Furlough FAQs

Q: What are the key terms of the furlough scheme between November 2020 and September 2021?

The key terms of the extended furlough scheme are that employers (including those who have not used the furlough scheme before) can furlough staff and claim 80% of their salaries, up to a cap of £2,500 from the government. 

Employers must still pay employer NICs, pension contributions and an element of holiday pay (see our FAQs on furlough and holiday).

Furlough was originally introduced at the beginning of lockdown in March 2020, and has been extended four times from the original May 2020 end date. (The extensions were to June 2020, then October 2020, followed by a last minute extension to March 2021 and then April 2021).

The scheme has now been extended for the fifth time until the end of September 2021. Until the end of June 2021 the government contribution was 80%. From 1 July the government contribution has been reduced:

• From 1 July, the government will contribute 70% and employers will have to pay 10% for hours not worked plus NICs and pension contributions. 
• In August and September the government will pay 60% and employers 20% plus NICs and pension contributions.
  

Until September the furloughed employees will still continue to receive up to 80% of their pay for hours not worked. Flexible furlough will continue to apply so employees can receive their normal pay for any hours that they work and receive the grant for the remaining unworked hours.

Eligibility
Employees whose Real Time Information (RTI) submission notifying payment for them was made to HMRC on or before the extension was announced, are eligible for grants under the furlough scheme extension. 

Periods on or before 30 April 2021
Employers can claim for employees if:

• they were employed on 30 October 2020; and
• a PAYE Real Time Information (RTI) submission was made to HMRC for that employee between 20 March 2020 and 30 October 2020.

Employers can claim for employees if:

• they were employed on 2 March 2021; and 
• a PAYE Real Time Information (RTI) submission was made to HMRC for that employee between 20 March 2020 and 2 March 2021.
  

Employers can claim for employees who have not previously been furloughed. This will include employees who worked continuously between March and October 2020 for the claims before 30 April 2021. Similarly, employees who worked before 2 March 2021 can be included in the furlough claims from 1 May 2021.

Employers can claim for employees on any type of employment contract, including full-time, part-time, agency, flexible or zero-hour contracts. Foreign nationals can be furloughed. Employees on all categories of visa can be furloughed and grants under the scheme do not count as access to public funds for the purposes of visa conditions.

Further detail about the extension of the furlough scheme continues to emerge and so employers should refer to the government website for the latest information.

Agreement
Employers seeking to extend furlough until the end of September 2021 will need to obtain agreement.

Q: What key datesshould employersbe aware of during the rest of the furlough scheme?

The following dates are relevant during the rest of the furlough scheme until it ends in September 2021:

• 1 July 2021: From this date the government contribution will reduce to 70% towards the furlough grant and employers will have to pay 10% for hours not worked.
• 1 August 2021: From this date until the end of September the government will pay 60% towards the furlough grant and employers will have to pay 20% for hours not worked.
  
• 30 September 2021: The furlough scheme closes at the end of September 2021.

Q: Can employers claim the furlough grant for furloughed employees serving contractual or statutory notice periods as part of a redundancy process?

Notice pay
The position concerning notice pay has changed during the pandemic. Prior to December 2020 employers could claim the furlough grant for furloughed employees serving contractual or statutory notice periods. The later Treasury guidance confirms that from this date onwards employers cannot claim furlough for any day when an employee is serving statutory or contractual notice.   The cost of notice pay after 1 December 2020 is therefore not covered by the scheme and employers will have to pay this themselves in full.

This means that employers thinking about dismissing for redundancy or otherwise need to accept that any redundancy and notice pay after this date will be payable by the employer in full rather than allocating a portion of the furlough grant towards the notice payments.

In some cases, the restructuring may be already in place and the employer knows that employees are very unlikely to be needed beyond September 2021. 

Employers who made redundancies in 2020 and then decided to rehire and furlough when the scheme was extended will have previously agreed with the employees what happens to any redundancy payments already made. 

In the decision-making process employers will have had to evaluate the likelihood of employees challenging the fairness of selection for redundancy if furlough was not considered as an alternative during the operation of the scheme.

Q: What should employers do if opting for flexible furlough because a full return to work is not possible?

Employers should:

• Involve ensure employees (or union representatives).
• Agree flexible working hours or patterns and keep agreements and records.
• Select who will be flexibly furloughed, avoiding all forms of discrimination especially sex, age and disability.
• Inform relevant employees that they are on flexible furlough leave and keep a written record that confirms the flexible furlough arrangement.
• Decide on the length of the claim period, what to include when calculating wages and employees’ usual hours and furloughed hours.
• Plan for what will happen when the furlough scheme ends in September 2021.
  

Q: Can employers claim jointly for employees even if they were furloughed for different periods?

Under the versions of the furlough scheme employers can include all employees who were furloughed during one claim period, even if they were furloughed at different times within that period or are paid at different times.

If an employer’s pay period overlaps more than one month those employers have to calculate and submit a claim for all employees who were furloughed covering that calendar month. Employers cannot make more than one claim during a claim period and therefore should include all of the employees they want to furlough for that claim period. Employers cannot make claims that overlap or make changes to a claim after submission.

The previous government guidance gives examples of an employer who furloughs two employees at the start of the pay period and adds a third a short time later. The claim period starts when the first employee is furloughed.

Alternatively, some employees may have been furloughed continuously with claim periods following on with no gaps in between the dates and another employee may worked for some of the days but then be furloughed again. The employer should still include all employees furloughed during the claim period. Employers do not have to wait until the end of a claim period to make their next claim. Employers can claim before, during or after payroll is processed.

Q: What claim information is needed for furloughed employees?

Employees can be furloughed full time or part time (with a mixture of furlough hours and working hours). Employers must also report and claim for a minimum period of seven consecutive calendar days and:

• Employers need to report actual hours and usual hours as explained below.
• The claim period must start and end within the same calendar month.
• The claim period must last at least seven days unless the claim is for the first few days or the last few days in a month.
  
• If pay periods span more than one-month then separate claims should be calculated to cover the days that fall into each month. 
• Claim periods cannot overlap, and employees claimed for will need to be included in each separate claim made. 

Employers will also need the following information about your business and employees, including: 

• employer UK bank account number and sort code
• employer PAYE scheme reference number 
• number of employees being furloughed 
• National Insurance number for each employee 
• start date and end date of the claim 
• Unique taxpayer reference.
  

Accountants, payroll services or other advisers who are authorised to do PAYE online for employers can claim on their behalf.

Claim information

Claims for those employees' furloughed hours needs to be calculated by reference to their usual hours worked in a claim period.

The government guidance on the furlough scheme says that before calculating the claim employers need to work out:

• the length of the claim period
• what to include when calculating wages
• both the employees' usual hours and the furloughed hours.

Employers then need to work out the total:

• amount being paid to furloughed employees
• employer NICs
  
• employer pension contributions.
  

The overall cap is then proportional to the hours not worked. Employers must report hours worked as well as the usual hours an employee would be expected to work.

Employers need to retain records of the employee's usual hours, actual hours worked and their furloughed hours for each claim period.

When to claim

Employers should ideally claim once they are sure of the exact number of hours being worked during the claim period. Claims can be made up to 14 days before the end of a claim period, but if employees are flexibly furloughed it is better to claim when the employer knows exactly how many hours the employees will have worked. 

Generally, claims can be made in advance but at the start of the scheme when the system is being updated employers may need to claim in arrears, in addition:

• There is a shorter claim window claims so that relating to each month should be submitted by day 14 of the following month.
• Employers can make claims in anticipation of an imminent payroll run, at the point they run their payroll or after they have run their payroll.

Employers need to plan ahead to avoid missing deadlines to reclaim the government contribution. Grant payments should arrive six working days after the claim.

For advance claims there is a mechanism for paying the grant back to HMRC if the employee ends up working more than expected. 

Example

For example, an employer and employee may agree that an employee, previously on furlough, returns to work half time, meaning they now work for 20 hours compared to a 40-hour working week before the pandemic. For the hours the employee is not working they will be covered by furlough pay, and for the hours worked will be paid their salary as normal. If the employee normally earns £3,000 a month, they would have got full furlough pay of £2,400 a month. On returning to work half time the employee would earn £1,500 a month from the employer (as the proportion of normal monthly salary) plus £1,200 for the 20 weekly hours of furlough (half the monthly furlough pay). This means the employee would get a total of £2,700 a month for working half time (compared to £300 less if they were on full furlough).

Q: How are fixed and variable hours and pay calculated for furloughed employees?

Employers need to identify the reference period to work out employees’ usual wages. Under the various phases of the scheme employers who are new to furlough claims, and for new employees hired during the qualifying of the scheme, the reference pay and usual hours should be updated to take account of the extension period as explained below.

Fixed hours and pay

• For employees employed and on the payroll before 20 March 2020 who work fixed hours and whose pay does not vary, the contractual hours used to work out claims should be the hours in the last pay period ending on or before 19 March 2020.
• For employees on fixed pay who were not previously furloughed or who were employed on or after 20 March 2020, who work fixed hours and whose pay does not vary, the contractual hours used to work out claims should be the hours in the last pay period prior to 30 October 2020; this will only apply for periods starting after 1 November 2020.
• For employees first reported on the payroll between 31 October 2020 and 2 March 2021 they can be furloughed from 1 May 2021. Details of how to calculate these employees’ wages will be provided in updated government guidance. However presumably for those who work fixed hours and whose pay does not vary, the contractual hours used to work out claims should be the hours in the last pay period prior to 2 March 2021.
  

For example, for a fixed salary employee who was not previously furloughed, the grant will be 80% of the wages payable in the last pay period ending on or before 30 October 2020. The usual hours will also be the contracted hours worked in the last pay period ending on or before 30 October 2020.

Variable hours and pay

For employees employed before 20 March 2020 who work variable hours and pay, the usual hours are either the highest of:

• the average number of hours worked in the tax year 2019 to 2020, or
• the corresponding calendar period in the tax year 2019 to 2020 so for e.g. July 2019 or August 2019.

For employees who were not previously furloughed or employed on or after 20 March 2020 on variable pay or hours, the usual hours are based on the average of the 2020/2021 tax year. This the average hours worked between:

• the start date of the 2020 to 2021 tax year, (for example, 6 April 2020)
• the day before the furlough extension period begins.

For example, for employee whose pay varies and who was not previously furloughed the grant would be 80% of the average salary payable between the start date of their employment or 6 April 2020 (whichever is later) and the day before their furlough extension period starts.

In working out the usual hours, items such as annual leave and overtime are included.

The 70% (60% in August and September 2021) grants available are reduced to reflect the proportion of usual hours that have been worked. The monthly cap is reduced proportionately as well. If the hours worked are unknown for example for piece rate workers employers should estimate the hours based on the average rate of work per hour.

For variable hours employees there are examples on the Government website of working out the average number of hours worked based on either the previous tax year or the corresponding calendar period.

Other calculation information

• An employee’s working pattern does not have to match their pay period (for example, an employee could work 40 hours across a week, but be paid monthly).
• If an employee with fixed hours took annual leave, sick leave or family related statutory leave at any time during the last pay period before 19 March 2020, this leave is ignored when working out their usual hours.
• If calculations produce a number that isn’t a whole number then employers should round up to the next whole number.

It is unnecessary to work out usual and furloughed hours for fully furloughed employees. The maximum wage amount will still need to calculated, as will the amount of the employer's contribution to furlough pay between July and September 2021. For any hours worked, employees will be paid by their employer as normal subject to their employment contract and employers will be responsible for paying the tax and NICs due on those amounts.

There is extensive Government guidance available, including:

• Pre-claim steps
• How much employers can claim (including the employer percentage contributions)
• General updated claim for wages guidance - claim for employees' wages
  
• Examples of calculations: Calculating a claim for a flexibly furloughed employee
• Which employees can be put on furlough
  

Q: What records on furlough claims should employers keep?

Employers should keep records of the following for six years:

• any agreement with the employee
• the amount claimed for each employee
• the claim period for each employee
• the claim reference number
• calculations (in case HMRC need more information about the claim)
• usual hours worked, including any calculations for employees you furloughed
• actual hours worked for flexibly furloughed employees.

The last two items above will give the employee’s furloughed hours for each claim period. 

There has been some inconsistency in guidance about how long records need to be kept for. The latest government guidance says that employers should keep a written record of the agreement with the employee for five years. All other records should be kept for six years which is the usual limitation period.

Q: How flexible can the 'part-time' work be under flexible furlough? Can employees work 3 days one week and no days another week, for example, depending on workload?

From 1 July 2020 onwards employers and employees have been able to agree the shifts, hours or days they choose, they will enter into a written furlough agreement in advance specifying the working and furlough time in any shift pattern. There is flexibility to agree furloughing employees on either a full-time or part-time basis, and can vary the hours worked can be varied by agreement with the employee. Employers and employees can agree, for example, to work three days one week and be fully furloughed in another week depending on the workload.

Claims can be for minimum periods of a week although they can be for longer periods. Claims cannot straddle a month.

For employees who already had written furlough agreements the extension of the furlough to September 2021 may have required agreed changes to the existing wording depending on what was agreed before. For many, furlough will effectively continue until the end of the scheme, although employers should at least agree timings for any days employees are required to work during flexible furlough.

Returning to work may require other contractual changes to enable adherence to new working arrangements or government return to work guidance. Any changes to the terms of existing employment contracts will usually need employee’s (or recognised trade union’s) consent. Any variations need to avoid potential discrimination against those with disabilities or with caring responsibilities.

Q: Under the furlough scheme will HMRC fund holiday pay if an employee works 2 days, and takes 3 days holiday?

The inter-relationship between flexi-furlough, holidays and holiday pay is complex.

A full-time employee can agree to work two days and take three days holiday in a normal working week. Assuming the employee has 28 days holiday they are prepared to use, the pattern can be adopted for a maximum of nine weeks. How much furlough grant can be claimed for the three non-working days depends on the month when the grant is applied for.

