21 July 2020

Please note, the Coronavirus Job Retention (Furlough) Scheme has been extended until September 2021 and this note is no longer being updated. Please refer to our new note for guidance on the extended scheme from November onwards.

On 12 June, the government published guidance on how the Coronavirus Job Retention Scheme will operate between July and the end of October. The information is included within changes to existing scheme guidance as well as within several new guidance documents. We expect further updates in due course but the key changes include the introduction of a new ‘flexible furloughing’ scheme from 1 July and the gradual scaling back of government support from 1 August onwards. We explain these latest developments below as well as summarising the key aspects of the scheme (as updated).

On Friday 20 March the government announced the introduction of the Coronavirus Job Retention Scheme in an effort to help employers avoid the need to make mass redundancies as a result of the impact of COVID-19. Details of the scheme were scant at the time but since then HMRC has been updating the guidance on a regular basis as well as issuing new guidance documents. (Links to all key pieces of guidance can be found at the end of this briefing).

In addition, on 15 April, the Chancellor issued a Treasury Direction to HMRC in relation to the Coronavirus Job Retention Scheme. A second Treasury Direction was subsequently issued on 20 May clarifying and remedying some of the inconsistencies between the original Treasury Direction and the various guidance documents published by HMRC. These Treasury Directions only covered the period up to 30 June and therefore, a further Treasury Direction (dated 25 June) was published on 26 June setting out the technical details of the scheme and how it will operate between 1 July and 31 October. Further information on the updated Direction is set out below and also in our Treasury Direction on the Coronavirus Job Retention Scheme: A summary of key points legal update.

Any reference to the Direction in this briefing is to the updated Direction, unless otherwise stated. The Direction sets out the legal framework for the scheme and is intended to have legislative effect. It is therefore likely that, where there is any remaining ambiguity between the Direction and the various pieces of employer guidance, the Direction will take precedence. That said, HMRC has stated in open correspondence that whilst it will act in accordance with the Direction, its interpretation of the Direction is set out in its guidance and that it expects employers to look to the guidance in the first instance when seeking to understand the operation of the scheme. This should give employers some comfort when relying on the guidance..

What are the key changes to the scheme from 1 July?

As previously communicated, the scheme will now run until the end of October. We think it unlikely that the scheme will operate beyond that point.

From 1 July, employers will be able to bring back to work employees who have been previously furloughed for any amount of time and any shift pattern, while still being able to claim under the scheme for normal hours not worked by an employee (with the employer paying for hours that are worked). The introduction of ‘flexible furloughing’ had originally been planned for 1 August but has been brought forward by a month to give employers increased scope to manage their workforce as the lockdown eases.

The scheme will close to new entrants from 30 June. From this point onwards, employers will only be able to furlough employees that they have furloughed for a full three week period at any time between 1 March 2020 and 30 June. Importantly, this means that the final date by which an employer could have furloughed an employee for the first time was 10 June in order for the current three week furlough period to be completed by 30 June. As such, with the exception of employees returning from certain types of family leave, military reservists returning from a period of active duty or employees who TUPE transferred to a new employer after 10 June (see further below), the scheme is now closed to new entrants.

From 1 August, the level of grant under the scheme will be slowly tapered to reflect the government’s expectation that people should be returning to work. Furloughed employees will continue to be entitled to receive the current 80 per cent of wages (subject to the £2,500 monthly cap) through to the end of October but from August employers will be expected to contribute towards this. In August the government contribution towards the employee’s pay when on furlough will remain at 80 per cent but employers will be required to pay employer national insurance and pension contributions. In September, employers will also be required to pay 10 per cent of wages and the government will contribute 70 per cent. In October, the employer contribution will increase to 20 per cent with the government contribution falling to 60 per cent.

Further detail on these changes to the scheme is set out below.

Which organisations are able to apply?

All UK employers, (including individuals who employ people), which operated a PAYE scheme on or before 19 March 2020, have enrolled for PAYE online and which have a UK bank account are eligible to participate. In order to claim from 1 July, an employer will (with limited exceptions) also need to have previously furloughed the employee they are claiming for, for at least three consecutive weeks between 1 March and 30 June.

Whilst public sector organisations are not excluded from the scheme, the government does not expect many to use it as they will be engaged in providing essential services. The newest guidance confirms that if an organisation has staff costs that are publicly funded (even if that organisation is not in the public sector), it should use that money to continue to pay its staff and not furlough them. It does go on to state, however, that organisations can use the scheme if they are not fully funded by public grants and in those cases, they should contact their sponsor department or respective administration for further guidance.

The employer guidance states that employers who cannot maintain their current workforce because their operations have been affected by COVID-19 can furlough employees and make a claim. The previous wording that the scheme is ‘designed to help employers, whose operations have been severely affected by COVID-19, to retain their employees and protect the UK economy and that the government recognises that different businesses will face different impacts from coronavirus’, has been removed from the latest guidance.

The Treasury Direction published on 26 June includes revised wording setting out that “Integral to the purpose of CJRS is that the amounts paid to an employer pursuant to a CJRS claim are used by the employer to continue the employment of employees in respect of whom the CJRS claim is made whose employment activities have been adversely affected by the coronavirus and coronavirus disease or the measures taken to prevent or limit its further transmission”.

