Legal briefing | Employment |

Coronavirus Job Retention Scheme

This briefing was updated on 15 May 2020.

What is the Coronavirus Job Retention Scheme?

The Coronavirus Job Retention Scheme (Scheme) is a government-funded scheme that provides a contribution towards wage costs for employers who stand staff down as a result of the COVID-19 crisis. Where the employer does not have work for an employee to do, the employer can make them a "furloughed worker" instead of making them redundant. If the employer chooses to do this, then the Government will contribute 80% of that employee's regular wages (subject to a cap of £2,500 per month). The employer then has the choice of topping-up the employee's wages, or alternatively the employee may simply receive the lower wages.  

What period does the Scheme cover?

The Scheme will run for eight months from 1 March 2020 until 31 October 2020. The Scheme was originally due to run for four months ending on 30 June 2020 but has since been extended to 31 October 2020. From 1 August 2020, changes will be introduced to the Scheme to provide more flexibility and employers will also be required to contribute to the wage subsidy under the Scheme.

Who is covered?

All employers (of all sizes and in all sectors) in the UK will be eligible for the Scheme, provided they created and started a PAYE payroll scheme on or before 19 March 2020. The Scheme will cover part of the wages of anyone who was an employee for tax purposes and was on the PAYE payroll (i.e. was notified to HMRC on an RTI submission) as at 19 March 2020.  That means it will cover not only salaried employees but also casual and zero-hours employees on the payroll as at 19 March 2020. It will also cover workers, office holders, salaried LLP members, directors and apprentices who are paid via PAYE.

When did the Scheme go live?

The Scheme was first announced on 20 March 2020 and employers have been able to furlough employees since then. However, the HMRC portal for making claims under the Scheme opened on 20 April 2020 and payments are made by HMRC within six working days of an employer submitting the claim on the online portal.

What does "furlough" mean?

The word furlough is not a term of UK employment law, but in other jurisdictions it is used to describe a leave of absence. To be a furloughed worker an employee must remain employed but do no work for their employer. An employee on reduced hours or days cannot currently be a furloughed worker and the employer would not be entitled to funding under the Scheme. Clearly employers may be incentivised to give fewer employees some work and instead have a few who do all the work and others who do none.

The requirement that employees do no work while on furlough is likely to change from 1 August 2020 so that employees will be permitted to do some work. This is to allow for a gradual tapering of the Scheme as businesses begin to reopen. 

Does the employer need to show that a furloughed employee would otherwise be made redundant?

No. Furlough is available whenever the employer has no work for an employee to do because of the Covid-19 crisis.

Can the employer choose to furlough some but not other employees?

Yes. The employer does not need to furlough the entire workforce. It has a measure of discretion over which employees are placed on furlough. To avoid employee relations issues and allegations of victimisation or discrimination, employers should identify fair and objective criteria for deciding which employees to furlough.

Is there a minimum or maximum amount of time an employee can be furloughed?

Yes. To qualify under the Scheme, the furlough must be for at least three weeks and currently the maximum length of furlough is eight months.

Can the employer place an employee on furlough more than once?

Yes. So long as the furlough each time is at least three weeks, the employer can furlough an employee more than once either for consecutive or non-continuous periods (where the employee has returned to work in between).

What can employers claim under the Scheme?

For any period of furlough between 1 March and 31 July 2020, the employer can claim 80% of a furloughed employee's monthly wage costs, up to £2,500 a month, plus the associated employers national insurance contributions and minimum automatic enrolment employer pension contributions on that wage. For salaried employees (whether full-time or part-time), the employee’s actual salary before tax in their last pay period prior to 19 March 2020 should be used to calculate the 80%.  

In terms of calculating monthly wage costs for employees whose monthly pay varies, including zero hours workers and casuals, the employer can claim for the higher of either the amount the employee earned in the same month last year or the employee's average monthly earnings from the 2019/20 tax year. The Scheme covers regular payments such as overtime, fees and contractual commission (not just salary) but tips, non-cash benefits, discretionary bonuses and discretionary commission are excluded.

From 1 August 2020, employers will be required to make a contribution to the wages that workers receive under the Scheme, to ensure that, through the combined efforts of Government and employers, workers continue to receive at least 80% of their regular monthly wages, up to £2,500 a month while on furlough.

What about employers national insurance and pensions?

Employers national insurance contributions can be claimed under the Scheme on top of 80% of wages and the £2,500 monthly cap. Pension automatic enrolment requirements continue to apply during furlough and the employer can also claim the minimum employer pension contribution of 3% on salary paid between the automatic enrolment 'qualifying earnings' threshold (£520 per month from 6 April 2020) and the 80% (capped at £2,500 per month) figure. However, if the employer chooses to top up the employee's pay (see below), it cannot claim the employers national insurance or pension contributions on the top up element of pay. In addition, whether or not the employer tops up, any voluntary automatic enrolment contributions above the minimum mandatory employer contributions cannot be claimed.

For more information on pensions, please see our note on pensions and furlough.

Do employers need to top up employee's pay to full pay?

No. It is up to the employer to decide whether it pays the additional 20% so that the employee receives full pay during furlough. Likewise, for employees earning over the £2,500 cap, it is up to the employer to decide whether to top up pay so the employee receives full pay.

How does this interact with sick pay?