• If the employee returns to work full time but books three days holiday in any week then the employer will have to fund both the working days and the holiday pay in full as normal. The employer cannot claim any portion of this back through the furlough grant.
• Alternatively, the employer and an employee can enter into a furlough agreement that states that the employee will work on a pattern of two days per week and is furloughed for three days per week, the current guidance would allow the employee to then book holiday on those three furloughed days each week.

Pay

If the employee books holiday on three furloughed days per week the position is mathematically complex. The employer would have to pay full salary and NI and any pension contributions for the two days per week the employee is working per week. The government grant covers part but not all of the employee’s full holiday pay for their three day a week partially furloughed holiday time.

Employers must fund the difference between the government contribution and the furloughed employees’ holiday and other entitlements. The following would then apply to further payments depending on which month the holiday is taken:

• June 2021: For claims relating to this period, on a two days working and three-day furlough pattern the employer could claim 80% grant towards the employee’s holiday pay for three days furlough time, but the 80% grant figure would be capped at a £1,500 contribution. The employer would have to top up to full holiday pay above the 80% grant or £1,500 per month. (The cap is not the full usual £2,500 because the employee is furloughed for three-fifths of the week and the cap is pro rata). The employer must also pay 100% of the employer’s NI and minimum pension contributions for both the two working and three non-working days.
• July 2021: The employer could claim a 70% grant which is probably subject to a cap of £2,187.50 per month for the hours furloughed employees do not work although government guidance has not yet confirmed this amount. (The capped figure is based on the percentage reductions to furlough previously applied in September 2020). The full July grant cap for an employee on full furlough would reduce to £1,312.50 in proportion because of the two days part-time hours worked for this employee. The employer would pay the NI and any pension contributions and top up to full holiday pay above the 70% grant.
• August and September 2021: The employer could claim a 60 % grant which is probably subject to a cap of £1,875 for the hours furloughed employees do not work although government guidance has not yet confirmed this amount. (The capped figure is based on the percentage reductions to furlough previously applied in September 2020). The full August and September will reduce in proportion to £1,125 because of the two days part-time hours worked for this employee. The employer would pay the NI and any pension contributions and top up to full holiday pay above the 60% grant.
  
• September 2021: The scheme ends at the end of September 2021 and the employer would pay full salary and NI as before the pandemic unless any other arrangement is concluded with the employee.

Q: Are we still be able to furlough staff on and off (ie furloughed fully for 3 weeks, off furlough for 4 days, part furlough for 2 weeks then back on full furlough)?

Yes, from 1 May 2021 employers have been able to furlough staff on and off as they may have done previously with considerable flexibility. For example, an employee can still be furloughed fully for 3 weeks, working part time for 4 days (and presumably furloughed for 1 day), then on a combination of part-time working and furlough for 2 weeks then back on full furlough. Employers should agree the pattern with the employee and record this in a written furlough agreement.

For previous claims employers should remember that there is a minimum claim period of one week although claims can still be submitted in respect of longer periods such as fortnightly or monthly. Claim periods will no longer be able to overlap calendar months.

Q: How does flexible furlough work for those with no set hours?

The information about usual hours is based on previous averages (as under the first phases of the furlough scheme). 

Employers have to work out variable employee’s usual hours for an employee who works variable hours based on payslips, pay records, time sheets and other records to show time worked.

Differing approaches to calculate usual hours for variable hours employees depending on whether the employee had earnings from the employer reported on a Real Time Information (RTI) submission to HMRC on or before 19 March 2020. Employees who were first reported on the employer’s payroll between 31 October 2020 and 2 March 2021 can be furloughed from 1 May 2021. Details of how to calculate these employees’ wages will be provided in updated guidance in due course.

For employees with no set hours or who were employed on or after 20 March 2020 the usual hours are based on the average of the 2020/2021 tax year. This means the average hours worked from 6 April 2020 and the employee's first furlough day on or after 1 November 2020.

For those with no set hours who were previously furloughed, employers  claimed for the grant percentage basing the percentage on the higher of either:

• the corresponding month’s earnings from 2019 to 2020
  
• average number of hours worked in the 2019-2020 year.
  

If the employee with no set hours has not been employed for a whole year the average is likely to be based on monthly earnings since they started work. An online calculator is available to help employers work out how much can be claimed as wages, national insurance contributions and pension contributions with numerous examples and further guidance for those with no set hours.

When calculating the usual hours the following are included:

• any annual or other leave for which the employee was paid their full contractual rate
• any overtime hours but only if the pay for those hours was not discretionary. 

There are examples of how to work out the average number of hours worked for employees who work variable hours on the government website.

Q: Can employees returning from maternity leave be placed on furlough?

Yes, if there is not enough work for an employee upon their return from maternity leave they can be furloughed even if the employer is furloughing them for the first time. This applies to employees returning from other types of statutory parental leave as well, including shared parental, adoption, paternity or parental bereavement leave. It could be maternity discrimination to refuse to furlough an employee because they have been on maternity leave.

Any employee on payroll before 2 March 2021 who returns to work after any form of maternity or other parental leave will be eligible for the furlough scheme until it closes on 30 September 2021. Subject to any further guidance, there seems to be no distinction in treatment between those on statutory and contractual leave as there was previously. 

Complexities arose under the earlier phases of the furlough scheme as maternity returners were an exception to the 10 June 2020 cut-off date and could be furloughed for the first time after that date. Those absent on contractual maternity leave under the earlier phase of the furlough scheme were treated as any other employee furloughed for the first time and could be too late for the flexible furlough scheme. However, this applied to the phase of the scheme in operation between June and October 2020.

Notice to end maternity leave

Current government guidance implies that employees returning from maternity leave must give the statutory eight weeks' notice to end maternity leave early in order to be furloughed and obtain furlough pay instead. The guidance does not confirm if the employee and employer can agree to shorten that eight-week period. Previously under the first phases of the furlough scheme, employers and employees could agree to shorten the notice period, but the latest wording of the guidance suggests that they can’t. 

Employers should bear in mind that there is room for legal debate. Whilst the government guidance says eight weeks’ notice is required, normally women only have to give eight weeks’ notice to return to work early if the employer met all their requirements. This includes informing the employee in writing of the date that the 52-week maternity leave period would normally end.  This notice should have been within 28 days of the date of notification of maternity leave or within 28 days of when the maternity leave started. Many employers omit to give notice of the end of maternity leave. If the employer did not give written notification of the end of maternity leave, the employee may be able to return to work earlier with a notice period of less than eight weeks. The best approach is for employers to communicate and be flexible if possible.

Since 1 November 2020 employer’s claims are no longer limited to the maximum number of employees previously claimed for in any group furlough claim made under the first phase of the scheme.  

If employees do not wish to return promptly after maternity leave and do not qualify for furlough leave, employers can discuss the employee’s alternative suggestions which may include working from home, working part-time, sabbaticals, a postponed return date, unpaid parental leave and so on.

Q: Can employees returning from statutory paternity leave be placed on furlough?

Q: What if employees have some work but not enough?

Employees who do not have enough full-time work can be fully or partially furloughed. Staff can work part time if they are needed to do some work but will have some additional furlough payments topped up by the government grant.

Employers can claim even if they have never furloughed staff before, or have not furloughed a particular employee before. Under the latest phase of the scheme to be eligible a Real Time Information (RTI) submission notifying payment for that employee to HMRC must have been made between 20 March 2020 and 2 March 2021. 

Under the previous furlough scheme employers could not claim for more people than they had previously furloughed. Since 1 November 2020 employer’s claims are no longer limited to the maximum number of employees previously claimed for in any group furlough claim made under the first phase of the scheme. 

Employers may have arranged staffing needs by, for example:

• Keeping some (perhaps essential) people working full-time on normal pay and others not working on furlough pay.
  
  
• Alternatively, employers may have rotated furlough by having some employees on furlough and others fully working. Then after at least three weeks those fully working can be on furlough and the others started working again.

These options can be continued until the end of the furlough scheme, although employers could also reduce everyone’s hours equally. Employers should consult staff to find a solution that works for everyone. If employers decide a longer-term reduction in hours or pay is the only solution, then employees will of course need to agree to this.

Employers have considerable discretion about how part time working operates and once working hours and patterns are agreed with employees this should be confirmed in writing. When employees are working then employers pay normal wages and NI contributions etc. The government grant does not cover any pay for the hours worked.

Q: What if the employee has a second job?

If a furloughed employee works elsewhere there are two main possibilities.

Employees who continue an existing second part-time job: Employees with two or more jobs are eligible for the scheme. The government has confirmed that each job should be treated separately. So, if an employee has more than one employer, they can be furloughed from one job, or both jobs. The £2,500 cap will apply to each employment individually.

Employees who take on work elsewhere during their normal contractual hours: The amended Government guidance confirmed that employees can be furloughed in one job and receive their 80% furlough payment and can start working for another employer during the hours they would normally be working for the employer who has furloughed them. They will receive the furlough payments from the first employer and their normal wages from the new employer. 

Employees should consent to the furlough arrangements including any ability to work elsewhere and the pay reduction in writing.

Consent to working elsewhere

Whilst working elsewhere may be permissible under the coronavirus job retention scheme; whether the employer agrees to this or places restrictions on it is a separate matter. The employer and employee’s agreement depend upon a number of issues, including the competitive nature of the business and the terms of the original contract. 

During furlough there is a potential legal argument the employee should not be working elsewhere during those contracted hours. In many employment contracts there is either an express or implied term that the employee should loyally and faithfully work for the original employer and not work elsewhere. It could technically be breach of contract with that employer to work elsewhere. Ultimately what happens will be a question of negotiation between the original employer and employee, which are likely to require changes to the contract of employment.

Employees could say they only agree to being furloughed and taking a 20% (or more) pay cut if the employer agrees to them working elsewhere during their normal working hours. The safest course of action is to agree with the employee the nature and length of any other work that may be done in writing. Employers could ask employees to agree new or reconfirmed restrictions on working elsewhere, especially if for a competitor. Another option would be to refuse any requests for employees to work elsewhere but top up the salary to 100% during the furlough period. 

If employers refuse any requests to work elsewhere and only allow furlough on 80% pay or move to redundancy, then there is a risk of breach of contract claims or that the selection criteria may come under scrutiny especially if there are other employees still working on 100% pay.

Legal advice should be taken for changes to terms and conditions and you should stay up to date with the latest government advice.

Q: If employees do not agree to be furloughed can we dismiss by reason of redundancy?

Yes, 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. Most employees realise that furlough is a way of avoiding redundancies and are therefore likely to agree.

Government guidance now states that employees must give written consent to the furlough arrangements, ceasing work or the terms of any part-time working arrangements in place. Employees should also consent to the pay reduction although existing lay off provisions in some contracts may provide partial consent.

Some employers may feel that the long-term effect on their business will be inevitable closure or rationalisation. It may help employers to select employees for furlough using a process similar to redundancy selection. This would involve using objective criteria, such as a scores matrix based on skills, productivity, previous appraisals etc. Most employees realise that furlough is a way of avoiding redundancies and are therefore likely to agree.

Q: Can employers implement redundancies just because the furlough scheme is ending?

When the furlough scheme closes at the end of September 2021 employers have to decide whether there is sufficient work for employees to return. The ending of the furlough scheme is insufficient reason on its own to justify redundancies. Employers have to meet the normal redundancy criteria, namely that the work has ceased or diminished, or is expected to cease or diminish. If this is the case then redundancies can be implemented at that stage following full redundancy procedures for notice, consultation and selection.

Employers who decide they have no alternative but to press ahead with redundancies, should fully consult and keep careful records to show why the redundancies or the proposed restructuring will be needed.

If there is a real possibility that the employees will be able resume at least partial employment from October 2021 employers may consider retaining staff part-time but will need agreement to this or take the risks of a fire and rehire approach (see our Q: Can we change terms and conditions during or after furlough? in the 'After furlough' section). Employers will need to balance the additional cost of employer NICs, pension contributions and all factors, including the fact that the level of government support will progressively reduce between July and September 2021. The costs of holiday pay and the expected longer-term effects of the pandemic also need to be factored in.

For claim periods starting on or after 1 December 2020, employers cannot claim the furlough grant for any days where an employee is serving a contractual or statutory notice period. This means employers are obliged to fund full notice payments for redundant employees in addition to the redundancy payment and any other outstanding liabilities such as holiday pay.

Q: Can employees staying at home to look after young children be placed on furlough?

Employees staying at home to look after young children, for example if they are at home due to school closures, can be included in the furlough system. For further guidance on the progressive easing of lockdown including school reopening see our Q: Are employees entitled to paid time off during the pandemic if their child’s school is closed for any reason? in the Business continuity FAQs.

Q: Which special categories or atypical employees could be furloughed under the Coronavirus Job Retention Scheme?

A wide range of individuals, including some who do not necessarily have employee status in employment law, could be furloughed under the Coronavirus Job Retention Scheme. 

Time limits

To qualify under the current phase of the scheme staff must have been paid via the employer’s PAYE payroll and a Real Time Information (RTI) submission must have been notified to HMRC between 20 March 2020 and 2 March 2021. Staff who both have previously been furloughed and those who have not may have been placed on further furlough under the extended scheme.

Employers may wish to furlough the following categories of working individual and ongoing government guidance has previously clarified the position:

Agency workers: Agency workers who are paid through PAYE may have been furloughed. Agency workers should perform no work on behalf of the agency while furloughed during the first phase of the scheme, this includes not working for the agency’s clients. They may work for another entirely separate agency and different clients during the furlough period. The furlough should be agreed between the agency and the worker. The need to furlough may be triggered by any end clients and should be discussed with them.

Apprentices: Employers must cover any shortfall between the furlough grant and the appropriate apprenticeship or national minimum wage or national living wage for their training time.

Carers: Employees with caring responsibilities with jobs that couldn’t be done at home and who couldn't attend the workplace may have been furloughed. This included, for example, employees who needed to look after children in the event of school closures.

Casual workers: Casual workers on the PAYE system could be furloughed.

Company directors: Company directors may have been furloughed by the board of directors. During the first phase of the furlough scheme (before 30 June 2020) any furloughed directors could still perform some of their statutory duties but could not do any revenue generating work for the company. The director's duties include the filing of company accounts and other essential matters relating to the administration of the company.