This revised wording raises two important points. Firstly, the new reference to preventing or limiting the further transmission of Covid-19’ arguably gives more scope to employers to continue furloughing shielding and/or other vulnerable employees even if there may be sufficient work for them to carry out over the coming months and prior to 31 October.

Secondly, the new reference to claims being used by employers to ‘continue the employment of employees’ raises potential questions as to the scheme’s use during a redundancy exercise and whether or not a grant can be used in relation to notice pay for any employees working out their notice periods whilst on furlough. The government guidance for employees has been updated to clarify that where furloughed employees have been given notice of termination, their employer can continue to claim under the scheme in respect of both statutory and contractual notice periods. Employers can therefore commence redundancy exercises and/or issue notices of termination of employment to employees on furlough and claim accordingly. However, the guidance is clear that employers cannot claim for redundancy payments under the scheme. 

It is difficult to know the extent to which HMRC will look to the employer for evidence to demonstrate that it fell within the remit of the scheme. Given that the guidance makes clear that HMRC will retain the right to retrospectively audit all aspects of an employer’s claim, and given that the grants made under the scheme will ultimately be funded by the tax-payer, it makes sense for employers to document the impact and challenges they were facing as a result of coronavirus when making on-going decisions to furlough employees. This is reinforced as the updated guidance reiterates that HMRC will check claims and that payments will be withheld or will need to be paid back if a claim is found to be fraudulent or based on incorrect information. A government consultation on the introduction of a retrospective statutory regime for the clawback of grants also closed on 12 June. In addition, HMRC has put in place an online portal for employees and the public to report suspected fraud in the scheme and we are aware that there have been a significant number of such reports being made.

How does the Coronavirus Job Retention Scheme work?

The scheme, which started on 1 March, has been extended until the end of October and employers can (subject to the below) use the scheme at any time during this period.

Until the end of July, employers can claim the lower of 80 per cent of a furloughed employee’s gross pay or £2,500 per month plus employer NICs and the minimum employer auto-enrolment pension contribution (effectively a maximum of £2,804 per month per furloughed employee). As individuals are only entitled to the National Minimum Wage (or equivalent) for hours they are working, furloughed workers can be paid the lower of 80 per cent of their salary or £2,500 (unless they are training – see below) even if this will take them below the appropriate minimum wage if based on their usual working hours. Furloughed staff will continue to receive 80 per cent of their wages (up to the £2,500 monthly cap) for the duration of the scheme.

From 1 August, whilst the government will continue to pay 80 per cent of wages up to a cap of £2,500, employers will be required to pay employer NICs and pension contributions for the hours their furloughed staff do not work.

From 1 September, the government will pay 70 per cent of wages up to a cap of £2,187.50 and employers will need to pay 10 per cent of wages to make up the 80 per cent total up to the £2,500 cap.

From 1 October, the government will pay 60 per cent of wages up to a cap of £1,875 and employers will need to pay 20 per cent of wages to make up the 80 per cent total up to the £2,500 cap.

In each case the cap will be proportionate to the hours not worked as part of any new flexible furlough arrangements (see below for further detail on flexible furloughing).

Importantly, the scheme will close to new entrants from 30 June. From 1 July, with limited exceptions, only employees for whom an employer has successfully claimed a previous grant will be eligible for further grants under the scheme. This means an employee must have been furloughed for at least 3 consecutive weeks at any time between 1 March and 30 June 2020 and, therefore, the final date by which an employer could have furloughed an employee for the first time was 10 June, in order for the current three week furlough period to be completed by 30 June. Employees do not need to be on furlough as at 30 June to be re-furloughed from 1 July onwards so long as they have been furloughed for a three consecutive week period at any time between 1 March and 30 June.

Further, the number of employees an employer can claim for in any claim period post 1 July cannot exceed the maximum number it has claimed for under any previous claim under the existing scheme. For example, if an employer had previously submitted 3 claims between 1 March and 30 June, in which the total number of employees furloughed in each respective claim was 30, 20 and 50 employees, then the maximum number of employees that employer could furlough in any single claim starting on or after 1 July would be 50. The updated Direction refers to this number as the ‘high watermark number’. The cap is disapplied for employees returning from family leave and armed forces reservists returning from a period of active duty, after 10 June as well as certain TUPE transfer scenarios (see further below).

What can an employer claim for?

The particular amounts for which an employer may claim do not make for an easy read and the terminology in the guidance has changed on several occasions. To add to the complexity, the Treasury Direction also contains detailed information on this. What follows is an overview of the position but we suggest that specific legal advice is taken as there are some remaining uncertainties.

The guidance provides that employers can claim for any regular payments the employer is obliged to pay their employees (subject to the cap). Details of what constitutes ‘regular payments’ has varied in the different iterations of the guidance. The current guidance Steps to take before calculating your claim using the CJRS includes the following information and states that when calculating 80 per cent of the employee’s wages, the employer should use ‘regular payments’ which the employer is ‘obliged’ to make including:

  • regular wages;
  • non-discretionary overtime;
  • non-discretionary fees;
  • non-discretionary commission payments; and
  • piece rate payments.

