needs to be a written record, but the employee does not have to provide a written response.'

This continued to be the position when the Scheme was updated on 12 June for the period from 1 July 2020.

If an employer flexibly furloughs employees (who qualify for furlough) from 1 July, it will need to agree this with the employee (or reach collective agreement with a recognised trade union) and keep a new written agreement that confirms the new furlough arrangement. The HMRC scheme states employers must:

  • make sure that the agreement is consistent with employment, equality and discrimination laws;
  • keep a written record of the agreement for five years; and
  • keep records of how many hours their employees work and the number of hours they are furloughed (i.e. not working).
Few advising on employment law would state that a contract variation could be relied on unless the employee’s agreement evidenced in writing came from them. Best guidance must be to comply with the legislation in order to qualify to make a claim, particularly in view of HMRC warnings about fraudulent claims.

Changing employment terms is always subject to employment law.

What is flexible furloughing?

From 1 July, employers can bring back to work employees that have previously been furloughed for any amount of time and any shift pattern, while still being able to claim CJRS grant for their normal hours not worked. This is referred to as flexible furloughing.

Any working hours arrangement agreed between a business and their employee must cover at least one week and be confirmed to the employee in writing. Employers will be required to submit data on the usual hours an employee would be expected to work in a claim period and actual hours worked.

Employers can bring furloughed employees back to work for any amount of time and any work pattern, while still being able to claim the grant for the hours not worked (subject to the limit on grant claim numbers).

Agreed flexible furlough agreements can last any amount of time. Employees can enter into a flexible furlough agreement more than once.

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. This is the case regardless of whether the three consecutive week minimum period ends before or after 1 July. For example, a previously furloughed employee can start a new furlough period on 22 June which would have to continue for at least three consecutive weeks ending on or after 12 July. After this the employee can then be flexibly furloughed for any period. However, after 1 July, employers cannot make claims that cross calendar months, so the employer will need to make a separate claim for the period up to 30 June.

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. On 20 April the HMRC claim portal opened to receive claims from employers in respect of employees furloughed from 1 March onwards. Deferring payments already due to employees until both a claim has been made and the grant paid to the employer (otherwise than by clear written agreement with the employee) 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.  

After the April payroll, a successful grant claim may provide pre-funding. A claim may be made a maximum of 14 days in advance of a claim period end. The legislation makes it clear the grant must be used only for wages.

When can an employer claim the grant from HMRC?

When claiming the CJRS grant for furloughed hours, employers will need to report and claim for a minimum period of a week. They can choose to make claims for longer periods such as on monthly or two weekly cycles if preferred. However, employers will only have until 31 July to make any claims in respect of the period to 30 June.

Deciding the length of the claim period

The claim period is made up of the days for which the employer is claiming a grant. The start date of the first claim period is the date the first employee was furloughed. An employer can 'backdate' its claim to 1 March 2020 where employees have already been furloughed from that date.

There is no maximum length for claim periods that end on or before 30 June. However, claims for any periods starting before 1 July must end on or before 30 June. This is the case even where an employee furloughed in June continues to be furloughed full time in July. Separate claims will need to be submitted to cover the days in June and the days in July that an employer wants to claim for, even if employees are furloughed continuously. This may mean that an employer’s claim periods will differ from the pay periods it uses.

Claims for periods ending on or before 30 June 2020 must be made by 31 July 2020.

Claim periods starting on or after 1 July must start and end within the same calendar month and must last at least 7 days unless the employer is claiming for the first few days or the last few days in a month. The employer can only claim for a period of fewer than 7 days if the period the employer is claiming for includes either the first or last day of the calendar month, and the employer has already claimed for the period ending immediately before it, including in respect of that employee.

The employer should match its claim period to the dates it processes its payroll, if it can. An employer can only make one claim for any period so it must include all of its furloughed or flexibly furloughed employees in one claim even if it pays them at different times. If it makes more than one claim, its subsequent claim cannot overlap with any other claim that it makes. Where employees have been furloughed or flexibly furloughed continuously (or both), the claim periods must follow on from each other with no gaps in between the dates.