Fixed term contracts: Workers on fixed term contracts may have been furloughed. If the fixed term contract ends without being extended or renewed the employer could not claim a grant for that individual. However, if the contracts were renewed or extended during the furlough period that would not prejudice payments under the scheme.

Foreign nationals: Holders of non-UK passports working for UK employers with UK payrolls and bank accounts could be furloughed. For details of special coronavirus visa extensions and temporary video call checking systems during recruitment see our FAQs on right to work checks.

Limited Liability Partnerships: Salaried members of LLPs who are classed as employees for tax purposes could be furloughed. The furlough should have been a formal decision of the LLP. During the first phase of the furlough scheme (before 30 June 2020) the member could not work for the LLP during furlough. Their ‘salary’ is any profit allocation but not including payments based on individual performance, or the overall performance of the LLP. Non salaried LLP members could not be furloughed although the self-employed support scheme may have applied.

Maternity, paternity, adoption, or shared parental leave: Employers with staff on maternity leave can reclaim SMP back in the normal way. Any enhanced contractual maternity etc pay could be claimed through the furlough scheme, at least for those furloughed during the first phase of the scheme. Some employees may have asked to switch their maternity (or paternity, adoption or shared parental) leave and pay to furlough leave. This appears to be possible if the employer agrees. See our separate FAQ for the detail on this.

Office Holders: Office holders, including company directors and LLP members, could be furloughed as agreed between the office holder and the business that operates PAYE for their payments.

Part-time workers: Including those with more than one job could be furloughed for one job or all jobs. Employees can receive a furlough payment from one employer but continue working for another employer who pays full wages. Under the extended furlough scheme (operational from 1 November 2020 onwards) employees who qualify may be partly furloughed, combining this with working part time for the employer. The £2,500 cap applies to each employer individually. For example, an employee with two jobs which are both furloughed can have 80% of salary reimbursed with a cap of £5,000, reducing to 70% in July and 60% in August and September 2021. See the separate FAQs on part-time workers and working elsewhere.

Redundant employees: Some employees who were on the payroll before 2 March 2021 who were made redundant in anticipation of the furlough scheme ending in April 2021 may have been re-engaged to go on furlough until the extended end date of September 2021.

Self-employed workers: Those who do not receive PAYE salaries may have qualified for similar income support under the self-employed scheme.

Self-isolating employees: Those self-isolating on medical advice or following contact by the track and trace service can get Statutory Sick Pay (SSP). Under the coronavirus job retention scheme staff could not be furloughed while on SSP, but they could be furloughed once they are no longer receiving it. For further information on self-isolation and furlough see the Q: What are the differences between furlough, medical suspension, sickness absence and self-isolation? and the Sickness during furlough Q&As.

Shielding employees: Employees who were highly clinically vulnerable or shielding in line with public health guidance (or needed to stay home with someone who is highly clinically vulnerable) could be furloughed if they are unable to work from home. On the reintroduction of national lockdown in December 2020 onwards, the clinically extremely vulnerable were once again advised to minimise their contact with others and not to go to work if they are able to work from home. The clinically extremely vulnerable can still be furloughed until the end of the furlough scheme even though the advice to shield has ended. Clinically extremely vulnerable people must continue to follow the rules that are in place for everyone and take extra precautions to protect themselves. 

Short time or reduced hours working: Under the extended furlough scheme employees may be partially furloughed, combining this with working for the remaining time.

Sick leave: Employees on sick leave or self-isolating for medical reasons can get Statutory Sick Pay (SSP). Employees on SSP cannot be furloughed until they are no longer receiving SSP.

Unpaid leave: Employees that started unpaid leave after 28 February 2020 can be furloughed.

Umbrella companies’ employees: These employees could be furloughed. Any individuals employed by their own service or umbrella company that operates PAYE, can agree the furlough.

Zero hours contract: These workers (provided they are on the PAYE system) could also be furloughed. Special rules apply to assist with the calculation of the 80% of salary.

More information is available on the Government website.

Q: Are casual workers and zero hours contract workers covered?

The 80% wage guarantee will not cover zero-hour contracts or casual workers, unless they work on the PAYE system.

For casual and zero-hours contract workers who are on the PAYE system with variable hours, their previous pay can be used as a benchmark for furlough pay - see the question on calculating the figures for those who work variable hours for more information.

For casual and zero-hours contract workers who are self-employed a number of options are available. The self-employed income support scheme for those whose business has been adversely affected by coronavirus offers taxable grants:

• The first one for March to May 2020 was worth up to 80% of trading profits, up to a maximum of £2,500 per month, or £7,500 in total, provided an application is submitted by 13 July 2020. 
• The second grant covered three months' worth of average profits between June and August 2020 and was worth up to 70% of trading profits (capped at £2,190 per month or £6,570 in total). 
• The third grant covers three months from November 2020 to January 2021 worth up to 80% of 3 months average monthly trading profits (capped at £7,500 in total).
• The fourth grant covering February to April 2021 is worth up to 80% of 3 months' average trading profits (capped at £7,500 in total).
• The fifth grant covering May to September 2021 depends on turnover: 80% for people whose turnover has fallen by 30% or more; 30% for people whose turnover has fallen by under 30%.
  

The grants are taxable income and also subject to National Insurance contributions.

There are other benefits such as easier access to support to cover a drop in income. This includes removing the income floor for universal credit and moving the application process to an online and telephone process. 

More information is available in our separate question on the self-employed and on the government website. 

Public sector

The government says that it expects that publicly funded organisations will not use the furlough scheme following its November 2020 extension onwards but partially publicly funded organisations may be eligible where their private revenues have been disrupted. 

Special complex guidance applies for services supplied to the public sector by certain types of casual worker including:

• agency workers paid through PAYE
• workers paid through umbrella companies on PAYE
• off-payroll workers with personal service companies.

In the small number of cases where some contract workers serving the public sector might be eligible under the furlough scheme. The workers must be ‘deemed employees’ under the off-payroll working rules. The public sector organisation can effectively furlough a contractor by formally agreeing this with both the contractor’s personal service company and the fee-payer, which may be an agency.

Q: Can we place staff who were on suspension for a disciplinary matter on furlough?

Employees who are suspended on a disciplinary matter remain employees and can be placed on furlough. However, many complexities will result from this.

In any circumstances employers should only have been using suspension with reasonable cause and in accordance with a right to suspend on full pay in the contract of employment. Any suspensions should be as brief as possible, so ideally the employer should resolve the suspension situation promptly.

The employer should not choose employees to furlough just because they were suspended. However, as long as the employer cannot maintain their current workforce because operations have been severely affected by coronavirus then employees can be furloughed, including those who were on suspension.

Employers must select employees for furlough in a fair way to avoid claims of unfairness or discrimination. There are no set requirements for selecting employees, however it is sensible to apply some objective selection criteria, similar to a redundancy exercise.

Even if there is a layoff clause in the employment contract employers should obtain the employee’s agreement to being furloughed and to the reduction in pay and to any flexible furlough and working arrangements (applicable from 1 July 2020 onwards). Some employees with pending disciplinary or grievance proceedings will ask what will happen with those proceedings before agreeing to the furlough period.

Employers must decide how to handle disciplinary or grievance proceedings when furloughing a suspended employee and decide which employees (ideally those not on furlough) and witnesses are available to assist with running the process. Ideally the employee’s consent should be obtained if hearings are undertaken remotely. For further information see our FAQ on conducting disciplinary and grievance processes during the coronavirus restrictions. You can also refer to the new Acas guidance on disciplinary and grievance procedures during the coronavirus pandemic.

Q: Are migrant workers covered by the coronavirus job retention scheme?

The extension of the scheme to September 2021 applies to any employers with employees who were employed and on their PAYE payroll with a Real Time Information (RTI) submission notified to HMRC between 20 March 2020 and 2 March 2021. Migrant workers therefore qualify under the extended furlough scheme (operational until September 2021) provided that they were on the payroll and notified by the employer to HMRC within the relevant dates.  

Any workers on UK contracts, working in the UK and paying UK PAYE at the relevant date could be placed on furlough regardless of their passport or country of birth. HMRC have confirmed that those with work visas which only permit limited access to public funds will not be regarded as breaching their visa conditions if the employer claims funds for them under the furlough scheme. Employees on all categories of visas can be furloughed.

Visas

People with UK visas expiring before 30 June 2021 could request a grace period if they could not leave the UK because of travel restrictions or self-isolation related to coronavirus. In 2020, there were more relaxations but in 2021 migrants are no longer able to extend their visa automatically, and should take all reasonable steps to leave the UK where possible or to apply to regularise their stay in the UK.

Additional time to stay

If a person has a visa or leave that expires by 30 June 2021 it was possible to request additional time to stay in individual cases. This is called an exceptional assurance but is not as extensive as the earlier full visa extension. Employees granted exceptional assurance have an extension as part of the further national lockdowns in England. Those who intended to leave the UK but have not been able to do so with a visa or leave that expires by the above date could request this additional time to stay. The exceptional assurance gives short-term protection against any adverse consequences once leave has expired and enables the employee to continue working even though they do not have full leave. The exceptional assurance scheme requires completion of an online form without having to leave and apply from abroad. 

Any such visa extensions are obtained by updating records with the Coronavirus Immigration Team for those whose visa is expiring but cannot leave the UK at present and are not planning to stay in the UK in the long term. Those with expiring visas are expected to take all reasonable steps to leave the UK where possible. The exceptional assurance form requires details of name, visa dates, date of birth etc plus explanation of why the person can’t leave with evidence such as flight details or of illness.

Whilst a decision on exceptional assurance is pending, the migrant person should not suffer any detriment and can continue their current (or recently expired) visa conditions including ability to work during the period of exceptional assurance. Exceptional assurance does not grant applicants leave but protects those who are unable to leave due to COVID-19 restrictions.

Employers who furlough migrant workers in preference to others or who retain migrant workers in the workplace could face race discrimination claims if the migrant workers are treated differently.

Problems arise for some migrant workers on Tier 2 visas - see the separate FAQ on this.

Q: Are Tier 2 workers covered by the coronavirus job retention scheme?

Tier 2 is the main immigration route for working in the UK and enables skilled workers with a job offer in a wide range of skilled occupations (including IT, accountancy, teaching, and healthcare) to enter the UK on a long-term basis. This tier system is nothing to do with the previous tier system related to the local coronavirus lockdown restrictions. The visa is linked to a specific job and the employer provides sponsorship. Tier 2 sponsorship has a minimum salary threshold of £30,000 but Tier 2 migrants must also meet salary thresholds for their specific job types, which are often higher.

People with new applications under Tiers 2 and 5 can start work with their sponsor pending a decision on the application, subject to certain requirements.

Tier 2 workers and furlough

The main complexities of placing Tier 2 migrants on furlough are:

• Thresholds: The maximum payment a furloughed employee can receive is £2,500 per month (equivalent to about £30,000 pa), even if actual salary is higher than this. A Tier 2 worker placed on furlough may therefore find that they no longer meet the minimum Tier 2 salary threshold unless the employer is topping up payment beyond the 80% of salary. Under the Home Office’s guidance (updated in 2021) employers can temporarily reduce the salary of sponsored workers in line with government support schemes. This can be up to to 80% of the salary recorded on their certificate of sponsorship or £2,500 per month, whichever is lower. After furlough their salary must return to at least the rate on the certificate of sponsorship. 
  
  
• Salary reductions: Any reductions to salary referred to above must be temporary and part of the employer’s wider policy to avoid redundancies. All workers must be treated the same and employers should keep a copy of records to show the course of action adopted. The employee’s pay must return to at least previous levels once the temporary arrangements end. Sponsoring employers cannot reduce workers’ rate of pay for the hours they work below the going rate for their occupation apart from any discounts they qualified for when they were granted permission. Until any supplementary guidance it may be advisable to report caution any salary reductions using the sponsor management system in the 'free text' section of the report.
  
  
• Public funding: Foreign nationals with limited leave to remain are usually not entitled to publicly funded benefits but it appears the furlough scheme is an exception to this. If an employer claims furlough funds for staff with work visas that permit limited access to public funds the furloughed employees will not be regarded as breaching their visa conditions. (Furlough pay does not count as recourse to public funds. However, any reduction in salary would not entitle workers to welfare support as this remains unavailable to Tier 2 sponsored workers and their dependants. If claimed it would be a breach of immigration conditions.) 
  
  
• Reporting: Employers normally have to report changes in place of work to the Home Office within 10 working days. The Home Office has confirmed that where such a change is due to the coronavirus pandemic no report will be required. This would cover sponsored workers who were working from home and then return to the office. Other changes not related to the pandemic will need reported in the usual way. If there are long-term changes to working arrangements, such as a permanent switch to working from home or a hybrid system it seems advisable to report these arrangements.
  
  
• Leave and absences: Tier 2 sponsored workers can normally only have four weeks unpaid leave per year maximum, or they lose their sponsorship. The Home Office guidance confirms that in light of coronavirus, sponsors should not report absences related to coronavirus and should not withdraw sponsorship if a migrant is absent from work without pay for over four weeks. A clear record and absence reporting processes should be kept in all circumstances to evidence authorised absences related to coronavirus. The authorised coronavirus related absences include for example illness, isolation, inability to travel due to travel restrictions and the need to care for children during school closures. The Home Office's latest guidance confirms there will not be enforcement action against sponsors who continue to sponsor employees who are absent due to coronavirus. If Tier 2 migrants are on furlough leave, they are on paid leave anyway and would not be absent without pay or have withdrawal of sponsorship.
  
  
• Other work: During any period of furlough, Tier 2 employees can train or do voluntary work in limited circumstances. Any supplementary employment must be for less than 20 hours a week and be outside the working hours on the sponsorship certificate. The limited supplementary employment is allowed in shortage occupations, or in the same role or a role at the same level as the original one.

Q: What happens to UK employees of an EU employer? Is there any provision for them under the scheme?

There is no provision for UK employees of an EU employer under the coronavirus job retention scheme. However, all EU countries have their own legislation governing the position. Different national governments have chosen state wage subsidies for workers’ salaries, tax breaks, and loans. In Germany, France, Italy and Spain for example different schemes have been set up to subsidise the income of affected workers employed in those countries. Whether UK workers are covered would depend upon the individual country concerned and individual advice should be sought.