The same guidance stipulates that employers cannot include the following:

  • payments made at the discretion of the employer or client (where there is no contractual obligation to pay) including tips (including those distributed through troncs), discretionary bonuses and discretionary commission payments;
  • non-cash payments; and
  • non-monetary benefits (eg benefits in kind).

Benefits provided through salary sacrifice schemes (including pension contributions) should also not be included. Employers should continue to maintain these benefits during any period of furlough, to avoid breach of contract claims, unless the employee agrees otherwise as part of the furlough arrangements. HMRC has agreed that COVID-19 counts as a ‘life event’ which could warrant changes to salary sacrifice arrangements subject to contractual arrangements between employer and employee being updated accordingly.

The Treasury Direction defines ‘regular’ – please refer to our briefing for employers on the Treasury Direction for further detail on this.

An update to the previous guidance on 14 May clarified the approach employers should take towards non-discretionary payments including non-discretionary overtime payments. When determining, for the purposes of a claim, whether a payment to an employee is non-discretionary, employers should only include payments that they are contractually obliged to pay and to which the employee has an enforceable right. If variable payments are specified in a contract and those payments are always made, then they may be non-discretionary and therefore should be included in the calculation. Where an employee has been paid variable payments due to working overtime, the employer can include these payments in the 80 per cent calculation, as long as the overtime payments were non-discretionary. Payments will be non-discretionary if the employer is contractually obliged to pay the employee at a set and defined rate for the overtime they have worked. It appears that this would apply to voluntary overtime in a number of instances.

The Direction also includes further details of non-discretionary payments, which includes payments ‘made in recognition of the employee undertaking additional or exceptional responsibilities’ and payments ‘made in recognition of the circumstances in which the employee undertakes the employee’s duties or time when they are undertaken’.

Claims should be started from the date the employee starts furlough – not the date the decision is made to furlough nor the date the employee is written to confirming furlough status.

The guidance differentiates between fixed-rate employees (essentially those paid an annual salary although the definition is more nuanced see our briefing for employers on the Treasury Direction) and those whose hours of work vary. For fixed-rate employees, salary in their last pay period prior to 19 March 2020 should be used as the basis for the calculation. Employers who had already calculated their claim based on the employee’s salary as at 28 February (the date contained in previous guidance) can choose to still use this date for their first claim. For those with variable pay, where an employee has been employed for 12 months or more the employer can claim for the higher of:

  • the same month’s earning from the previous year; and
  • the average monthly earnings for tax year 2019/2020.
Where an employee has worked for less than a year, the employer should claim the average monthly earnings since they started work until the date they are furloughed or, if they have been employed for less than a month, a pro-rata amount for their earnings so far.

Helpfully the guidance states that employers should choose the calculation they think best fits the way an employee is paid and that HMRC will not decline or seek repayment of any grant based solely on the particular choice of pay calculation, as long as a reasonable choice of approach is made.

Claims for employees returning from statutory leave, for example, maternity leave should be calculated with reference to their salary and not the pay they received whilst on leave. 

Payments made to the furloughed employees will be taxed in the usual way. Employers can top up the payments to up to 100 per cent but will not be able to recover top up amounts. Furloughed employees must receive no less than 80 per cent of their reference pay (subject to the cap of £2,500) and all of the grant received must be paid to the employee in the form of money. Employers may not net off any of the grant to pay for the provision of benefits or a salary sacrifice scheme nor must they reduce the wages by way of administration charges, fees or other costs.

The Apprenticeship Levy and Student Loans should continue to be paid in the usual way – the scheme does not cover these.

Employers will have to calculate the correct amounts to be claimed themselves and HMRC reserves the right to audit claims retrospectively. Claims cannot be made through HMRC’s online portal more than 14 days in advance of the claim end date. Employers must keep a copy of all records of claims made for six years, including the amount claimed and the claim period for each employee, the claim reference number, their calculations in case HMRC require more information about their claim and from 1 July, details of usual hours worked, including any calculations that were required for employees they have flexibly furloughed and actual hours worked for employees they have flexibly furloughed. Further details on how to submit a claim can be found in Claim for employees' wages through the CJRS.

As stated above, if an employee’s furlough is extended beyond the end of July, the employer will be required to bear the cost of employer’s national insurance and pension contributions and, if furlough continues beyond the end of August, contribute to the employee’s salary. A furloughed employee will have continuity of service preserved and they retain their statutory rights so they will continue to accrue statutory holiday. It remains open to employers to seek to agree the suspension of accrual of non-statutory holidays and other benefits. Some benefits, like life insurance or permanent health insurance have annual payment dates and, if payment has already been made, employers may choose to preserve these during furlough. Other benefits represent an ongoing cost which some organisations may not be able to bear at the current time, so may seek to agree with employees that they are suspended during furlough.

Who can be furloughed?