An employer can claim before, during or after it processes its payroll. It can usually make its claim up to 14 days before the claim period end date and does not have to wait until the end of a claim period to make its next claim. Claims for periods after 30 June can be made from 1 July.

When claiming for employees who are flexibly furloughed, an employer should not claim until it is sure of the exact number of hours the employee will have worked during the claim period. This means that it should claim when it has certainty about the number of hours its employees are working during the claim period. If an employer claims in advance and its employee works for more hours than it has told HMRC about, then it will have to pay some of the grant back to HMRC. 

Payments will be made six working days after making a claim.

How should you work out an employee’s usual hours and furloughed hours from 1 July?

If an employee is fully furloughed, an employer will not need to work out their usual and furloughed hours and should work out the maximum wage amount. An employee is fully furloughed if they do not do any work for that employer during the claim period.

If an employee is flexibly furloughed, the employer will need to work out the employee’s usual hours and record the actual hours they work as well as their furloughed hours for each claim period.
There are two different calculations the employer can use to work out its employee’s usual hours, depending on whether they work fixed or variable hours.

HMRC state the employer should work out usual hours for employees who work variable hours, if either:

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

If neither of these apply, the employer should work out its employee’s usual hours for an employee who is contracted for a fixed number of hours.

HMRC state the employee’s working pattern does not have to match their pay period (for example, an employee could be contracted to 40 hours a week but be paid monthly).

How do you work out the employee’s usual hours for an employee who is contracted for a fixed number of hours and whose pay does not vary according to the number of hours they work?

The employer needs to calculate the usual hours for each pay period, or part of a pay period, that falls within the claim period.

To calculate the number of usual hours for each pay period (or partial pay period):

  1. Start with the hours the employee was contracted for at the end of the last pay period ending on or before 19 March 2020.
  2. Divide by the number of calendar days in the repeating working pattern, including non-working days.
  3. Multiply by the number of calendar days in the pay period (or partial pay period) the employer is claiming for.
  4. Round up to the next whole number if the outcome isn’t a whole number.

If an employee with fixed hours was on annual leave, off work sick or on family related statutory leave at any time during the last pay period ending on or before 19 March, the usual hours should be calculated as if the employee had not taken that leave.

How do you work out the employee’s usual hours for an employee who works variable hours?

Where the pay varies by the amount of time worked, the employer will have shown the number of hours worked on its employees’ payslips in line with legislation effective from 2019. HMRC considers employers are therefore likely to have records of the number of hours worked.

The ‘usual hours’ in this case will be calculated based on the higher of either:

  • the average number of hours worked in the tax year 2019 to 2020; or
  • the corresponding calendar period in the tax year 2019 to 2020The employer needs to calculate the usual hours for each pay period, or part of a pay period, that falls within the claim period.

When calculating the usual hours, HMRC state an employer should include:

  • any hours of leave for which the employee was paid their full contracted rate (such as annual leave)
  • any hours worked as ‘overtime’, but only if the pay for those hours was not discretionary 

To work out the usual hours for each pay period (or partial pay period) based on the average number of hours worked in the tax year 2019 to 2020:

  1. Start with the number of hours worked (including paid leave) in the tax year 2019 to 2020 before the employee was furloughed, or the end of the tax year if earlier.
  2. Divide by the number of calendar days the employee was employed by you in the tax year 2019 to 2020, up until the day before they were furloughed, or the end of the tax year if earlier.
  3. Multiply by the number of calendar days in the pay period (or partial pay period) you are claiming for.
  4. Round up to the next whole number if the outcome isn’t a whole number.

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

Up to 1 September, 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.

From 1 September, the employer must contribute to ensure the employee receives 80 per cent of the reference salary.