Q: Can public sector employees or those with public funding furlough staff?

The initial government information emphasised that it did not expect that the coronavirus job retention scheme would be used by many public sector employers. This is because the majority of public sector employees continue to provide essential public services or contribute to the response to the coronavirus outbreak.

The November 2020 update to the scheme says that the government expects that publicly funded organisations will still not use the scheme. However partially publicly funded organisations may be eligible to use it if their private revenue have been disrupted.

Although public sector employees are not expected to be furloughed but public sector organisations are not entirely banned from accessing the job retention scheme either. For example, some public sector workers working for closed local libraries and museums can be furloughed. 

The following categories of staff should not be furloughed:

1. Organisations with employees who provide essential public services and are expected to continue to work and will be paid in the normal way (e.g. the NHS). These staff will not be furloughed.
2. Organisations that get extra public funding specifically to provide services to respond to the pandemic. Such organisations are not expected to furlough their staff (e.g. manufacturers of urgently needed medical equipment).

However, other some non-public sector employers may receive public funding for staff costs. The government generally expects employers to use that public money to continue to pay staff in the usual fashion – and not furlough them but a small number of these employers may be able to furlough some staff including:

1. Contingent workers in the public sector.
2. Contractors with public sector engagements in scope of IR35 off-payroll working rules (IR35).
   

A grant may be possible for these employees as long as they’re paid via PAYE. The Cabinet Office has issued extensive guidance on how payments to suppliers of contingent workers should be dealt with. This applies to agency workers paid through PAYE, those paid through umbrella companies on PAYE and off-payroll workers supplying their services through a Personal Service Company.

There may also be a small number of cases where public sector organisations need to furlough a contractor with public sector engagements which fall in scope of IR35 off-payroll working rules. The arrangements would need to be confirmed with the contractor’s Personal Service Company and any agency paying that company. There would also need to be a formal agreement and the payments reported via PAYE with the usual tax and NICs deducted in accordance with the off-payroll rules. If a contractor still gets payments from a public sector client (including furlough income) this is excluded from the reference pay if the contractor also furloughs themselves as an employee or director of their own company.

Q: Can public sector workers who are not on a PAYE payroll be furloughed?

Generally, the furlough scheme only applies to workers who were being paid on a PAYE basis. However guidance notes published by the government state that special rules apply to off-payroll contractors within the public sector who are eligible for the furlough scheme.

The reasons for this are because of the risk that some public sector contractors may continue to work to earn money when they should be self-isolating, thereby potentially infecting colleagues and the public. Other reasons are that critical workers could seek other jobs if there was a risk of not getting paid and keep them as part of an ongoing future supply chain.

Therefore, furlough for public sector workers includes those being paid under PAYE and those on short term or variable hours contracts (described as contingent workers) even if they don’t have full employee status for their work within the public sector. This includes any contingent workers in the NHS.

The scheme is available to all types of contingent worker:

• PAYE
• Umbrella companies
• Personal Service Companies (PSCs)
• 
  

To be eligible off-payroll workers should be in the middle of ongoing contracts for central government departments, their executive agencies or non-departmental bodies. The workers are eligible whilst on a current assignment, regardless of the length of time left and undertaken on the assignment so far. If the assignment would have ended irrespective of the pandemic, then those workers are not eligible for the Coronavirus Job Retention Scheme.

This eligibility does not appear to extend to off-payroll workers in the private sector, although they may be entitled to support under the self-employed income support scheme.

Q: Are employees who transferred under a TUPE transfer after 28 February 2020 eligible for furlough?

Employees who transfer to a new employer under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (‘TUPE’) after 28 February 2020 are eligible for furlough. 

Slightly different rules apply according to the time periods and whether normal TUPE provisions or succession rules apply. In general, a new employer after a TUPE transfer can claim in respect of the employees of a previous business transferred as long as:

• the TUPE or PAYE business succession rules apply to the change in ownership,
• the employees being claimed for have previously had a claim submitted for them by their prior employer; or
• the normal eligibility rules apply.

The maximum number of employees that the new employer could claim for was restricted to the total of the maximum number of employees it claimed for in any one claim before 30 June plus the number of employees transferred over which the old employer had claimed furlough for.

Employees employed on or before 30 October 2020
For staff transferred from another business who are included on the employer’s PAYE Real Time Information (RTI) submission to HMRC on or before 30 October 2020 the employer can claim furlough for a period between 1 November 2020 and 30 April 2021 under the normal rules.

Otherwise, employers may still be eligible to claim in respect of the employees if the TUPE or PAYE business succession rules apply to the change in ownership.

Employees transferred between 1 September 2020 and 30 April 2021
The following transferred employees are eligible for furlough under the succession rules if they:

• were employed by the old employer on or before the 30 October 2020;
• transferred from their old employer to their new employer on or after 1 September 2020; and 
• were included on a PAYE Real Time Information (RTI) submission to HMRC, by their old employer, between 20 March 2020 and 30 October 2020.

• were employed by the old employer on or before 2  March 2021;
• transferred from their old employer to their new employer on or after 1 January 2021; and
• were included on a PAYE Real Time Information (RTI) submission to HMRC, by their old employer, between 20 March 2020 and 2 March 2021.
  

Businesses completing business transfers or service provision changes during this time should check current advice if intending to furlough employees upon completing the transfer with the detailed government guidance on the TUPE rules.

Background

TUPE protects employees on the sale of a business or following an outsourcing of a service so that the employees and any liabilities associated with them move from the previous employer to the new business.

Traditionally TUPE only operates to transfer all “rights, duties, powers and liabilities” under the employment contract between employer and employee but does not transfer rights from third parties such as government grants. The new employer also does not have the right to obtain all of the payroll data from the transferor it would need for any furlough claims to HMRC.

Transfers

New transferee employers severely affected by coronavirus may be unable to provide work to the new employees, but could be already committed to acquiring them. These employers may need to furlough the new staff in accordance with the special rules otherwise it would mean redundancies.

It appears from the way in which the guidance is drafted that the furlough scheme only applies where there is a business transfer under TUPE and not where there has been a service provision change.

Q: Does the employer need written evidence of furlough?

The extended furlough scheme is operational until 30 September 2021 and the UK government will continue to fund part of the non-working time. Furloughed workers will continue to receive 80% of their salary. From 1 July 2021, employers must contribute 10% towards furloughed employees’ wages. This will rise to a 20% contribution in August and September 2021. Employers may need to agree updated furlough agreements with employees unless the previous arrangements envisaged an extension.

Government advice concerning furlough is regularly updated.

The gvernment advice specifically states that the furlough agreement must be confirmed in writing and kept for five years. The employee does not have to provide a written response although they must agree to the arrangements. HMRC may audit employers and can ask to see the agreements and other appropriate records.

Under long established employment law, if an employee's wages have been reduced and there is no lay off clause in the contract, then failure to obtain written consent may lead to claims for breach of contract or unlawful deduction from wages.

In the furlough agreement the employee should confirm their agreement to the temporary furlough and their pay reduction. For periods of furlough falling under the extended furlough scheme, the agreement should address any part-time working arrangements. The agreements can address other matters including the employer’s consent or restrictions to the furloughed employee temporarily working for another employer, holiday arrangements, consent to lay-off, tax and NI. 

Under the earlier phase of the scheme furlough agreements could be backdated to ensure a seamless transition from the end of the previous scheme to the extended one but only if the backdated agreements were in place by 13 November 2020. Under the current phase of the scheme there has been sufficient advanced notice for employers to put agreements in place.

Collective agreements between employers and trade unions are valid evidence of furlough too.

The government fact sheet and latest guidance is available on the UK government website.

Q: Can employers backdate the furlough period for all employees, even those who have been working since then?

No, employers cannot backdate the furlough period for all employees, only those who were genuinely furloughed at that time. 

Employees who have been working their usual hours cannot get furlough backdated.

The general principle under the current phase of the scheme for periods after 1 May 2021  is that furloughed employees must have been on the PAYE payroll and notified to HMRC (on the real time information system) on or between 20 March 2020 and 2 March 2021 and must therefore have been employed by 2 March 2021.

Q: When and how do employers make claims under the Coronavirus Job Retention Scheme between May and September 2021?

The Coronavirus Job Retention Scheme has been extended until 30 September 2021. There should be no gap in eligibility for support between the previously announced end date of the scheme and the extension. Payments should arrive within six working days after the claim. Employers can no longer submit claims for claim periods ending on or before 31 October 2020.Employees who were first reported on the payroll between 31 October 2020 and 2 March 2021 can be furloughed from 1 May 2021.

Claim deadlines

• Claims for June 2021: deadline = 14 July 2021
• Claims for July 2021: deadline =16 August 2021
• Claims for August 2021: deadline = 14 September 2021
• Claims for September 2021: deadline = 14 October 2021
  

Claims under the extended scheme will operate similarly to the previous scheme:

• Employers make a collective claim for the group of furloughed employees
• Employers work out actual hours worked and the usual hours an employee would be expected to work in a claim period.
• The claim period must start and end within the same calendar month.
• Employers need to claim for a minimum period of a week (seven consecutive calendar days). This is only a minimum period and those making claims for longer periods such as monthly or fortnightly cycles can still do so.
• Claim periods cannot overlap, and employees claimed for must be included in each separate claim made.
• If the pay period spans more than one month, the days falling in each month will need to be calculated separately.
  

Employers claims are not limited by the maximum number they have claimed for under any previous claim under the earlier phases of the scheme.

Grant

Employers have to pay over the entire grant received for gross pay to the employees plus any top up employers are choosing to pay. The employer must not make any deductions at all, for example, administrative charges. For worked hours employees are paid by the employer in accordance with their employment contract and furlough agreement plus tax and NI contributions in the usual way.

The information required for the claim includes name, NI number, claim period, amount and payroll or employee number. In addition, employers must report hours worked and the usual hours an employee would normally be expected to work in a claim period. Because furloughed employees work part-time for the employer after this date, the grant for furloughed hours must be calculated by reference to any usual hours worked in a claim period. 

The overall process is slightly different depending upon whether more or less than 100 staff are being furloughed. For less than 100 staff, a representative of the employer will sit and enter the details of each employee directly onto HMRC's system. For more than 100 furloughed staff, employers prepare a file with this information in advance and upload it rather than directly entering information into the system. HMRC have specified the file types that will be accepted in the coronavirus job retention scheme guidance.

Employers can continue to make claims in anticipation of an imminent payroll run, at the point payroll is run or after payroll has been run.

Employers must keep copies of all records and calculations for the furlough claims.

For more detail see further guidance on furlough and how employers should calculate claims.

Q: Are payments to the furloughed workers under the Coronavirus Job Retention Scheme a loan or a grant?

Under the Coronavirus Job Retention Scheme, all UK employers who would otherwise have dismissed employees during this crisis can access payments for part of the employees’ salary. This is a grant which employers do not have to pay back. The UK government has announced that the scheme will run until September 2021.

Furloughed employees will receive at least 80% of their wages, up to a cap of £2,500 per month. In July 2021, employers must contribute 10% towards these furloughed employees’ wages which will rise to a 20% contribution in August and September 2021.

HMRC have confirmed they reserve the right to retrospectively audit claims. Employers may have to pay back grants from claims which did not comply with the rules. Employers may also commit criminal offences if they knowingly made false claims.

Q: If there is a delay to payments, do employers have to pay first and claim later?

Yes, employers must pay the employees first and wait for the claim to come through.

Employers will need to fund 80% of furloughed employee’ wages up to £2,500 a month and then calculate and claim the relevant amount back. In July 2021, employers must contribute 10% towards furloughed employees’ wages which will rise to a 20% contribution in August and September 2021. Employers have to pay the NI and any relevant pension contributions, pay for any hours worked and holiday pay top up. Employers can use normal payroll systems, deducting tax and national insurance on the furlough pay under the PAYE system.

For information on the other forms of UK government support available please see our table summarising the options available.

Q: If employees are on furlough leave can they participate in disciplinary and grievance processes?

Furloughed employees can  participate in disciplinary and grievance processes. However, in some cases the furlough grant may be jeopardised depending on whether the furloughed employee is the manager conducting the hearing, the witness, or the employee the proceedings are about. 

ACAS guidance on handling disciplinary and grievance proceedings during the pandemic suggests that employees can chair and take notes at hearings, as well as giving witness statements or acting as witnesses. The potential problem for some employers operating their disciplinary and grievance processes is that during full furlough or furloughed hours employees must not generate revenue or provide services to the employer. The position is as follows:

Managers: Line managers and HR managers who are on furlough leave cannot supervise a disciplinary and grievance process during their furloughed hours. This would amount to working or providing a service to the employer. Only those employees who are not on furlough at the time should run the process. Partially furloughed employees can run disciplinary and grievance processes during their working hours as long as the employer makes no claim for that working time under the furlough scheme.

Employees who are the subject of the proceedings: Employees who are being disciplined or who have raised a grievance can participate in their own hearing even if they are also furloughed at any point in time. Participating in one’s own grievance or disciplinary process is not providing services to the employer.

Witnesses: Potential problems arise if evidence is needed from furloughed employees. Staff who are witnesses in proceedings involving a colleague could be providing services to the employer in breach of the furlough restrictions. Acas guidance suggests employees can be  witnesses in internal grievance or disciplinary proceedings without coming off furlough. However, to avoid any risk of challenges that employee witnesses are breaching furlough by providing services, employers may prefer to place the proceedings on hold until any furlough period has ended or take the witness off furlough.

Employee’s companion: Employees are entitled to have a union representative or colleague ‘present’ at a grievance of disciplinary hearing, even if this is an electronic presence in a remote hearing. It is arguable that a union representative is providing services to the employee, or the union, and not to the employer. So, the union representative performing those duties may not amount to them carrying out ‘work’ for the employer. For other companions who are colleagues they may arguably be providing services to the employer by participating in the process. For any hearings taking place on or after 1 July 2020, employees are allowed to work part-time, so the grant payments for furloughed time should not be in jeopardy as long as the employer makes no claim for that working time under the scheme.