When the scheme was first announced, employers were only permitted to furlough employees who were employed and on the employer’s PAYE payroll on 28 February 2020. This date was later changed to 19 March (which was the day before the Chancellor announced the setting up of the Scheme). In order to make a claim for an employee under the scheme, an employer must be able to show that:

  • the employee has been paid earnings by the employer in the 2019/20 tax year;
  • the employer made an associated Real Time Information (RTI) return in relation to that employee on or before 19 March 2020; and
  • the employer has not reported a date of cessation of employment for that employee on or before that date.

Importantly and as set out above, from 1 July an employer (with limited exceptions) will only be able to claim for an employee under the scheme, if they have previously submitted a claim for that employee in relation to a furlough period of at least three consecutive weeks taking place at any time between 1 March 2020 and 30 June. This requirement applies to all of the categories of employee highlighted below.

Assuming they meet these requirements, all employees, whether working full or part-time or on zero hours contracts, are eligible. Foreign nationals can be furloughed and employers can furlough employees on all categories of visa. Employed agency workers are also eligible if they are part of their employer’s PAYE system. The scheme does not apply to the self-employed for whom separate arrangements are in place.

Employees made redundant or who stopped working for their employer after 28 February but before 19 March can be furloughed if they are reemployed (even if this re-employment is after 19 March) provided they were on the PAYE payroll as at 28 February (which means an RTI submission to HMRC in respect of the employee must have been made on or before 28 February). Employees who stopped working for you or were made redundant on or after 19 March can be re-employed and furloughed provided the employee was on the PAYE payroll on or before 19 March (which again requires an RTI submission to have been made to HMRC in respect of the employee on or before 19 March). No guidance is given as to how redundancy or notice payments already paid to those employees should be dealt with. Employers may wish to consider requiring repayment of sums paid as a condition of reemploying.

The Guide for employers to check which employees they can put on furlough includes the following table for ease of reference:

Was the employee employed with you as of this date?

Date RTI submission notifying payment was made to HMRC

Eligible for CJRS?

28 February 2020

On or before 28 February 2020


28 February 2020

On or before 19 March 2020


28 February 2020

On or after 20 March 2020


19 March 2020

On or before 19 March 2020


19 March 2020

On or after 20 March 2020


On or after 20 March 2020

On or after 20 March 2020


Employees on fixed-term contracts can be re-employed and furloughed provided their contract expired after 28 February (and an RTI submission was made to HMRC on their behalf on or before 28 February) or after 19 March (and an RTI submission was made to HMRC on their behalf on or after 19 March). If the employee’s fixed-term contract has not already expired, it can be extended or renewed and a claim can be made provided an RTI submission was made to HMRC on their behalf on or before 19 March).

Employees who joined an organisation after 28 February and left before 19 March (whether on a fixed-term contract or otherwise) will not be covered by the scheme.

The Direction confirms that staff cannot be on unpaid leave and furloughed at the same time. For employees who were on unpaid leave before 1 March 2020 any period of furlough cannot begin before:

  • the expiry of the period of unpaid leave on the date agreed or contemplated at the time when it began; 
  • where the duration of the period of unpaid leave was uncertain at the time when it began because it was intended to cover a particular event or circumstance, the ending of that event or circumstance; or
  •  the unpaid leave finished on a date set out in an agreement or arrangement reached after the unpaid leave began and before 20 March 2020.Employees who are unable to work because they have caring responsibilities resulting from coronavirus can be furloughed – this would include employees who cannot work because they need to look after children who are at home because of school/ nursery closures. Employees who have to stay at home with someone who is shielding but who cannot work from home may also be furloughed.

A new employer may be able to claim under the scheme in respect of employees who have TUPE’d over from their previous employer after 28 February 2020 even if there was no RTI submission before 19 March. If the transferor had already furloughed those employees then, depending on the wording of the furlough agreement, the employees should transfer on their varied terms and conditions of employment. However, the guidance is silent on this and we recommend that specific legal advice is sought if you are in this position.

A new employer is also eligible to claim under the scheme in respect of the employees of a previous business transferred after 10 June 2020 as long as the TUPE or PAYE business succession rules apply to the change of ownership and the employees being claimed for have previously had a claim submitted for them by their prior employer in relation to a furlough period of at least 3 consecutive weeks taking place at any time between 1 March and 30 June.

The guidance includes provisions for those who are off sick or who are self-isolating as follows:

  • the scheme is not intended for short absences from work due to sick leave so employees who are currently working who fall sick or who need to self-isolate should go onto sick leave and receive statutory sick pay (SSP) if eligible. An employee who is on short-term sick leave or who is self-isolating can be furloughed if there are business reasons to do so. In this case, the employee should no longer receive sick pay and should be classified, by adhering to the furlough process, as a furloughed employee;
  • an employee who is being shielded can be furloughed if they cannot work from home – they may be eligible for SSP if they have not been furloughed and cannot work from home;
  • an employee on long-term sick leave can also be furloughed – it is up to the employer to decide whether to furlough these employees. In our view, it may be difficult for an employer to justify a claim if you furlough an employee who is on long-term sick leave if that employee is not otherwise fit and able to return to work although you may want to seek legal advice as discrimination and other issues may arise;
  • an employer can claim under the furlough scheme and under the SSP rebate scheme for the same employee but not for the same period of time. This means that when an employee is on furlough the employer can only make a claim though the furlough scheme and cannot claim for a rebate of SSP;
  • if an employee becomes sick whilst on furlough they are entitled to be paid at least SSP (if eligible). It is up to the employer to decide whether to move the employee onto SSP or to keep them on furlough at their furloughed rate. If an employee who becomes sick is moved onto SSP then the employer can no longer claim for their salary through the furlough scheme. If the employer chooses to keep the sick employee on the furloughed rate then the employer remains eligible to claim for those costs through the furlough scheme. The decision the employer takes as to how to deal with an employee who becomes sick whilst on furlough is likely to depend on whether the employer is topping up the furloughed employee’s salary, whether they offer enhanced company sick pay and whether they are entitled to claim back SSP – again you may wish to seek specific legal advice in these circumstances; and
  • the first updated Direction clarified the position concerning employees on sick leave so as to bring it into line with existing guidance. Previously, the original Direction stated that where an employee is receiving SSP at the time that the instruction to cease work is given, a period of furlough leave cannot start until the SSP has ended. The updated Direction, whilst still not entirely clear, indicates that an employer and employee may agree to bring a period of sick leave to an end, in order to start a period of furlough. This change is likely to cover clinically extremely vulnerable employees who cannot work from home and whose eligibility to receive SSP is due to them shielding. Please see our briefing for employers on the Treasury Direction for more information.

Employees on maternity and other types of family leave will remain on that leave unless the leave comes to an end in one of the usual ways. The normal rules for maternity and other forms of parental leave and pay apply.  The guidance states that an employer can claim through the scheme for enhanced contractual pay for employees who qualify for maternity, adoption, paternity and/ or shared parental pay. This appears to mean that those on family-related leave can be furloughed but that claims for wage costs are limited to any enhancements to statutory entitlements (which will still be subject to the 80 per cent cap), although the Direction suggests that an employer should calculate a claim in the same way as for other employees and then deduct the amount of statutory payments from the sum claimed. The guidance provides links to assist employers with calculating an employee’s average weekly earnings in circumstances where that employee was furloughed, and then began a period of family leave on or after 25 April 2020.

New regulations, introduced separately, mean that furloughed workers who take paid family-related leave on or after 25 April 2020, will have their statutory maternity pay, paternity pay, shared parental pay, parental bereavement pay or adoption pay based on their pre-furlough normal weekly earnings during the eight week reference period used for calculating the statutory pay even if some or all of this reference period falls during a time when they were on furlough (and so on reduced pay).

The latest guidance and the new Direction also contain information on employees returning from family leave and armed forces reservists returning from a period of active duty, after 10 June. Employers can furlough an employee returning from statutory family leave or an armed forces reservist returning from a period of active duty, after 10 June even if they are furloughing them for the first time provided:

  • they have previously submitted a claim for any other employee in their organisation in relation to a furlough period of at least three consecutive weeks taking place at any time between 1 March and 30 June;
  • the employee they wish to furlough for the first time started their family leave before 10 June and has returned from that leave after 10 June; and
  • the employee was in its PAYE payroll on or before 19 March 2020 (and an RTI submission in respect of that employee has been made on or before that date).

Employees with more than one employer can be furloughed from one or both jobs and each employer can claim up to £2,500 per month (or any reducing cap from September onwards) for the employee.

A number of individuals who are not employees will also be eligible for the grant if they are paid though PAYE. These include office holders (including company directors), salaried members of LLPs, agency workers (including those employed by umbrella companies) and limb (b) workers.

Apprentices can also be furloughed. They can continue to train whilst furloughed but must be paid at least the Apprenticeship Minimum Wage, National Minimum Wage or National Living Wage as appropriate for all the time they spend training which may mean the employer needs to top up the amount they can claim under the scheme.

Flexible furlough and what work employees can perform

The guidance and Direction confirm that up until the end of June, employees placed on furlough may not provide any services or generate any revenue for their employer or for a linked or associated organisation and that employers are free to consider re-allocating any critical business tasks to staff who are not furloughed.

Whilst the updated Direction remains silent on this, the updated versions of the guidance have clarified that employee and union representatives can carry out their duties and activities in relation to individual and collective representation of employees and workers whilst they are furloughed, as long as they do not provide services to or generate revenue for their employer. This will be particularly relevant to employers considering the need to commence or continue TUPE or redundancy consultations.

Employees can take part in volunteer work (although they cannot volunteer for their employer in the same or a different role) and engage in training whilst on furlough. The guidance states that the purpose of any training must be to improve an employee’s effectiveness in the employer’s business, or to improve the performance of the employer’s business. The Direction confirms that any such training must not provide a service to the employer or the employer’s business activities or contribute to the business activities of the employer or anything generating income or profit for the employer. Further, the training should not (to a ‘significant degree’) directly contribute to the production of any goods the employer intends to supply (as part of the making of such goods or services) or to the supply of services for which any form of consideration is received by the employer. If the training is compulsory employers will need to make sure the employee is paid at least the National Living/Minimum Wage for time spent undertaking it.

Employers cannot apply for furlough payments to top up the wages of those undertaking short-time working (until the new flexible arrangements come into effect from 1 July).