This ability to use the furlough scheme and/or to top up wages above the grant claim level may depend at present, until the advance reclaim process is running effectively, on the organisation’s overall health and cash flow affecting the ability to fund payments. There are a number of other areas of support which might help an organisation with cash flow.

When are pay top up contributions by the employer to ensure the employee receives 80 per cent of the reference salary compulsory?

From August 2020, the level of government grant provided through the job retention scheme will be slowly tapered to reflect that people will be returning to work. That means that for June and July the government will continue to pay 80 per cent of people’s salaries. In the following months, businesses will be asked to contribute a modest share, but crucially individuals will continue to receive that 80 per cent of salary covering the time they are unable to work.

The scheme updates mean that the following will apply for the period people are furloughed:

  • June and July: The Government will pay 80 per cent of wages up to a cap of £2,500 as well as employer National Insurance (ER NICS) and pension contributions. Employers are not required to pay anything.
  • August: The Government will pay 80 per cent of wages up to a cap of £2,500. Employers will pay ER NICs and pension contributions – for the average claim, this represents 5 per cent of the gross employment costs the employer would have incurred had the employee not been furloughed.
  • September: The government will pay 70 per cent of wages up to a cap of £2,187.50. Employers will pay ER NICs and pension contributions and 10 per cent of wages to make up 80 per cent total up to a cap of £2,500. For the average claim, this represents 14 per cent of the gross employment costs the employer would have incurred had the employee not been furloughed.
  • October: The government will pay 60 per cent of wages up to a cap of £1,875. Employers will pay ER NICs and pension contributions and 20 per cent of wages to make up 80 per cent total up to a cap of £2,500. For the average claim, this represents 23 per cent of the gross employment costs the employer would have incurred had the employee not been furloughed.

Will all furloughed employees have to be paid up to £2,500 or £576.92 per week?

Until the scheme changes on 1 August, 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 or £576.92 per week, plus the associated Employer National Insurance contributions of 13.8 percentage and minimum automatic enrolment employer pension contributions of 3 per cent on that (the daily maximum gross pay amount is £80.65 in March, £83.34 in April, £80.65 in May or £81.52 per day or potentially something more complex depending on pay period) 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 per month or £576.92 per week 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?

This are termed qualifying costs and meet the conditions if 

  • They relate to the payment of earnings to an employee during a period in which the employee is furloughed; and 
  • The employee is being paid 
    • £2,500 or more per month or £576.92 or more per week; or
    • If lower, at least 80 per cent of the employee’s reference salary.

If the length of time the employer is claiming for is not one week or one month, it will need to use the daily maximum wage amounts to work out the maximum amount it can claim for each employee.

The reference salary differs dependent on whether the employee is a fixed rate or variable pay employee.

Fixed rate employees

A fixed rate employee is any of:

  • A person entitled under their contract to be paid an annual salary;
  • A person entitled under their contract to be paid a salary in respect of a number of hours in a year whether those hours are specified in or ascertained in accordance with their contract ('the basic hours');
  • A person not entitled under their contract to a payment in respect of the basic hours other than an annual salary;
  • A person entitled under their contract to be paid, where practicable and regardless of the number of hours actually worked in a particular week or month in equal weekly, multiple of weeks or monthly instalments ('the salary period');
  • A person where the basic hours worked in a salary period do not normally vary according to business, economic or agricultural seasonal considerations; or
  • A person who is an employee or treated as an employee for these purposes as a member of an LLP. 

For full time and part time salaried employees who are termed fixed rate employees, the employee’s salary before tax in their last pay period prior to 19 March 2020 should be used to calculate the 80 per cent.

If, based on previous HMRC guidance, the employer has calculated its claim based on the employee’s salary as at 28 February 2020 (and this differs from their salary in their last pay period prior to 19 March 2020), the employer can choose to still use this calculation for its first claim. 