Employees on short-term sick leave or those who are self-isolating can be placed on furlough if there are reasons other than the sick leave or self-isolation to do so. The statutory sick pay would have to end and such employees would therefore move from statutory sick pay to furlough pay. Employees on long-term sick leave or who are shielding in line with Government guidance can be placed on furlough even if there is work for them to do (and it is up to the employer whether to place them on furlough).

If someone becomes ill during furlough, it is up to the employer to decide whether to keep them on furlough (on furlough pay) or move them on to statutory sick pay, but moving someone on to statutory sick pay would mean they are no longer eligible for funding under the Scheme. Whether an employee could move onto company sick pay during furlough will depend on the employer's sick pay policy and what the parties have agreed at the outset of furlough but it would also bring the furlough to an end, meaning the employee is no longer eligible for funding under the Scheme.

How does the funding work?

The employer will need to designate relevant employees as "furloughed workers". The employer will continue to pay wages (either at the reduced 80% rate or at full pay) and deduct tax and national insurance contributions in the usual way. The employer must submit a claim for reimbursement under the Scheme via an HMRC online portal. Where the employer chooses to pay more than 80% of wages or more than the £2,500 per month cap, the reimbursement will still only be for the lesser of 80% or £2,500 per employee per month.   

Clearly this creates cashflow issues for employers who are already in financial difficulties. Some employers have delayed payroll (or partial payroll), taking the view that whilst the employer is technically in breach of contract, employees are likely to understand the situation (and by the time any claim for loss of pay was lodged, the employer would have paid them the money, so this is only really a concern if the employer is worried someone may resign and claim constructive dismissal). Under the Scheme, employees must either have been paid before the claim is submitted by the employer or be paid in the next payroll after the claim is made.

From 1 August 2020, employers will be required to make a contribution to the wages that workers receive under the Scheme, to ensure that, through the combined efforts of Government and employers, workers continue to receive at least 80% of their regular monthly wages, up to £2,500 a month while on furlough.

How do we designate someone as a "furloughed worker"?

The employer must write to the employee confirming that they are being placed on furlough. 

If there is any reduction in pay or benefits during the furlough, this would constitute a change to terms and conditions and the normal rules about changing terms and conditions would apply (i.e. the employer must seek the employee's consent and an employer looking to impose the change unilaterally could well trigger a duty to consult collectively with recognised trade union or elected employee representatives).

What if an employee refuses to go on furlough?

The employer could make the employee redundant if there is no work for the employee to do. The employer would have to follow the normal rules on redundancy and employees with at least two years' service would be entitled to redundancy pay.

Are employees on furlough protected from being made redundant?

No. The employer may make employees redundant during the furlough period or afterwards if there is a genuine redundancy situation. The employer would have to follow the normal rules on redundancy and employees with at least two years' service would be entitled to redundancy pay.

What about employees who have already left, been made redundant or placed on unpaid leave?

Where employees have been made redundant after 28 February 2020, the employer can agree to re-employ the employee and place them on furlough instead. Such agreement should include an obligation on the employee to repay any redundancy pay received. Employers can also rehire any employee who was on the payroll as at 28 February 2020 but left for any other reason (not just redundancy) and place them on furlough. The employer can then claim reimbursement of 80% of monthly wages under the Scheme from the date of furlough, subject to the £2,500 per month cap. Similarly, employees placed on unpaid leave since 28 February 2020 can be reclassified as "furloughed" and will be covered by the Scheme.

Must employers keep records?

Yes. HMRC will retain the right to retrospectively audit all aspects of the Scheme with the scope to claw back amounts claimed fraudulently or in error. Employers should therefore keep records of their communications with employees about furlough, wages paid and associated employment costs. The communication with employees about furlough must be kept for five years. Employers should also keep a record of their rationale for furloughing employees or furloughing some and not others. This will be helpful in the event of a later HMRC audit.

What does this mean for employees on sponsored visas?

Normally, employers who are sponsors cannot reduce the salary of a sponsored employee if this would take the employee's pay below the rate set by the Home Office for the employee's particular role. However, the Home Office has issued guidance which, exceptionally, allows sponsored employees to be placed on furlough and have their salaries reduced to 80% or £2,500 per month (whichever is lower). Such reductions must be temporary and be part of a company-wide policy to avoid redundancies, and the employer must treat all employees on furlough the same. The employer must also report the furlough, its expected duration and any reduction in pay to the Home Office in order to comply with its sponsorship duties.

Can the employee do any work or training while on furlough?

The employee must not undertake any work for the employer while on furlough but can undertake training or volunteer work for another organisation so long as they are not making money for the employer or providing services to the employer. The employer must ensure the employee is paid at or above the national minimum wage for any training undertaken during furlough. Employees can also take a second job during furlough, provided the employer agrees and the employee does no work for the original employer or an associated entity. Directors who are placed on furlough can also continue to fulfil their statutory duties to file company accounts or provide other information in relation to the administration of the company, provided they do no other work for the employer. 

Can employees take holiday during furlough?

Yes. Furloughed employees continue to accrue holiday and can take holiday whilst on furlough. However, such holiday would need to be paid at the employee's normal full pay prior to furlough. It is up to the employer whether to allow employees to take holiday during furlough or not. For bank holidays falling during furlough, the employer would either have to top up the employee's pay to their normal full pay or give the employee a day of holiday in lieu.

The Government has said that it is keeping the position on holiday pay during furlough "under review" so it is possible that it could change in the future.



For further information on the government support measures available for business, please see our briefing note on the COVID-19 resources page of our website. If you would like to discuss any aspect of the Scheme or its impact on your business, please get in touch:

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