It would be logical that employees who provide witness statements and evidence for use in disciplinary proceedings should be allowed to do so without jeopardising the furlough payment at any stage in the scheme’s period of operation. However, employees who are being disciplined may have bad feelings towards the employer and could trigger an HMRC investigation by saying that the employer’s witnesses were working and breaching the terms of their furlough. To avoid any risk that employers who use furloughed staff as witnesses were breaching the furlough restrictions employers may prefer to place the disciplinary proceedings on hold or until any furlough period has ended or simply take the witness and other participating staff off furlough. Alternatively, they may decide to run the risk and then if HMRC do investigate, try to argue retrospectively that the witnesses were merely giving evidence and not providing services. Employers should be cautious about disciplinary and grievance processes. If there is any possibility of breaching the furlough scheme, any furloughed employees required as witnesses should be taken off furlough as a precaution.

Q: What happens with notice pay if someone resigns while they’re on furlough?

If staff resign whilst they are on furlough the employer has to pay full normal salary pay and benefits for the length of the notice period.

This position was not entirely clear under the earlier stages of the furlough scheme. However, UK Government guidance on the furlough scheme now applicable until 30 September 2021 clearly states that for furlough claims starting on or after 1 December 2020 employers cannot claim the furlough grant for any days during which the employee is serving contractual or statutory notice.

If a furlough claim has been submitted but the employee then resigns (so is then on notice during what would otherwise have been furlough) employers will need to make an adjustment and pay back any furlough grant covering the days the employee is serving this contractual or statutory notice. 

Employers can also make furloughed employees redundant, and claim furlough grants during a redundancy consultation process. Once the redundancy notice is served then the furlough grant is no longer payable during the notice period. Statutory redundancy and statutory notice pay are based on normal wages rather than the reduced furlough percentage.

(For any employees who served notice periods up to November 2020 employers could make a claim for furlough grant during the notice period, subject to some complexities.)

Q: What happens about employer National Insurance and pension contributions for furloughed employees?

Employers remain liable for employer NI and employer pension contributions on behalf of their furloughed employees. From 1 August 2020 onwards, employers have not been able to claim these back. The NI and pension elements are based on the furlough salary, not normal salary.

If employers choose to top-up the 20% of salary above the 80% grant, then employer NI and pension contribution on the top-up amount will also be payable.

In addition to the NI and pension contribution set out below, employers must contribute 10% towards employees’ salaries from 1 July 2021, increasing to 20% in August and September 2021.

Pensions

Employers still need to pay pension contributions on behalf of furloughed employees throughout the pandemic.

From 1 August 2020
From this date employers can no longer claim towards contributions into employees’ pensions.

HMRC guidance is available on the Government website. The Pensions Regulator has also released technical guidance for large employers looking at the interaction between normal pension contribution calculation and the Coronavirus Job Retention Scheme.

Q: How do I work out if our furlough claim is correct? 

Guidance on how to calculate pay for furloughed employees, especially those who have irregular salaries, variable hours or zero hours contracts, appears in an FAQ below, and further details and examples are on the government website for varying types of pay packages. Employees who were reported on the payroll between 31 October 2020 and 2 March 2021 can be furloughed from 1 May 2021. There is government guidance on how to calculate employees’ usual hours but this will be essentially the same as under the previous phases of the scheme. There is a government calculator which can be used to work claims out. The precise method will vary depending on whether employees are paid regularly or variably ineach pay period (for example, weekly or monthly). There also may be complexities if there have been matters such as a change from regular to variable working, a TUPE transfer or periods of parental leave. 

For different types of employee arrangement, employers may need to work out:

• maximum wage amounts
• reference periods for those with fixed pay
• 80% of the usual wage
• overtime
• average wages for those on variable pay
• wages earned in the corresponding calendar period in a previous year
• the appropriate calendar ‘lookback period’.

Q: If employers have made a mistake when making a furlough claim, what should they do?

Inevitably, some employers will make mistakes in claiming furlough payments under the Coronavirus Job Retention Scheme. If HMRC questions any claims, as long as the employer has made a genuine mistake, the most likely outcome will be a minor adjustment.

Employers should undertake audits to ensure that the claims submitted did not contain errors. Common mistakes include:

• Errors when inputting claim details.
• Claiming for employees who are ineligible for the furlough payments claimed.
• Inaccurate information submitted in support of claims.
• Calculation errors over the amount of pay claimed.
• Calculation errors for employees furloughed partially through a pay period.
• Incorrectly apportioning payments which did not match later guidance published later by HMRC.
• Complications with salary sacrifice schemes claimed claiming based on the pre-tax notional salary, rather than the post sacrifice salary.
  
• Misunderstandings over employees who are sick or go on maternity or other parental leave.

Deliberate false claims may include:

• Misdirecting payments received under the scheme to the business.
• Claiming where not entitled to the payments, or inflated claims.
• Failing to correctly pass all the funds claimed on to furloughed employees.
• Claims for employees who have been working during the days they were allegedly furloughed, or for directors who have been engaged in revenue generating activity during the period of furlough.

Overclaims and underclaims

If an error has resulted in an overclaimed amount, employers must pay this back to HMRC and can reduce any later furlough claim to take account of a previously overclaimed amount. The employer's next payment from HMRC would be reduced proportionately to take into account the overpayment. Employers may discover mistakes after they have made their final furlough claims and will then need to contact HMRC to pay the money back. A record of any adjustment ought to be kept for the six-year limitation period. Further guidance is available on the government website.

If there has been an underclaimed amount, employers can contact HMRC to amend the claim which HMRC will check.

Q: If employers have made a mistake when making a furlough claim, what are the time limits for notifying this?

If a mistake is noticed within 72 hours of making a furlough claim, this may be rectified by deleting the claim in the online service.

Where an employer realises that there have been overclaims after the 72 hour period then they must notify HMRC by the latest of either:

• 90 days after receiving the overpaid grant 
• 90 days after receiving the overpaid grant that they were disentitled to keep due to a change of circumstances
• 20 October 2020.

So in summary, HMRC must be notified within 90 days of the date the employer received the grant they were not entitled to. If an employer does not notify HMRC within these time limits, penalties may be payable as well as repayment of the overclaimed grant. HMRC are not actively checking for innocent errors in their compliance approach.

Repayment: Sole traders must repay overpayments by no later than 31 January 2022. Corporate employers must repay overpayments within 12 months of the end of their accounting period. One of the partners in a partnership must include any overpayments in their 2020-21 tax return, but all partners will be jointly and severally liable for the repayment amount.

Q: What are the penalties and other sanctions for late notification to HMRC?

HMRC may charge penalties if an employer does not notify an overclaimed furlough grant within the time limits. In certain circumstances the penalty is up to 100% of the furlough grant that the employer should not have received.

HMRC now publish monthly details of employers’ claims on the government website to help promote transparency and deter fraudulent claims. From February 2021, furloughed employees can see if they were included in a furlough claim in their personal tax account.

In addition, the UK government may publish details of deliberate defaulters. This can include names and addresses of defaulters together with the amount of additional tax, penalties and period of default. Details will remain online for up to 12 months from the date we first publish them.

The amount of any penalty is set taking into account whether the grant became chargeable to tax because circumstances changed. If the employer knew it was not entitled to the grant and did not confess within the notification period then the failure is deemed deliberate and concealed.

For partnerships one individual partner or any of the partners are jointly and severally liable for any penalty assessed.

Q: Do employers have to top up furloughed workers pay to ensure they still receive the national minimum wage?

Employers can top up furloughed workers pay if they wish to, but they do not have to. The national minimum and living wage legislation only require the minimum rates of pay for hours worked. As those on furlough must not work for the employer during furloughed hours, it is not legally necessary to ensure staff are receiving the minimum rates while on furlough. For furloughed staff working part time (which is permissible from July 2020 onwards) their hourly rate for hours worked should comply with minimum and living wage rules.

The national minimum and living wage rates increase at the start of April 2021. However, furlough pay is based on past earnings. The increase in national minimum and living wage will not affect workers who are on long term furlough until they start working again. When they return to work their normal salary must then comply with the appropriate minimums.

Training

The position is different if furloughed workers undertake training, which they are allowed to do if they are not providing services or generating revenue for the employer, or an associated organisation. During training staff must be paid at least the national living or minimum wage or apprenticeship minimum wage for the time spent training. In this situation the employer may need to top up the furlough grant.

Q: What about non-monetary benefits and salary sacrifice schemes?

Employees can stop participating in salary sacrifice schemes if there is a ‘life event’. HMRC have confirmed that the pandemic counts as a life event so salary sacrifice arrangements can be changed, amounting to a variation of the employment contract.

Non-monetary benefits (including taxable benefits in kind and salary sacrifice schemes and pension contributions) that reduce an employee’s taxable pay should also not be included in the reference salary to work out the 80% furlough pay.  So, the value of health insurance or a company car would not increase the amount on which the 80% is based.

If the employer provides benefits like this to furloughed employees, the benefits should still be given in addition to the furlough wages.

Q: Can an employer delay payment of wages until the grant arrives?

There are no special rules or guidance about delaying payment of wages due before the government payments arrive. Employers can claim in advance in some situations. The guidance says that employers can claim before, during or after processing their payroll as long as claims are submitted by the relevant monthly claim deadline. Claim deadlines are normally around the 14th or 15th of the month because claims must be submitted 14 calendar days after the month claimed for. Although if this time falls on the weekend or a bank holiday then claims can be submitted on the next working day. (See the list of cut off dates in our 'Applying for furlough' Q: When and how do employers make claims under the Coronavirus Job Retention Scheme between May and September 2021?).  
Employers are allowed to make claims more than 14 days in advance of the pay date (for example, if employees are paid in arrears). In addition:

• Claims cannot be submitted more than 14 days before the claim period end date.
• Employers do not have to wait until the end date of the claim period for a previous claim before making the next claim.
  

Generally, employers can use business interruption loans to bridge the cash flow until the employer is reimbursed by the government and our table summarises the other forms of support available.

Alternatively, any delayed wages can be dealt with by agreement with the furloughed employees. The employee may accept delayed payments or payments by instalments pending arrival of the government grant.

Theoretically, if employees were paid late they could issue breach of contract or unlawful deductions from wages tribunal claims. Both issuing the claim and mandatory Acas pre claim conciliation can be undertaken remotely due to coronavirus. However, the scheme payments would come through in before the Acas pre-claim process could be concluded and proceedings issued. 

HMRC has set-up a dedicated helpline (0800 024 1222) for employers and employees in financial difficulty.

Q: Which pay period do employers use for salaried employees in their calculations?

For fixed pay employees, employers have to identify the reference period to work out your employee’s usual wages. Employers should normally base their claim for the 80% of a salaried employee’s wages on the employee’s last pay period.

Employees furloughed from 1 May 2021

Employees may have a reference date of 19 March 2020 or 30 October 2020  if they were on the payroll and reported this to HMRC on a Real Time Information (RTI) Full Payment Submission (FPS) on or before those dates.

Employees first reported on the payroll between 31 October 2020 and 2 March 2021 could be furloughed from 1 May 2021. For these employees  80% of their  usual wage is worked out by looking at the wages payable to them in the last pay period ending on or before the 2 March 2021. This is only where neither  the19 March 2020 nor 30 October 2020 reference dates apply as the employee was not eligible for periods starting before 1 May 2021.  

Employees furloughed for the first time from 1 November 2020

For employees other than those referred to below, such as new employers, claiming furlough for the first time and new employees hired between 20 March and 30 October 2020 the employee's reference period is different. In these cases it is their last pay period ending on or before 30 October 2020.

• For employees on fixed pay employed on or after 20 March 2020 their calculation is based on the last pay period prior to 30 October 2020. 
• For employees on variable pay or hours, employed after 20 March, their calculation is based on the average of tax year 2020 to 2021 up to the start of the furlough period. 

For employees already furloughed on or before 31 October 2020 their employers can make the 80% calculations based on the employee’s salary in the last pay period before 19 March 2020. So, the reference period is the last pay period ending on or before 19 March 2020 for employees who:

• were on payroll on 19 March 2020; or
• had a valid furlough claim made for them in a claim period ending any time on or before 31 October 2020.

For more detail on employees whose pay varies see our separate FAQ.

Q: How do employers calculate pay for furloughed employees who worked on irregular salaries, variable hours or zero hours contracts?

Irregular salaried employees' furlough pay can be based on a previous earnings average. How you work out the earnings average depends on when they were on the payroll.

For employees furloughed under the earlier stages of the scheme who have been employed for a full 12 months prior to the claim then employers claim based on the higher of either:

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

If the employee has been employed for less than 12 months before the claim, then the employer has to base the percentage on an average of the actual monthly earnings since the employee’s start date.

For employees furloughed from 1 November 2020 who were not previously eligible for furlough the grant must be calculated on 80% of the average payable between the start date of their employment or 6 April 2020 (whichever is later) and the day before their furlough period begins which is going to be on or after 1 November 2020. 

To calculate wages for those furloughed from 1 May 2021 who were first reported on payroll between 31 October 2020 and 2 March 2021 the grant must be calculated on 80% of the average wages payable between 6 April 2020 (or, if later, the date the employment started) and the date before they were first furloughed on or after 1 May 2021.

Same month’s earnings-calendar lookback
If your employee did not work for the employer in the same month one year ago (the lookback period) the employer can only use the averaging method to calculate 80% of their wages. If the 80% of the wages is calculated based on the corresponding calendar period in a previous year, the period varies depending on if the corresponding period fell during the pandemic, for example: 

• Claims for June 2021: the lookback period is June 2019
• Claims for July 2021: the lookback period is July 2019
  
• Claims for August 2021: the lookback period is August 2019
  
• Claims for September 2021: the lookback period is September 2019.

If the employee did not work for the employer during the lookback period then use the averaging method to calculate 80% of wages.

The points above explain the core principles which underpin calculations for irregularly paid staff. However, the overall calculations have further layers of complexity. 