An employer can claim for any regular payments they are obliged to pay an employee. This includes regular wages, non-discretionary payments for hours worked including overtime (which HMRC called on 8 April regular overtime), non-discretionary fees, non-discretionary commission payments and piece rate payments. However, the employer cannot include the following when calculating wages:

  • payments made at the discretion of the employer or a client - where the employer or client was under no contractual obligation to pay, including: 
    • any tips, including those distributed through troncs;
    • discretionary bonuses; and
    • discretionary commission payments.
  • non-cash payments; and
  • non-monetary benefits like benefits in kind (such as a company car) and salary sacrifice schemes (including pension contributions) that reduce an employees’ taxable pay.

Non-discretionary payments

Only payments which the employer has a contractual obligation to pay and to which the employee had an enforceable right can be included in the reference salary.

When variable payments are specified in a contract and those payments are always made, then those payments may become non-discretionary. If that is the case, they should be included when calculating 80 per cent of the employees’ wages.

Non-discretionary overtime payments

If an employee has been paid variable payments due to working overtime, the employer can include these payments when calculating 80 per cent of their wages as long as the overtime payments were non-discretionary.

Payments for overtime worked are non-discretionary when the employer is contractually obliged to pay the employee at a set and defined rate for the overtime that they have worked.

Variable pay employees

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 actual amount paid to the employee in the corresponding calendar period in the previous year; or
  • the average monthly or daily amount paid in 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 week/monthly earnings since they started work until the date they are furloughed.

If the employee has been employed for less than a month, 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 (taking into account the Secondary threshold) and minimum automatic enrolment employer pension contributions  (taking into account the lower level of Qualifying Earnings it is entitled to claim on that subsidised 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.

Up to 31 July, 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 or £576.92 per week, plus the associated Employer National Insurance contributions (13.8 percent) taking into account the Secondary threshold and minimum automatic enrolment employer pension contributions (3 per cent) taking into account the lower level of Qualifying Earnings on paying those wages. Grants for pension contributions can be claimed up to this cap provided the employer will pay the whole amount claimed to a pension scheme for the employee as an employer contribution.

The employer can choose to provide top-up salary in addition to the grant - above 80 per cent. 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).

Employees will still pay the taxes they normally pay out of their wages. Employers must deduct income tax and National Insurance contributions on the full amount, including any scheme grant that they pay the employee. Employers must pay the income tax and National Insurance contributions to HMRC and report the payments via a Full Payment Submission to HMRC on or before the pay date.

If your employee is on maternity leave, adoption leave, paternity leave or shared parental leave 

The normal rules for maternity and other forms of parental leave and pay apply during this leave. Employers may need to calculate their employee's average weekly earnings differently, if the employee was furloughed and then started leave on or after 25 April 2020.

An employer can claim through the scheme for enhanced (earnings related) contractual pay for employees who qualify for either:

  • maternity pay;
  • adoption pay;
  • paternity pay; or
  • shared parental pay

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, including through a salary sacrifice scheme 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.

Where the employer provides benefits to furloughed employees, including through a salary sacrifice scheme, these benefits should be paid in addition to the wages that must be paid under the terms of the Job Retention Scheme and other contractual pay.

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. However, from 1 July when flexible furloughing is to be permitted, care must be taken to follow the requirements stipulated as to NMW/NLW for working time. 

Can employees work for their employer when furloughed?

Up to 30 June, to qualify for the scheme, employees cannot undertake any work for the employer who has furloughed them - or for any linked or associated organisation. This prohibition includes providing services or generating revenue.

Employers can require furloughed employees to undertake training (and, for claims from 22 May, study) 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 on study or training, even if this is more than the 80 per cent of their wage that will be subsidised. 

HMRC is encouraging employees asked by their employers to work during a furlough reclaim period to blow the whistle to HMRC.  This may place employers who call employees back from furlough for operational reasons (and so do not claim for them) at some risk. Therefore, an employer who terminates furlough leave before the three week minimum may choose to make it clear to that employee that it will not be making any reclaim to HMRC in for their wages costs during a furlough leave period of less than the three week minimum.