Any statutory duties that company directors are required to undertake by virtue of their office will not count as work for the purposes of the scheme.

The guidance makes clear that furloughed employees can take up work for another employer whilst on furlough provided their contract of employment allows them to do so. If you anticipate that furloughed employees will take up work elsewhere, make sure you address this in your furlough agreement with the employee so that any new role does not hinder you when asking an employee to return to work.

As set out above, from 1 July, a new flexible furloughing scheme will be introduced. From this date, employers will have the option of bringing back to work employees who have previously been furloughed for any amount of time and any shift pattern, while still being able to claim under the scheme for normal hours not worked by an employee. This could include working some days or part days and being furloughed the remainder of the time. It will still be possible to fully furlough employees (i.e. have employees performing no work at all) and/or have a mix of employees on full furlough and flexible furlough.

There is no minimum or maximum number of hours that can be worked but employers will need to agree arrangements with the employee (or in certain circumstances reach a collective agreement with a trade union), and keep a written record confirming the new furlough arrangements. As such, if changes to existing arrangements for those staff currently on furlough are to be made, these will need to be confirmed in writing. The rules summarised above as to what an employee is and isn’t permitted to do during furlough will continue to apply during any periods of time they are furloughed.

The current three week minimum furlough period will be removed from 1 July and flexible furlough agreements will be able to last any amount of time and employees will be free to enter into flexible furlough agreements more than once. This will give employers significantly more options in terms of rotating staff on and off of furlough. It is worth noting, however, that where a previously furloughed employee starts a new furlough period before 1 July, this furlough period must still be for a minimum of three consecutive weeks even if that three week period ends after 1 July.

When claiming for a grant, employers will need to report and claim for a minimum period of a week (other claim periods are also expressly permitted). In line with the reason behind this change to the scheme, this would appear to allow employers to potentially vary any hours worked by staff on a weekly basis.

For worked hours, employees will need to be paid by the employer as per their employment terms and conditions (which we believe, could in theory, also be varied with relevant consent) and employers will be responsible for employer national insurance and pension contributions.

How to calculate and make a claim from 1 July onwards

The new guidance and Direction set out some significant changes as to how employers must calculate and submit claims under the scheme.

Claims for any period staring before 1 July must end on or before 30 June. This is the case even where an employee furloughed in June continues to be furloughed full time in July – separate claims need to be submitted to cover the days in June and any days in July. Importantly, 31 July is the last day that an employer can submit claims for periods ending on or before 30 June.

From 1 July, claims must start and end within the same calendar month. This is to reflect the fact that the sums that can be claimed under the scheme will be changing each month from July onwards through to the end of October. Whilst it is possible to make more than one claim per month, each claim must be for a minimum period of seven days.

The only exception to the minimum seven day claim period is if an employer is making a claim for the first few days or the last few days in a month and they have already claimed for the period immediately preceding it but in this case any such claim must include the first or last day of the month (as appropriate). The updated Direction refers to these periods as ‘orphan periods’.

The various guidance notes published on 12 June and the subsequent updated Direction set out very detailed and complicated rules for calculating claims. There are different calculations depending on how employers have categorised their employees as working fixed or variable hours (see the ‘What can an employer claim for?’ section above). In each case, the calculation involves ascertaining an employee’s ‘usual hours’ to compare against the actual hours they work during any furlough claim period.

For employees who are contracted to work a fixed number of hours and whose pay does not vary according to the number of hours they work, the calculation for working out ‘usual hours’ is broadly as follows:

  • start with the hours the employee was contracted to work at the end of the last pay period ending on or before 19 March 2020 (the new Direction confirms that for salaried employees, their ‘usual hours’ are those set out in their contract of employment);
  • divide this number by the number of calendar days in the repeating work pattern, including non-working days (so if an employee was contracted to work 37 hours a week they would divide 37 by seven)
  • multiply this number by the number of calendar days in the pay period (or partial pay period) they are claiming for (e.g. 31 days for a claim period of the whole of July) (there are some helpful additional provisions set out in the updated Direction where the first and last days of a claim period do not correspond exactly with the first and last calendar days of a single salary period); and
  • round this number up to the next whole number to get the ‘usual hours’ figure (in this example (37/7) x 31 = 163.8 rounded up to 164)

The requirement to use calendar days as opposed to working days can lead to some odd results so calculations will need to be carried out with care.

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

For employees with variable hours, their ‘usual hours’ will be the higher of either the average number of hours worked in the tax year 2019/2020 or the corresponding calendar period in the tax year 2019/2020. When calculating ‘usual hours’ for variable hours employees, employers should include any hours of leave for which the employee was paid their full contracted rate (such as annual leave) and any hours worked as overtime, provided pay for those hours was not discretionary.

Specific guidance is available for employers to calculate usual hours where an employee works on ‘flexi-leave’ i.e. is awarded time off in lieu for additional hours worked. In that instance the employer should count, as hours worked, the hours that the employee took as paid time off (i.e. the hours taken as time off in lieu) and not the actual additional hours worked to accrue the paid time off.   