Employers take the employee’s pay from the corresponding month one (or two) years ago and divide that by the total number of days in that month including non-working days. Then multiply that figure by the number of furlough days in the month being claimed for, then multiply this by 70% in July and 60% in August and September.

If an employee was furloughed for the whole month of February 2021, due to the leap year either the full amount earned in February 2020 can be used or 28/29ths of the amount.

Employers need to first work out the length of their claim period, which elements of wages to include, employees’ usual hours (even though the staff may not really have usual hours) then the furlough pay, and finally the employer’s contribution. For the pay period and elements of pay that can be included please see the furlough pay FAQ on pay periods.

Example of irregularly paid employee calculation
An employer, ABC Hotels limited, furloughed a night receptionist, Alex, who has worked variable hours for the last three years. She was furloughed continuously throughout the first phase of the furlough scheme from 22 March 2020 onwards and has then been partially furloughed since July. From 1 November, Alex is working part-time from home and is furloughed for the rest of the time. She is normally paid every two weeks. The hotel’s furlough claim under the previously extended scheme will be for 1 November 2020 to 14 November 2020.

Usual hours
The employer must first work out Alex’s ‘usual’ hours - as she was furloughed before, the same basis is used. This is done by working out the average number of hours worked in the tax year 2019 to 2020.

The hotel calculates that Alex worked 1,300 actual hours in the tax year 2019 to 2020 between 6 April 2019 and when she was furloughed. This includes her paid holiday.

Alex’s average number of hours worked in that tax year is then worked out as follows:

• 1,300 hours worked including paid leave.
• Divide 1,300 by 352. This is the number of calendar days Alex was employed by the employer in the previous tax year up until the day before her furlough started.
• Multiply by 14. This is the number of calendar days in the pay period which the  hotel is claiming for = 51.70 rounded up to 52.

Q: How do employers calculate the furlough figure for furloughed employees who return to work on a part time basis?

Employers and employees can agree working arrangements whereby the employee resumes work part-time whilst the government will continue to fund a proportion of furlough pay for the non-working time.

Employers will pay employees’ wages for time worked either at home or in the workplace. The amount of time worked each week can vary but employees should receive their normal wage for working time. For the hours the employee is furloughed and not working they will get furlough pay, and for the hours worked will receive salary as normal. Although further guidance is ongoing, it appears that the wages and furlough pay are divided proportionately. The grant is based on hours not worked, compared to the employee’s normal working hours (see below).

Simplified example: An employer and employee agree that the previously furloughed employee returns to work half time. If the employee normally earns £3,000 a month, they would have received full furlough pay of £2,400 a month. On returning to work half time the employee would earn £1,500 a month from the employer as normal monthly salary plus for the furlough time they would get half the monthly furlough pay of £1,200. This means the employee would get a total of £2,700 a month for working half time compared to £300 less on full furlough.

Usual hours

Please note that the above example is a simplified example to show how furlough pay is proportionately reduced. However, under the flexible furloughing scheme HMRC guidance shows that for employers working out an employee’s usual and actual hours worked (to show the furloughed hours for each claim period) is complicated and different formula are used depending upon whether employees were eligible for a furlough claim on or before 31 October 2020. Different calculations are used to work out an employee’s usual hours, depending on whether the individual works fixed or variable hours.  

It appears employers cannot rely on simple figures counting the hours per month under the flexible scheme. HMRC guidance suggests working out an employee’s usual hours based on a sort of estimate looking at calendar days. For employees with fixed hours and pay employers need to calculate: 

• the hours any furloughed employee was contractually working at the end of the last pay period ending on or before 2 March 2021
  
• divide this by the number of calendar days in the repeating working pattern, including non-working days (which in many cases will be 7)
• multiply the answer by the number of calendar days in the pay period the employer is claiming for
• round up to the next whole number.

This gives the usual hours, worked examples are provided by HMRC in its guidance.
Earlier guidance suggested usual working hours were based on an average taken over a full calendar year.

Furlough claim periods need to be a minimum of one week but can be longer to reflect the pay cycle. The employer will need to report the hours that have been worked and the hours the employee has been furloughed when they would usually work.

Q: Are furloughed employees on statutory maternity leave entitled to pay based on their pre-furlough salary?

Maternity pay, Paternity pay, Shared parental pay, Parental bereavement pay and Adoption pay are based on employees' normal earnings not the furlough 80% capped figure. This was expressly confirmed in Government guidance and applies under the extended schemes from 1 November 2020 onwards.

Similarly, those returning from maternity or other parental leave should have furlough pay calculated against their full salary, before tax, not their maternity or other family-related statutory pay.

Statutory maternity pay

Employees eligible for statutory maternity pay or maternity allowance can claim up to 39 weeks of statutory pay or allowance as normal. The same principles apply for normal paternity, adoption or shared parental pay rights. Entitlement to SMP, as well as other forms of parental pay, are based on average earnings over an eight-week assessment period.

Employers with staff on maternity leave can reclaim 92% of SMP back in the normal way. (This is 103% if small employers’ relief applies). Employers cannot claim the 8% balance of SMP through the furlough scheme because the guidance does not say this is an option.

Calculating maternity pay

Updated guidance on the furlough scheme confirms that furlough pay should be calculated as follows for returners from maternity or parental leave:

Those on fixed pay: use normal their salary, before tax, not the pay they received whilst on family-related statutory leave. 

For those on variable hours/pay: calculate pay based on the higher of either:

• 80% of the same month’s wages from the previous year 
• 80% of the average monthly wages for the tax year 2019/ 2020 (up to the £2,500 a month cap).

To work out your average pay for variable hours employees it is not necessary to count calendar days when the employee was on statutory sick pay, family related statutory leave, including maternity leave. However, employers will need to identify the hours the employee worked using pay records and time sheets.

Contractual maternity pay

If the employer offers enhanced contractual rights these are included as wage costs that can be claimed during the furlough scheme. The same principles apply to other types of family leave. During the extended furlough scheme the employers' ability to furlough staff and claim the grant towards enhanced maternity pay is limited. See our FAQ on furloughing employees returning from maternity leave in the 'changes to the extended furlough scheme' section for more information.

Switching between maternity and furlough

Some employees may wish to curtail their maternity leave to switch to furlough if that pays more than maternity (or adoption or shared parental) pay. If the employer and employee agree to furlough this seems to be permissible.

The usual rule is that employees must give employers at least 8 weeks’ notice that they are returning to work early and government guidance from November onwards has confirmed that this is the case when curtailing maternity leave to switch to furlough.

Those on contractual maternity leave and pay may have ended maternity leave early in order to obtain an extended period of furlough would therefore normally need to give eight weeks’ notice. However, the position may be more legally complex: 

• If employers have not given the requisite written notification of the date that maternity leave would end (which should be within 28 days of the date of notification of maternity leave) there then a legal argument that 8 weeks’ notice to return early is not required. Employees who wish to switch to furlough may argue that they can return to work earlier and can give the employer a notice period of less than 8 weeks.
• Employees and employers could normally agree to waive or shorten the notice periods surrounding maternity leave. Once maternity leave has ended the employer can agree to resume it later on if the leave is under a contractual scheme.

It may that further guidance will be forthcoming on the 8-week notice period. If a maternity returners' furlough leave then ends, leaving the employee faced with a total period that is shorter than their original maternity leave period, it may be possible to take Shared Parental Leave until the child is one year old (or one year from the date the child was placed for adoption).

Q: Can employers claim top up under the furlough scheme towards paternity pay?

Employers’ contributions to paternity pay generally depend on whether the paternity scheme is contractual or statutory and the natural insurance contributions paid by the employer.

It appears the employer can claim additional support for enhanced (earnings related) contractual pay under the scheme towards this enhanced paternity leave.

Topping up pay

Normal rules about topping up the statutory paternity pay (SPP) apply. The amount of SPP that can be recovered depends on the amount of employer and employee Class 1 national insurance contributions paid. If the employer’s NI contributions are £45,000 or less, employers can recover 103% of SPP. If the NI contributions are more than £45,000, the employer can recover 92% of all payments of SPP.

Furloughed employees who are entitled to be on furlough may choose not to book paternity leave at all if the employer only offers SPP. Furlough pay is likely to be greater than SPP (£151.97 per week from 4 April 2021) in many cases. For employees who qualify for furlough, employers will have to pay the full employer’s NI and pension contributions (plus the 10% and 20% of salary in July and August to September).

Those employees who do qualify for furlough and seek SPP have their pay calculated based on their usual pre-furlough salary and not furlough pay. If any furloughed workers are planning on taking shared parental leave, they will also get pay based on their usual earnings rather than reduced furlough pay. Employees cannot receive furlough pay at the same time as SPP.

Q: Can previously furloughed employees who have returned to work be placed on furlough whilst they are on holiday?

Working employees should not be placed on furlough simply because they are on holiday for that time. Employees who have returned to work and then book holiday should receive holiday pay, paid by the employer at the employee’s normal rate of pay.

Where employees receive a variable rate of pay, holiday pay should be calculated on the basis of the average pay received by the employee over the last 52 working weeks.

If a furloughed employee takes holiday, then the employer must pay their usual full holiday pay in accordance with the Working Time Regulations. Employers can then claim the portion of the furlough grant towards that pay, but the employer has to top it up to the usual full holiday pay amount. The top-up cannot be claimed back through the furlough scheme.

If an employee is flexibly furloughed, then employers must pay usual holiday pay for the days or hours that are worked. For example, an employee works 20 hours a week and is furloughed for 28 hours per week. Any hours taken as holiday during the furlough claim period should be counted as furloughed hours rather than working hours. So in a holiday week, 48 hours in that week would count as furlough hours. Employers will top up to full holiday pay for the hours or days on furlough.

Furloughed employees also continue to accrue holiday under their employment contract.

Grey areas may arise concerning the furlough grant if an employee has a holiday period tacked on to the end of a furlough period. Such arrangements may be genuinely part of furlough, and others may not. The guidance makes it very clear that employees should not be placed on furlough simply because they are taking holiday. If an employer breaches the terms of the Coronavirus Job Retention Scheme, HMRC is expected to give companies 30-days to confess before a formal investigation begins. If employers make furlough claims just for holiday for employees who had in reality returned to work, this claim for more than they are entitled to may be regarded as fraudulent and could result in a criminal and civil action.

For further information see our FAQs below on employers’ payment for holiday taken during a furlough period.

Q: Can furloughed workers cash in holiday to top up their 80% salary pay?

Furloughed workers can effectively cash in holiday to top up their 80% salary pay if the employer has chosen not to top up the pay. If holiday is taken the government guidance confirms that employers should top up the holiday pay to the full normal salary amount. If it is not taken, annual leave continues to accrue during furlough. 

If employees book holiday time to take off during furlough, employers can claim for 80% of the holiday pay through the grant, in the same way as normal salary. The 80% grant covers a significant proportion of the cost of this holiday pay.

Different scenarios may arise concerning holiday: 

• Employees who are worried about the drop in income may propose taking holiday between two dates on full pay. They may only agree to being furloughed before or after taking some leave on full salary for the holiday part of the period.
• Employers who are not in a financial position to pay furloughed employees in full during annual leave can refuse employees’ requests for holiday in what would otherwise be a furlough period. The employer must give the normal notice which is as much notice of a refusal as the amount of leave requested, so two weeks’ notice if the leave requested was for two weeks. 
• Other employers may prefer employees to use up their holiday allowance rather than storing it up. There are normal rules enabling employers to require staff to take leave on certain days. However, requiring an employee to take annual leave during a period of furlough is not without risk. Special coronavirus rules on the ability to carry holiday forward into the next leave year have been introduced to prevent a build-up of leave to be used up by the end of the leave year; see the FAQs on this.

Q: Can employers require furloughed employees to use up their holiday leave during furlough?

Yes, employers can require furloughed employees to use up their take holiday leave during furlough. Employers may want to do this to reduce outstanding annual leave to be taken once the lockdown ends and businesses return to normal.

Standard employment law provisions (which are not frequently used) state that employers can require workers to take holiday as long as they give twice as many days’ notice as the period of leave the worker is required to take. For example, if the employer requires the worker to take two week's annual leave at a certain time, it must give the worker at least four weeks' advance notice (or whatever is outlined in the employment contract).  Employers can ask workers to take or cancel holiday with less notice but need the workers' agreement to do so.

So, an employer could furlough the employee and require a proportion of that to be annual holiday as long as the requisite notice is given. Insisting an employee take annual leave during a period of furlough, when government advice prevents them from travelling freely anywhere, is not without risk. Employers should consider whether any restrictions including travel restrictions, socially distancing or self-isolation would prevent the worker from relaxing and enjoying their holiday.

The employees’ agreement should be sought, explaining why the employer wants them to take annual leave while on furlough. Employees may agree as it would be on full pay.

Updated Acas guidance and updated guidance from the Government, clarifies that employees can ask for and take holiday leave as usual while on furlough. However, this remains a complicated issue, particularly in relation to pay, and employers may need to seek specific advice, especially if a disagreement arises.

Q: Do employers have to pay full holiday pay if holiday is taken during a furlough period?

Yes, employers have to pay full holiday pay if holiday is taken during a furlough period.

Based on extensive previous case law, holiday pay must be based on normal remuneration. This applies for at least the four weeks EU minimum leave and includes overtime, allowances, compulsory commission and bonuses, meaning employees do not get less pay when they are not working. However, discretionary bonuses and discretionary commission payments (including tips and tronc payments) and non-cash payments should currently be excluded, although the guidance on this may change.

Normal remuneration is assessed over an average of 52 weeks from April 2020 (formerly 12 weeks) so annual leave during furlough must be based on normal remuneration. Although it is more expensive to have an employee on holiday rather than furlough, the advantage for the employer is that the employee’s remaining holiday entitlement between now and the end of the holiday year is reduced.

Employers who require furloughed employees to take holiday can claim the 80% grant money from HMRC for employees on holiday leave but have to top the holiday pay to the full salary amount. This is in contrast to the furlough period where they can choose to top up pay (or not). The need to top up applies for at least the four weeks EU minimum leave. For the remaining 1.6 weeks there is a potential legal argument that an employer could get the employee to consent to just being paid the 80% but employers should probably pay the full amount for the entire holiday period too.