Whilst on furlough, employees who are union or non-union representatives may undertake duties and activities for the purpose of individual or collective representation of employees or other workers. However, in doing this, they must not provide services to or generate revenue for, or on behalf of the organisation or a linked or associated organisation.

From 1 July, employers can bring back to work employees that have previously been furloughed for any amount of time and any shift pattern, while still being able to claim CJRS grant for their normal hours not worked. This is referred to as flexible furloughing.

Can employees work elsewhere when furloughed from one or more employers?

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 (provided it is not an organisation linked or associated with their employer) whilst on furlough. This is the case even where the result is that the employee receives wages from a current and a new employer for the period where they are furloughed in one employment but operational in another. The Government has permitted this to assist the supply of labour to sectors hiring at this time.

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. Furloughed employees are encouraged to volunteer in the civil service.  

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 study or training while furloughed?

In the original Treasury Direction applicable to claims made before 22 May, training activities which are directly relevant to an employee’s employment and agreed between the employer and the employee in advance of being undertaken could be disregarded as work.

From 20 May in the secondTreasury Direction, stated that for claims made on or after 22 May study or training must be disregarded as work if

  • the purpose of the study or training is to improve:
    • an employee’s effectiveness in the employer’s business; or 
    • the performance of the employer’s business.
  • except as generally improving an employee’s effectiveness in, or the performance of, an employer’s business, the study or training does not directly:
    • provide a service to the employer or the business activities of the employer; or 
    • contribute to the business activities of the employer or anything generating income or profit for the employer.
  • the study or training undertaken does not directly contribute to any significant degree:
    • in the production of goods the employer intends to supply to another person as part of the making of a supply of goods or services for a consideration to that person; or 
    • in the making to any person of a supply of services for a consideration by the employer. 

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. 

Since 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, this must take into account the increase in minimum wage rates from 1 April 2020. 

National Minimum Wage

Individuals are entitled to the National Living Wage, National Minimum Wage or Apprentices Minimum Wage for the hours they are working or treated as working under minimum wage rules.

At least minimum wage rates must be paid for all hours worked. Furloughed workers who are not working can be paid the lower of 80% of their wages or £2,500 even if, based on their usual working hours, this would be below their appropriate minimum wage.

However, time spent training whilst furloughed is treated as working time for the purposes of the minimum wage calculations and must be paid at the appropriate minimum wage rate. As such, employers will need to ensure that the wages and furlough payment provide sufficient monies to cover all working time including these training hours. Where the pay is less than the appropriate minimum wage entitlement, the employer will need to pay additional amounts to ensure at least the appropriate minimum wage is paid for both working time and 100% of the training time whilst furloughed.

Where a furloughed worker is paid close to minimum wage levels and asked to complete training courses for a substantial majority of their usual working time, employers must ensure they meet their minimum wage obligations.

Can employees on unpaid leave be furloughed?

If an employee started unpaid leave after 28 February 2020, the employer can put them on furlough instead. If they are put on furlough, the employer should pay them at least 80 per cent of their regular wages, up to the monthly cap of £2,500.

If an employee went on unpaid leave on or before 28 February, the employer cannot furlough them until the date on which it was agreed they would return from unpaid leave.

If an employee has been on unpaid sabbatical or unpaid leave, prior to furlough leave the employer will need to use the amount they would have been paid if they were on paid leave when calculating the reference salary for the 80 per cent of their wages.

Can employees on fixed term contracts be furloughed?

Employees on fixed term contracts can be furloughed and their contracts can be extended or renewed during a furlough period and they can be claimed for, 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.

Employees who are shielding in line with public health guidance (or who need to stay at home with someone who is shielding - the shielded or on long term sick leave can be placed on furlough.

Can an employee who is currently off sick be furloughed and claimed for?

If SSP is being paid for the employee at the time the instruction to stop work is given, even if that SSP is not being reclaimed, the employee cannot be claimed for.