The government has set out a number of worked examples to assist with these calculations and has also updated its calculator, see Examples of how to calculate your employees' wages, national insurance contributions and pension contributions. Whilst these examples are illustrative, the onus is very much on employers to make correct calculations, particularly as the guidance makes it clear that when claiming for employees who are flexibly furloughed, employers should not claim until they are sure of the exact number of hours they will have worked during the claim period. As such, employers are going to need to work out and record their employees’ normal working hours and their furloughed hours very carefully before they calculate and make claims. Given the complexity of the calculations required, employers are going to need to work closely with their payroll teams/providers to ensure that any claims submitted are accurate and in line with the new Direction and accompanying guidance.

Whilst such calculations may be more manageable for smaller workforces, larger employers are likely to face an onerous task in correctly calculating each employee’s usual and actual hours worked. Given these significant extra complexities and the increasing contributions that will be required under the scheme from August onwards, it remains to be seen whether more employers may now move forward more quickly with any redundancy exercises they might have been considering.

Following the publication of updated guidance on 12 June, there was an argument to suggest that you could avoid the additional calculations set out above if you kept employees on ‘full furlough’ as opposed to moving them onto a flexible furlough arrangement. As part of this, many employers were considering whether a rotational ‘full furlough’ arrangement might better serve their resourcing needs rather than entering into more complicated flexible furlough arrangements with the resulting additional calculations such arrangements would require.

The new Direction has helped to clarify this point by making it clear that from 1 July, all employees on furlough will, in effect, be on a flexible furlough arrangement. This means that employers will need to carry out the additional calculations referred to above, save where employees are on ‘full furlough’ for the whole of a claim period. Where employees are rotated on or off furlough during a claim period (for example on a weekly basis throughout a chosen monthly claim period), an employer will still be required to carry out the new flexible furlough calculations. The only way to avoid these calculations would be to align rotational furlough periods with claim periods – given that this is likely to mean making multiple claims per month, any administrative advantages of this approach could potentially be minimal.

Can a furloughed employee take holiday?

Previous versions of HMRC guidance remained silent on the interplay between holiday and furlough and employers were referred instead to guidance provided by ACAS on the issue. However, the guidance Check which employees you can put on furlough to use the CJRS and Check if you can claim for your employees' wages through the CJRS both now confirm that employees can take holiday whilst on furlough leave. However, where an employee is on holiday during furlough leave, the employee should be paid at their normal rate of holiday pay (as required by the Working Time Regulations). The furlough grant can still be claimed whilst the employee is on holiday but you will need to top up as appropriate if you have reduced pay for furloughed employees (and you cannot claim for that top-up under the scheme). If an employee is flexibly furloughed then any hours taken as holiday during the claim period should be counted as furloughed hours rather than working hours. However the guidance makes clear that employees should not be placed on furlough simply because they are taking holiday. Further information on the interplay between holiday and furlough (and additional information about temporary changes to the taking of holiday) can be found in our briefing on changes to holiday as a result of COVID-19.

Selecting who will continue to be furloughed

Employers are now turning their minds to whether or not to keep people on furlough and may also be looking to rotate people on and off furlough more regularly as businesses start to reopen and/ or as demand increases. It is for the employer to decide who to furlough. In some cases the job role will determine who is selected but, if you need to choose between employees, for example, because there is less work to do as opposed to no work to do, you should be careful not to discriminate, for example, by choosing to furlough women on the assumption that they cannot work because of childcare responsibilities. In our view, employers may be able to justify giving preference to employees in vulnerable groups because, whilst potentially discriminatory, given the circumstances, this is likely to be objectively justifiable. When working up new work patterns, consider asking for volunteers for furlough or to return to work if that is appropriate– whilst making no guarantees that they will be selected. As you start to bring people off furlough and/ or to operate flexible furlough be careful to sense-check your decisions to ensure you are not inadvertently discriminating against anyone involved.

Agreeing furlough arrangements

Employers should discuss and seek to agree furlough arrangements with their affected employees. The original Treasury Direction caused confusion for employers as it stated that to submit a claim for a furloughed employee, the employer and employee must have ‘agreed in writing that the employee will cease all work in relation to their employment’. The updated versions of the Direction appear to have resolved this issue: whilst agreement between the employer and employee is still required in writing, it can be ‘confirmed’ by the employer to the employee, and ‘writing’ includes communications by email. This agreement may be made by way of collective agreement, and it must specify ‘the main terms and conditions upon which the employee will do no work in relation to their employment, or will not work the full amount of the employee’s usual hours in relation to their employment. Therefore, provided employers have written to their employees to confirm that they have been furloughed, and the terms on which this furlough have been agreed, employers should have arguably complied with the new Direction (but this will depend on the specific communications). If an employer wants to flexibly furlough any of its employees, it will need to enter into a new agreement with those employees reflecting these changes. It is important to note that the updated Direction sets out that any agreement must be made before the beginning of the period to which a claim relates but that it may subsequently be varied to reflect any variation agreed between the employer and employee during the period to which the claim relates.