Holiday periods may give rise to complexities if employees are partially furloughed combined with part-time working. The interrelationship between furlough and holiday is untested and legal advice may need to be taken if a problem arises.

Q: If furloughed workers do not book any holiday time does holiday leave accrue? What about other contractors?

For employees and workers who remain employed during furlough leave, statutory holiday will usually accrue during the furlough period. The statutory minimum holiday of 5.6 weeks per year will accrue, but the precise amount of holiday left will depend upon how much holiday the employee has already taken and how much they take during furlough.

If the employer provides contractual holiday, above the statutory amount, employers can ask the employees to agree this will not accrue during furlough. However, the right to accrue annual leave under the Working Time Regulations will continue unless the employee books part of the furlough period as leave.

Other contractors

Problems can arise with some other contractors such as agency workers. Government guidance on furlough in May 2020 indicated that annual leave does not accrue for individuals for periods when they are not a worker within the Working Time Regulations 1998. For example, in a tribunal case on the interaction between holiday pay and furlough, a temporary agency worker was on the books of a recruitment agency. His contract stated the agency agreement was only in operation during actual assignments and there was no pay for holiday, illness, or absences for any non-assignment time. He claimed unpaid holiday pay while on furlough and unfair dismissal. The unfair dismissal claim failed as he was not an employee and did not have two years’ employment required to qualify for an unfair dismissal claim.

The tribunal also held he did not accrue annual leave during furlough. He was not working on an assignment and was therefore not a worker for the purposes of the Working Time Regulations 1998 (WTR) during that time. This reflects government guidance that temporary workers on contracts for services do not accrue holiday on furlough (see Mr D Perkins v The Best Connection Group Limited (TBCGL)). 

Each case depends upon the facts and the actual agreement. Employers should check contracts between the agency, the worker, and the client to see if workers are eligible to accrue leave and pay:

• If holiday does not accrue under an agreement before furlough then it should not accrue during furlough.
• Relevant factors include whether there is a contract between the parties in between assignments and if there is a separate agreement confirming accrual of holiday during furlough.

Q: What happens to workers who have been unable to take their statutory annual leave entitlement due to lockdown or because they have been needed to work?

Workers who had not taken all of their statutory annual leave entitlement by the end of 2020 due to COVID-19 have a new legal right be able to carry it over into the next two leave years. Employers’ leave years will vary; in some cases this period aligns with the calendar year, in other cases the financial year, the academic year, or the anniversary of when the employee started employment.

UK workers are usually entitled to 28 days holiday per year including bank holidays. This entitlement cannot normally be carried forward into the next leave year unless the employee:

• agrees this with the employer; or
• is on long-term sickness absence; or
• is on maternity leave and unable to take all of her entitlement as a result.

Payments in lieu of holiday are usually disallowed unless the worker is leaving the employer. However, due to the pandemic, this has been changed under amendments to the Working Time Regulations.

COVID-19 provisions

To prevent workers losing their holiday and to enable key workers to keep working, the normal rules on carrying over annual leave have been modified. This will support provision of staff in key sectors (such as food and healthcare) during the pandemic without them losing out on holiday entitlement.

Employers can now allow up to four weeks (not the full 28 days) of unused leave to be carried into the next two leave years. The rules say that it must be ‘not reasonably practicable’ for the worker to take some, or all, of the holiday to which they are entitled due to the coronavirus. If so, they can carry four weeks forward for two years. The remaining 1.6 weeks of holiday can be carried forward by one year by agreement.

These amendments to the Working Time Regulations 1998 apply to all employees. Workers who do not have employee status such as agency workers, and some casual and zero-hours contract workers are also included (see Working Time (Coronavirus) (Amendment) Regulations 2020). The only exceptions are those covered by regulations other than the Working Time Regulations 1998 including some merchant seamen, fishermen, and civil aviation staff, some armed forces staff and doctors in training to whom special rules apply.

The normal obligations on employers to ensure workers take their statutory entitlement in one year or incur a financial penalty are also lifted.

Q:We have zero-hour employees on furlough. When we calculate accrued holidays during furlough using the 52-week reference period, are we basing this calculation on hours worked in that period or earnings? If weeks in that period include hours of holidays, are they included?

Zero-hour employees accrued holiday during furlough should be calculated in the same way as before furlough. Holiday pay during furlough is calculated using the 52-week reference period (instead of the previous 12-week reference period).

It is easiest for employers to distinguish between whether they are working out length of holiday entitlement, or holiday pay for zero hours workers.

Holiday entitlement

Workers are entitled to 5.6 weeks’ annual leave (calculated pro-rata for part-time employees). For full time staff that equals 28 days per annum and can include the UK bank holidays. The Working Time Regulations do not specify how to calculate this entitlement for zero hours workers. However, there is some Government guidance. Employers can calculate average days or hours worked each week based on the reference period.

Zero hours workers employed for a full leave year are entitled to 5.6 weeks’ statutory leave or 28 days. Problems can arise where workers work only part of a leave year in which case statutory holiday entitlement will be calculated by multiplying 5.6 weeks by the number of months the employee has worked in the holiday year divided by 12 eg 5.6 x (X ÷ 12). The Government guidance explains more on how to calculate this.

For example, a zero hours contract worker who has been furloughed for 6 months before the end of the holiday year would have an annual leave entitlement relating to the furlough period of: 5.6 weeks x (6 ÷ 12) = 2.8 weeks holiday or 14 days.

It can be simpler for some zero hours workers to have their holiday calculated in days.

Holiday pay

A worker on furlough should have holiday pay based on their normal rate of pay (ie their pre-furlough wage). The calculation of holiday pay is based on earnings, not hours worked. The average pay from the employee’s last 52 weeks of earnings is used as a reference period to calculate the holiday pay. Unpaid leave or other periods where no earnings are received are ignored.

The reference period for calculating holiday pay changed to 52 weeks in April 2020. This was planned before the coronavirus pandemic and is nothing to do with the furlough scheme. However, furloughed employees’ holiday pay can be calculated using the same reference period as for non-furloughed employees.

For workers on a zero-hours contract, the holiday pay they receive is based on their average pay over the previous 52 weeks worked. The reference period increase to 52 weeks from 6 April 2020 applies to all workers including those on zero hours. This period operates in the same way as the previous 12-week period.

Employers count back across the last 52 weeks that the employee has worked and received any pay for work in that week. Weeks in which no pay was received do not count towards the 52-week average. If employees have worked for less than 52 weeks, employers should use as many full weeks of work as possible to calculate the holiday pay.

Because the reference period must include the last 52 weeks for which there were actual earnings, any weeks where no work was performed are not included. So, the reference period may go further back than 52 weeks from the furlough period. Employers should not look back any more than 104 weeks. If the employee has less than 52 weeks in which they earned anything during the last 104 weeks, then the reference period is shortened to that lower number of weeks.

Contractual overtime worked during the reference period and certain other pay components should also be included in holiday pay calculations.

The Government’s holiday entitlement calculator helps calculate how much holiday a worker on irregular hours or a zero-hours contract is entitled to within a current leave year.

Holidays already taken

The reference period must only include weeks for which the worker was actually paid. Any weeks in the 52 period including hours of paid holidays are included. Weeks where workers were not paid (as they did not work) are discounted. Whether holiday during the 52 weeks of the reference period is taken into account depends on the type of worker that has been furloughed. Government guidance suggests that:

• Workers without regular working hours: for these workers, previous holiday pay weeks should be included in the holiday pay calculation to calculate an average week’s pay. This is because the holiday pay for the holiday week is remuneration which should be taken into account in the reference period for those who work irregular hours.
• Workers with regular working hours but variable pay: for these workers, previous holiday pay in the reference period should be excluded from the holiday pay calculation to calculate the average hourly pay. This is because only pay for hours actually worked is taken into account. For these workers a full week of holiday (or week in which there was no work for any other reason) is excluded from the holiday calculation.

For hourly workers who have taken part of a week as holiday, only the hours in which they work are used to calculate their average hourly rate for the reference period. That rate is then used to calculate the holiday pay due based on usual working hours during the reference period.

For each week that is not taken into account the employer would then have to use an extra week counting backwards to reach 52 weeks’ worth of pay data.

What about the May and August 2021 bank holidays during furlough?
Bank holidays will fall in May and August 2021 while some staff are still furloughed. The position will depend on what the employee’s contract says and whether the employee normally works on bank holidays:

• Employees who normally work bank holidays will simply be on furlough leave (not holiday) on the bank holiday. Employers will pay the NI and any pension contributions in May but will not need to contribute to the 80% furlough payment, whereas in August they will be contributing 20% towards furlough pay.
• Employers can require employees to take the bank holiday as a day of annual leave if the furloughed employee is given two days’ notice.
   Employees who normally have bank holidays off as part of their annual leave, will be on holiday on the bank holiday and employers have two choices: 1. Treating the day as annual leave and paying the employee accordingly or 2. Not treating that day as annual leave and providing a day off in lieu at a later time.

Q: Can I place an employee on furlough instead of Statutory Sick Pay?

Employees on who are on sick leave or self-isolating should normally get Statutory Sick Pay (SSP). There has been ongoing government guidance on this. 

Furloughing an individual employee already on sick leave

If an employee is on sick leave or self-isolating due to Coronavirus, the employee should be on SSP. The government guidance states that illness or self-isolation should not be a trigger in deciding whether to furlough an employee. Employers can place employees on furlough leave after their sick pay period if appropriate. The furlough scheme is not intended as an alternative for sickness absence, the illness may be short term and furlough periods are at least 3 weeks. 

Furloughing employees including those already sick 

If employers are in the process of furloughing employees anyway for business reasons and some employees are off sick, the employer can furlough the sick employees with other staff. In these cases, the employee will receive furlough pay instead of SSP because the furlough will end their sick pay entitlement.

Furloughed employees who become ill

If an employee is already on furlough leave when they become ill the guidance confirms that it is the employer’s choice whether to keep them on furlough, at their furloughed rate of pay, or end the period of furlough and move the employee onto SSP.

If, when deciding between SSP and furlough, the employer chooses to move the employee onto SSP the employer must cease the claim for the furlough salary for that period. 

Employees who are self-isolating

Employers can claim from the furlough scheme for staff who are self-isolating. As explained above if the employees develop symptoms the employer can choose between SSP and furlough. (Obviously SSP pays employees only £96.35 per week when staff are sick for over four days, whereas furlough pays 80% of an employee's normal wages up to £2,500 per month).

The government guidance on employers’ ability to furlough self-isolating staff has been criticised for overly emphasising that the scheme is not intended for short-term absences from work due to sickness or self-isolation. However, employers remain eligible for furlough grants for self-isolating staff.

Coronavirus sick pay rebate scheme

Employers may qualify for a rebate for up to two weeks of Statutory Sick Pay. Employers can claim a grant under both the furlough scheme and the sick pay rebate scheme for the same employee, but not for the same period of time. 

Long-term sickness

Although employees who are receiving Statutory Sick Pay cannot claim furlough pay, employees who are on long-term sick leave can be furloughed. HMRC guidance on the scheme confirms that the scheme is not intended as an alternative for short-term sickness absences, but employers can furlough employees who are on sick including those off on long-term sick leave if there is a business reason. 

For more information on sick pay during the Coronavirus pandemic refer to our FAQs on self-isolation, local lockdown and quarantine.

Q: What if we want to bring employees back from furlough early (because other people get sick)? Do we lose the ability to claim three weeks of 80% and need to increase their pay for those weeks?

After 1 July 2020 employers can bring employees back to work who have previously been furloughed, while still being able to claim the grant for any normal hours not worked.

Staff can be furloughed and return to work and then be furloughed again for as long as the scheme is operational. If an individual is only furloughed for one or two weeks before then and is then summoned back to working (either working from home or in the workplace) then the employer cannot claim under the scheme for the contribution to pay for that period.

Q: What happens if an employee falls ill while on furlough; do they move on to SSP?

Yes, if an employee falls ill while on furlough they can move on to SSP.

The subsequent government advice on the coronavirus job retention scheme has confirmed that employers can switch employees from furlough to SSP, and vice versa. Employers cannot claim both SSP and reimbursement under the furlough scheme for the same period.

When an employee who falls sick during furlough leave it is up to the employer to decide whether to move them to SSP or to keep them on furlough. If the employee remains on furlough, the employer can continue to claim their salary through the furlough scheme. If the employee moves SSP, the employer can not claim salary through the furlough scheme for the period of sickness.

The advice states that the furlough grant should not be misused to increase or top up SSP.

The difference between pay under the furlough scheme and SSP creates a risk that furloughed employees may be reluctant to report sickness absence if they become sick or are self-isolating during furlough leave because furlough pay is more than SSP. Employees on furlough leave will be receiving at least 80% of salary subject to the £2,500 per month cap. Employers contribute 10% towards furlough pay in July 2021, increasing to 20% in August and September 2021. SSP will be less than 80% of full pay in most cases, although some employer’s contractual sick pay policies may be more generous than the furlough payment.

It's important that the organisation encourages a genuine sickness reporting culture and makes clear in its policy and communications that any employee who is ill should report it to their line manager. Line managers should hold regular 121s with employees and ask about their health and well-being. This will mean they are well placed to pick up on any signs that someone is not well. If this is the case, they should ask open and supportive questions to encourage the individual to disclose their illness. For more information on absence management visit the absence management page.

Q: Can we change terms and conditions during or after furlough?

Employers can change terms and conditions both during furlough and afterwards. However, employers will need to obtain express agreement from the employees to any contractual variations. Whilst changes during furlough may be willingly agreed to, ongoing changes may be more contentious. Changes which adversely affect terms and conditions requires a variation process with proper consultation, including formal collective consultation in certain cases.

After furlough ends on 30 September 2021, employers may decide ongoing variations to contracts are necessary, perhaps affecting the whole workforce. Variations may address matters such as reduced pay and hours, or continued working from home. Many employers have already obtained consent to change employees' terms and conditions during the pandemic, both as part of the furlough scheme and to address the profitability or survival of the business in the aftermath of the pandemic.