Otherwise if employers want to furlough employees who are currently off sick, they are eligible to do so and the employees would be classified and paid as a furloughed employee.

Can an employer claim both an SSP refund (if it so qualifies) and a furlough reclaim?

An employer can reclaim expenditure from each of the CJRS and the SSP rebate scheme (the latter able to be reclaimed from 26 May 2020) for the same employee but not for the same period of time. If an employee becomes unwell during a furlough leave period the employer can choose whether to continue to pay the employee as a furloughed employee (provided the pay is no less than SSP) or to revert to SSP or contractual sick pay after considering the impact on its ability to reclaim for either or both and the impact on its employment contract and other obligations to its employee.

How do we make a claim?

The HMRC reimbursement claim portal opened on 20 April 2020 and aims to meet claims within six working days, requiring businesses to bear these wages costs until then, subject to support from other financial measures.

The employer should make a claim using the amounts in its payroll - either shortly before or during running payroll. Claims can be backdated until the 1 March where employees have already been furloughed and qualify as furloughed employees. 

If appropriate, worker’s wages should be reduced to 80% of their salary within the employer’s payroll before they are paid.

See gov.uk 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. 

To claim, the employer will need:

  • its employer PAYE reference number;
  • the number of employees being furloughed;
  • National Insurance Numbers for the employees it wants to furlough;
  • Names of the furloughed employees;
  • Payroll/employee number for the furloughed employees (optional);
  • its Self-Assessment Unique Taxpayer Reference or Corporation Tax Unique Taxpayer Reference or Company Registration Number;
  • the claim period (start and end date);
  • amount claimed (per the minimum length of furloughing of 3 consecutive weeks);
  • its bank account number and sort code;
  • its contact name; and
  • its phone number.

For claims from 1 July if an employee is flexibly furloughed, the employer will need to work out the employee’s usual hours and record the actual hours they work as well as their furloughed hours for each claim period.

If the employee has fewer than 100 furloughed staff it will be asked to enter details of each employee it is claiming for directly into the system - this will include their name, National Insurance number, claim period and claim amount, and payroll/employee number (optional).

If the employee has 100 or more furloughed staff it will be asked to upload a file with the information rather than input it directly into the system. HMRC will accept the following file types: .xls .xlsx .csv .ods

The file should include the following information for each furloughed employee: full name, National Insurance number, furlough start date, furlough end date (if known), full amount claimed, payroll/employee number (optional). Employers should retain all records and calculations in respect of their claims. 

Employers should retain all records and calculations in respect of their claims including from 1 July 2020 of how many hours an employee works and the number of hours they are furloughed (i.e. not working).

HMRC cannot provide employees with details of claims you make on their behalf. Employers are asked to keep their employees informed, answering any questions that they might have. They are also asked to ask their employees not to contact HMRC.

The employer needs to calculate the amount it is claiming. HMRC will retain the right to retrospectively audit all aspects of the claim.

An employer must claim for all employees in each period at one time – and cannot make changes to the claim. It is not yet possible to amend a claim once it is submitted. HMRC are looking to develop a process to allow for amendments to be made.

An employer can make a claim in anticipation of an imminent payroll run, at the point the employer runs its payroll or after it has run its payroll. Claim periods can be backdated from 1 March 2020 where employees have already been furloughed from that date. A claim period cannot start any earlier than the date the first employee was furloughed. The employer can only claim the grant for an employee for the time they were furloughed.

For any claim that an employer makes, the claim end date must be no more than 14 days in the future from the date the claim is made. Any claim period must contain all the furloughed days that the claim amount relates to.

From 1 July, employers can bring back to work employees that have previously been furloughed for any amount of time and any shift pattern, while still being able to claim CJRS grant for their normal hours not worked. This is referred to as flexible furloughing.

What should an employer do if they make an error?

If an employer makes an error in a claim that has resulted in an overclaimed amount, it must pay this back to HMRC.