Notwithstanding the clarification provided by the Direction (and the updated Direction published on 26 June includes the same ‘made in writing or confirmed in writing’ wording), the employee’s consent will still be required to vary their terms of employment as part of any furlough arrangements, or employers risk claims for unlawful deductions from wages, unfair dismissal, breach of contract and/or redundancy payments. Employers should be wary of assuming that an employee who fails to reply to the letter seeking consent to the variation of terms has accepted that variation. On 13 April, the first High Court decision on the furlough scheme was handed down.  Whilst the case, In the Matter of Carluccio’s Limited, concerned the actions of administrators, the High Court considered the issue of implied consent i.e. the position of those employees who had failed to reply to the letter requesting their agreement to vary their terms and conditions of employment. The Court rejected the argument that those who had failed to respond to the letter could be taken to have implicitly consented to the variation. Although they accepted that implied consent by way of conduct is possible, insufficient time had passed to accept that that had happened.

Effective communication with affected employees and their representatives will be key to obtaining consent to furlough (if required). Where collective consultation mechanisms are in place these should be the employer’s first port of call when seeking to implement furlough. This may present some practical challenges if employees are working from home. The guidance also suggests that employers may need to take legal advice on any contract change process and consider collective consultation in some circumstances.

We expect employees and trade unions to continue to take a constructive approach to furlough but prudent employers will still need to consider what their plan would be if employees do not consent either because they just don’t reply to the letter seeking to vary their contractual terms or because they actively refuse. Will they seek to impose on-going furlough arrangements or potentially make redundancies? In either case employers will have to be mindful of potential collective consultation and notification obligations. The guidance also provides that to be eligible for the grant, employers must write to employees confirming that they have been furloughed and keep a record of that communication for a minimum of five years (the new Direction clarifies that records of the agreement or confirmation of the agreement should be kept until at least 30 June 2025). Where employee consent is required, their consent to the change(s) to their terms and conditions of employment should also be documented.

Any commitments made by the employer in the furlough agreement should be made subject to future changes in guidance. Employers should reserve the right to revisit levels of payment and benefits preserved if the terms of the scheme or the circumstances in general change as well as reserving the right to require employees to return to work (after each three week block of furlough leave) if work becomes available before the scheme ends.

Amending furlough claims

The guidance now includes steps employers can take if they have made errors when submitting claims (including a new guide entitled ‘Pay Coronavirus Job Retention Scheme grants back’). It is expressly stated that if an employer has made an error in a claim that has resulted in an over-claimed amount, they must pay it back to HMRC.

Perhaps as an additional means of policing the accuracy of claims, the new guidance also explains that employers will be asked when making their next claim whether or not they need to adjust the amount claimed down to take account of a previous error, with any new claim amount being reduced to reflect this.

For the first time, the guidance further sets out that, if an employer has made an error that has resulted in an under-claimed amount, they should contact HMRC to amend their claim. As this would involve increasing the amount of the claim, HMRC will then conduct additional checks.

Job Retention Bonus

On 8 July 2020, the government announced that it will pay a one-off bonus payment of £1,000 to UK employers for every furloughed employee who remains continuously employed through to the end of January 2021. To qualify, employees must earn above the Lower Earnings Limit of £520 per month on average between the end of the Coronavirus Job Retention Scheme and the end of January 2021. The bonus will be paid from February 2021. You can read our guidance for employers on how the new scheme will work here.

The government also announced that it will make a payment to employers in England for each new apprentice they hire from 1 August 2020 to 31 January 2021. The payments of £2,000 for each new apprentice aged under 25 and £1,500 for each new apprentice aged 25 and over, will be in addition to the existing £1,000 payment the government already provides for new 16-18 year old apprentices.

Next steps

Many employers have been frustrated by the fact that the furlough scheme prohibited an employee from carrying out any work for them at all. At first blush, therefore, the ability to bring back employees flexibly is appealing and indeed the new flexible furloughing arrangements may help some employers bring back their workforces in a staggered way whilst continuing to receive support under the scheme. However, the process for calculating and submitting a ‘flexible furlough’ claim is complex and the requirement to enter into a new agreement with the employee together with additional record-keeping requirements present additional burdens.

As a result, employers should now be taking urgent steps to think about their staffing requirements and what hours and shift patterns they might want any returning employees to carry out from July onwards. Many employers may find that the best way to manage their workforce requirements is through a combination of full furlough, rotational furlough, flexible furlough and/or the bringing back of some employees from furlough altogether. Once employers have worked out their strategy, they should then be communicating and agreeing in writing any contractual changes with affected employees, where required (including extending out any existing full furlough arrangements beyond 1 July), whilst at the same time, working with their payroll function to ascertain how and when they will calculate and process their claims under the scheme.

We have been advising many employers on the issues arising out of this scheme. If we can help your organisation, please contact Luke Bowery or any other member of our employment team. 

Links to the Treasury Directions and current Government guidance: 


This briefing gives general information only and is not intended to be an exhaustive statement of the law. Although we have taken care over the information, you should not rely on it as legal advice. We do not accept any liability to anyone who does rely on its content.

Key contact

Luke Bowery

Luke Bowery Partner

  • Employment
  • Restructuring and Redundancy
  • Equality, Diversity and Discrimination

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