Any agreed variation should be recorded in writing within one month of the change, with employees confirming their agreement by signing a document which can be appended to the contract of employment.

Some policy changes may be possible without obtaining agreement from the employees, but contractual changes require agreement; unilateral changes are unenforceable and usually are a breach of contract exposing employers to a claim against them.

The various ways changes may be attempted and achieved are summarised below:

1. Consult the employees and hope that they will agree voluntarily.

2. Offer an incentive to employees to agree, for example, a small one-off cash payment or perhaps as part of a working from home arrangement. 

3. If the employees will not readily agree the employer may have to impose the changes. However, this option should be used as a last resort only. If the change is fundamental, it may amount to a breach of contract entitling the employees to resign and make a number of claims including constructive unfair dismissal and breach of contract and damages for loss.

4. Bring the original contracts to an end by contractual notice and then immediately re-engage on the new terms and conditions. This is not without risk. By bringing the contract to an end an employer is in effect dismissing the employees and must be able to justify their decision on the basis of a sound business reason which should constitute what is known as ‘some other substantial reason’. In assessing whether a dismissal is fair the tribunal assesses:

• the presence of a sound business reason for effecting the change
• any alternatives
• overall procedure
• the proportion of the workforce who were willing to accept the change
• the impact on the particular employees and their reasons for not agreeing to the change, and whether or not there was adequate consultation.

Q: Will the Job Support Scheme (JSS) be reintroduced?

It is not known if the JSS will be reintroduced. It was only intended to replace the Coronavirus Job Retention (furlough) Scheme. The government took a last-minute decision in November 2020 to postpone the JSS before it started and extend the furlough scheme instead. The Job Support Scheme and its expansion to include both open and closed businesses remains postponed.

If there is a relaunch of the JSS or a similar scheme, it will be effective once the furlough scheme ends and so could be effective from October 2021.

Q: How could the Job Support Scheme work if reintroduced in 2021?

The employee Job Support Scheme (JSS) was due replace the Coronavirus Job Retention Scheme but has been postponed. 

If re-introduced the JSS would probably consist of JSS Open and JSS Closed as explained below. However, following the extension of the furlough scheme there may be changes to the Job support scheme and so employers should check the government website for the latest information. The withdrawn JSS guidance currently remains available on the UK government website and the information below is a rough guide to how the JSS could work if it is re-introduced.

Neither employer nor employee needs to have used the furlough scheme to make use of either JSS. Employers will need to agree the arrangements with employees as the system involves new short-time working arrangements and reduced pay. Changes to the employment contract should therefore be agreed and confirmed in writing. HMRC may ask to see the agreement.

The JSS essentially consists of two wage support schemes:

JSS Closed: to support businesses required to close as a result of coronavirus restrictions,

JSS Open: to support businesses that can stay open but are facing lower demand. This is for businesses operating but where employees are working at least 20% of their usual hours.

The government policy paper from 22 October 2020, contains key details about how both job schemes could work:

• Employers continue to pay employees their normal contractual wage for time worked.
• The employee must be working at least 20% of their usual hours (reduced from 33% when the scheme was originally announced).
• For time not worked, the employee will be paid up to two-thirds of their usual wage.
• For hours not worked, the cost will be split between the employer, the government and the employee.
• For every hour not worked by the employee, this time is split into three, the UK government pays for 61.67% of the unworked time (up to a cap) and the employer pays for 5% of the usual hourly wage for that employee (also up to a cap).
• Employees contribute for hours not worked by effectively taking a 27% percent wage reduction, although they keep their job.
• The overall cap is based on a monthly reference salary of £3,125 per month.
• This means that the government’s pay towards hours not worked is subject to a maximum cap of £1,541.75 a month.
• Employees cannot be made redundant or notified of redundancy whilst their employer is claiming a grant for them during that period.
• The grant does not cover Employer NICs or pension contributions, which remain payable by the employer in respect of both the government and the employer top-ups as well as in respect of pay for hours actually worked.
  

Example:

For an employee whose usual wages do not exceed the monthly reference salary, who works the minimum 20% of their normal hours:

• Employee gets 73% of their usual pay.
• 20% would be pay for hours actually worked.
• 4% of the overall pay would be topped-up by the employer (equivalent to 5% of the unworked time).
• and 49% of the overall pay would be topped up by the government (equivalent to 61.67% of the unworked time).
  

Because of the overall cap the employer contribution is effectively capped at £125 per month for the unworked time.

Minimum hours threshold: For the first three months of the scheme (until the end of January 2021) the employee must work at least 20% of their usual hours. After those three months, the government will consider whether to increase this threshold in February 2021.

Minimum period: Each short-time working arrangement must cover a minimum period of seven days. Employees do not have to be working the same pattern each month and can go on and off the scheme. 

Q: What should the agreement placing employees on JSS cover?

If re-introduced, there may be changes to the JSS in light of the extension of the furlough scheme. However, based on previous information, agreements under JSS would need to include the following:

• Employers must agree any new working arrangements and changes to the employment contract with the employee and put this in writing.
• New agreements will be needed despite previous furlough agreements.
• The agreement will probably need to cover the reduced hours worked, the pay employees will receive, and what happens in respect of the unworked hours.
• Any restrictions or permissions on working elsewhere should also be agreed.
• The notice periods and procedure for ending the employee’s time on the JSS should be included. 
  

Agreements must be made available to HMRC on request and must be retained for at least five years. 

Q: Which employers and employees are eligible for the JSS and what is the financial impact test?

Any employers with UK PAYE schemes and bank accounts can claim the grant. Fully publicly funded bodies are not included. The employer must have made a Real Time Information (RTI) submission to HMRC notifying payment for that employee on or before a specified date. The previous date was intended to be 23 September 2020 but this date would need to change in light of the extension of the furlough scheme.

Large businesses

Larger employers are those with 250 or more employees across payroll as at the specified date. These larger employers would have had to meet a financial assessment test for the JSS Open (see below). Charities do not count as a large employer regardless of the number of employees.

JSS Open: would only be available to larger employers whose turnover has reduced due to COVID-19.

JSS Closed: the financial impact test did not seem that it would have applied so all employers would have been able to claim. Although the government expected that large employers would not make capital distributions, such as dividend payments or share buybacks, whilst using the scheme. This was not a binding condition of the scheme but relied on businesses to reflect on their responsibilities so that public money is only claimed where needed. Presumably the media would expose employers claiming JSS grants if they are also making capital distributions. Further details will be set out in guidance.

Small and medium enterprises (SMEs): The financial assessment test did not apply and these employers did not need to prove their trading conditions had been impacted. So SMEs could potentially claim grants under any new JSS Open for employees working 20% even if the pandemic has had a minimal overall impact on business.

Similarly, an employer of any size is not required to prove an impact if it has closed its premises and is claiming under JSS Closed.

Financial impact test

Large employers’ financial impact test must show that turnover has stayed level or has decreased compared to the previous year. The test depends upon VAT returns:

• Quarterly VAT returns: Compare the total sales figures between 31 August and 7 November 2020 with that same quarter from 2019.
  
• Monthly and irregular VAT returns: Compare the total sales figures for the three months due to be filed and paid by 7 November with the same three months from 2019.
  
• The employer must have submitted a VAT return between 31 August and 7 November 2020 to be eligible. 

Employee eligibility

To be eligible employees must have been in employment on a date specified by the government in addition to the requirements about the employee’s RTI submission mentioned above. 

Under the postponed or suspended scheme employees whose employment ended after 23 September perhaps because they were made redundant could be rehired and still be eligible for the JSS Open. This would cover employees made redundant based on the first announcement of the less generous JSS where the employer now decides that it can maintain the employee for a further period working at least 20% of their usual hours. (The dates for assessing which employees are eligible would be updated before the JSS is relaunched.)

Under the JSS Closed, the employee must have stopped work completely. 

Employees can be put on both the JSS Open and JSS Closed even if they have not been furloughed. JSS is open to employees even if they have worked throughout the pandemic perhaps on reduced hours. It was also to be open to employees who started work after March 2020. 

Q: Can employers claim under both the JSS Open, JSS Closed and the Job Retention Bonus?

Yes, it was intended that employers could claim under both the JSS Open, JSS Closed and the Job Retention Bonus. However the Bonus, like the JSS schemes has been withdrawn and it is not known if it will be re-introduced.

The policy paper expressly stated the JSS Open and JSS Closed could be used at the same time, provided the employer is claiming for different employees. Employers may have one part of the business which is compulsorily closed and another part of the business which remains open but is adversely affected. 

Employers using the JSS would have been able to claim the £1,000 Job Retention Bonus if they met the eligibility criteria. To qualify for this, employees must remain continuously employed through to a period set by the government. This was to be the end of January 2021 until the furlough scheme superseded this.

Q: How do employers work out usual wages and reference salary under the JSS? 

For every hour not worked by the employee, the government and employers would contribute to give the employee a percentage of usual hourly wages, but what does that mean?

In summary, for hours not worked, usual wages would probably be worked out in the same way as under the furlough scheme.

For employees on a fixed salary: employers use the wages payable to the employee in their last pay period on or before the date the scheme started. Usual hours are the greater of:

• the hours that they were contracted for at the end of the last full pay period ending on or before 23 September 2020; or
• the hours contracted for at the end of the last full pay period ending on or before 19 March 2020. 

Employees who have previously been furloughed will have their underlying usual pay and hours used to calculate their usual wages, not the amount they were paid whilst on furlough. So, for employees on long term furlough their usual salary basis would have been the last full salary payment for the period on or before 19 March 2020.

For employees ona variable salary: employers use either:

• the number of hours worked in the same calendar period in the 2019/2020 tax year;
• the average number of hours worked in the 2019/2020 tax year; or
• the average number of hours worked from 1 February 2020 (or start date if later) until 23 September 2020.
  

Variable hours means a contract with no fixed hours, or pay that varies depending on the number of hours worked. However, full details and sample calculations will be contained in any future government guidance.

It appears that employers would have to top-up employees’ wages above the two-thirds contribution to hours not worked at the employers’ expense. For hours worked pay is based on the normal contractual agreement regarding wages.

Reference salary

The reference salary would be worked out in the same way as under the furlough scheme. Discretionary payments such as tips, discretionary bonuses, commission payments, non-cash payments and non-monetary benefits in kind are not included but the following payments are:

• Regular wages
• Non-discretionary pay for hours worked
• Non-discretionary commission payments
• Non-discretionary fees
• Piece rate payments
  

It depends whether they receive fixed or variable pay.

Fixed: The greater of the wages paid in the last pay period ending on or before 23 September 2020 or the last pay period ending on or before 19 March 2020. 

Variable: The greater of the wages earned in the same calendar period in the tax year 2019-2020, the average wages payable in the 19/20 tax year or the average wages payable from 1 February 2020 (or start date if later) until 23 September 2020.

Payments

Grants can only be used as reimbursement for wage costs actually incurred. Payments would be made monthly in arrears by the government, reimbursing the employer’s contribution. Employers must pay both class 1 employer NICs and pension contributions, which will not be reimbursed by the government.

Employers would claim online through the government website from a date to be specified. Claims can only be made for a pay period, after payment to the employee has been made and reported to HMRC via their real time information submission system.

Fraudulent or incorrect claims

HMRC will check claims and seek repayments if a claim is found to be fraudulent or incorrect. HMRC will inform employees directly of the full details of the claim. The agreement between employer and employee must be made available to HMRC on request.

We are awaiting the full guidance on the detail of any JSS which is introduced following the extension of the furlough scheme so employers should ensure they keep up to date with the latest information on the government website. 

Q: What does an employer do if there is not enough work to provide 20% of an employee’s usual hours?

If an employer does not have enough work to provide 20% of an employee’s usual hours, then the JSS Open would not apply. But other options include:

• Cycling employees on and off the JSS Open for periods when they have not got 20% of their usual hours to do. They do not need to be working the same pattern each month, but the employer would need to agree with the employees what contractual arrangements were in place during that time, such as reduced hours or periods of private furlough.  
• Make up the working hours with hours spent in training as training time if paid for by the employer at full pay will count towards 20% of the usual hours.
• Possibly averaging the 20% of hours every week over a month or longer period, but further guidance may clarify this.
• Pursue one of the alternatives to the government support schemes including sabbaticals, redundancies, contractual variations and unpaid leave.

Note that each short-time working arrangement must cover a minimum of seven days.

Q: Can holidays count towards the 20% minimum working hours and can employees work elsewhere during their non-working time?

The government had not confirmed if holidays can count towards the 20% minimum working hours required under the JSS Open before it was withdrawn.

It would seem logical if holiday time does count as working time rather unworked hours, but confirmation is awaited.

Employees with unworked time under the JSS can probably take a part-time job during the non-working hours. Furloughed employees could be allowed to work elsewhere during their furloughed hours during the second half of the furlough scheme.

There may be restrictive terms in the contractual agreement with the employer, for example limiting working for a competitor which would need to be complied with or varied by agreement.

Q: Can redundancy consultations start during the JSS? 

The withdrawn government guidance said that employees cannot be made redundant or put on notice of redundancy during the period when employers are claiming a grant for those employees. This would appear to apply to any JSS Open and JSS Closed schemes that are reintroduced.

Therefore, if employers want to make redundancies before any new JSS scheme closes, they would probably have to take employees out of the JSS and stop claiming the grant for them. Subject to further guidance employers may be able to start redundancy consultation while claiming under either JSS. The employees can be at risk of redundancy as long as notices of termination are not issued while the grant is being claimed.

Some employers had already issued redundancy notices to staff because they did not have 33% of work for them to do and could not afford the original employers’ contribution under the first rules applying to the JSS. However, the employers’ financial contribution which was originally announced was modified to requiring employers to pay the working time plus 5% of the unworked time and NI and pension contributions. Some employers would therefore have felt able to retain the employees. If so, they could have revoked any previous redundancy notices, by agreement with the employee, in order to place employees on the new scheme.

If redundancies do arise, then statutory redundancy payments should almost certainly be calculated on the basis of their pre-pandemic pay, rather than the pay they received while in the furlough or the JSS.