An employer can notify HMRC about an overclaimed amount as part of its next claim. Claimants will be asked when making your claim whether they need to adjust the amount down to take account of a previous error. The new claim amount will then be reduced to reflect this. The employer should keep a record of this adjustment for six years.

If an employer has made an error that has resulted in an underclaimed amount, HMRC state it should contact HMRC to amend its claim and that as it is increasing the amount of its claim, HMRC need to conduct additional checks.

If an employer has made an error in a claim and does not plan to submit further claims, HMRC as at 12 June are working on a process that will allow an employer to notify HMRC about the error and pay back any amounts that it has overclaimed. Time limits are expected to apply for corrections.

Can an agent claim for an employer?

If an employer uses an agent who is authorised to act for you for online PAYE purposes, the agent will be able to make the CJRS reimbursement claim on the employer’s behalf. 

If you would like to use an agent, but do not have one authorised to do PAYE online for you, you can do that by accessing your HMRC online services and selecting ‘Manage Account’ Agents can also assist the employer in the preparation of the information needed to claim. 

HMRC stated on 8 April that it will risk assess claims and remove high risk claims before making payments to combat fraud.

How do I get the funds for the reclaim?

HMRC will check the claim, and if the employer is eligible, pay the reclaim funds to the employer you by BACS to the UK bank account details provided in the claim within six days.

Are there any requirements once the employer has received the reclaim?

The employer must tell an employee that it has made a claim in relation to them and that they do not need to take any more action. 

The employer must pay the employee all the grant it receives for their gross pay in the form of money.

Furloughed staff must receive no less than 80 per cent of their reference pay (up to the monthly cap of £2,500).

The entirety of 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.

Employers cannot enter into any transaction with the worker which reduces the wages below this amount. This includes any administration charge, fees or other costs in connection with the employment.

How to treat grant payments in RTI  

The employer must report the amount of grant it receives and pay to an employee through RTI, in the same way it would report their normal pay.

The employer should make RTI submissions on or before the date it pays its employee.

Where employers have continued to pay employees during a period of furlough, in advance of receiving any payments under the scheme, they do not need to make any further RTI submissions when they receive the grant that reimburses those payments made in advance.

What is the tax treatment of the Coronavirus Job Retention Grant?

Payments received by a business under the scheme are made to offset these deductible revenue costs. They must therefore be included as income in the business’s calculation of its taxable profits for Income Tax and Corporation Tax purposes, in accordance with normal principles.

Businesses can deduct employment costs as normal when calculating taxable profits for Income Tax and Corporation Tax purposes.

Individuals with employees that are not employed as part of a business (such as nannies or other domestic staff) are not taxable on grants received under the scheme. Domestic staff are subject to Income Tax and NICs on their wages as normal.

Will HMRC audit the claim?

If HMRC have reason to suspect a claim is not valid before it is paid, they will not pay the claim.  If they have already paid the claim and they find it is not due, they will recover the funds and, depending on the behaviour, they can consider taking criminal proceedings.

The employer must keep a copy of all records for six years, including:

  • the amount claimed and claim period for each employee
  • the claim reference number for your records
  • your calculations in case HMRC need more information about your claim
  • usual hours worked, including any calculations that were required, for employees you flexibly furloughed from 1 July.
  • actual hours worked for employees you flexibly furloughed from 1 July.

During an audit, HMRC could:

  • Request the detailed calculations. 
  • Requesting sight of written agreements between employer and employee, consenting to being furloughed;
  • Use data from external sources such as social media accounts including LinkedIn to monitor activity;
  • Review records such as emails, onsite CCTV systems, vehicle tracking details to see who has had access and when;
  • Examine payroll records, and audit any pay changes including amended RTI submissions;
  • Rely on employees reporting non-compliant employers via the hotline set up; and
  • Interview employees in person.  

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

Partner

Susan Ball Susan Ball

Partner