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Please note, the Coronavirus Job Retention (Furlough) Scheme has been extended until September 2021 and this note is no longer being updated.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 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 published by HMRC. These Treasury Directions only covered the period up to 30 June and, therefore, a further updated Treasury Direction (dated 25 June) was published on 26 June.

The updated Direction published on 26 June is divided into two parts, with the first covering the original scheme for the period up to 30 June and the second setting out the details of the scheme and how it will operate between 1 July and 31 October. The updated Direction includes significant detail on the eligibility criteria for claims under the new flexible furlough scheme and how those claims must be calculated, as well as information on how the scheme (and government support) will be wound down before the end of October.

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 on 23 April 2020 that whilst it will act in accordance with the Direction, its interpretation of the Directions 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.

Key points of the Treasury Direction

Purpose of the scheme

Under the Direction, the purpose of the Scheme is stated to be to ‘provide for payments to be made to employers in respect of furloughed employees arising from the health, social and economic emergency resulting from coronavirus’. There is an explicit warning that no claim may be made under the Scheme if it is abusive or is contrary to the purpose of the Scheme.

The updated 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.

Reasons for furloughing

The Direction now states that the employer must have instructed the employee to do no work in relation to their employment during a claim period or not to work the full amount of the employee’s usual hours in relation to their employment during a claim period and that the employer’s instruction must have been given ‘by reason of circumstances arising as a result of coronavirus or coronavirus disease or measures taken to prevent or limit its further transmission’.

Qualifying employers

To be eligible to claim under the Scheme, the Direction provides that at the time of making a claim, an employer must have a PAYE scheme which was registered on HMRC’s real time information system for PAYE on or before 19 March 2020 and must have made a qualifying claim under the scheme on or before 31 July 2020. A qualifying claim is defined as a claim made in accordance with the original CJRS directions and made in respect of an employee who ceased all work for the employer for a period of 21 calendar days or more beginning on or before 10 June 2020.

Conversely, the relevant date for TUPE transfers is 28 February 2020 (it was 19 March 2020 in the original Direction). Therefore, transferee employers may arguably make claims for employees who transferred after 28 February 2020 even if there was no RTI submission before 19 March 2020.

Qualifying employees

The Direction confirms that a qualifying employee for the purposes of the scheme if:

  • On or before 31 July, the employee’s employer makes a claim in accordance with the original Directions in respect of the employee for a period ending on or before 30 June and the employee ceased all work for the employer for a period of 21 calendar days or more beginning on or before 10 June 2020; or
  • The employee is a family leave returner; or
  • The employee is an armed forces reservist returning from a period of active duty.

In both cases of a family leave returner or an armed forces reservist returning from a period of active duty, their leave must have started on or before 10 June and end after 10 June, they must have been on their employer’s payroll on or before 19 March 2020 (and an RTI submission in respect of that employee made on or before that date), and their employer must not have reported a date of cessation of employment on or before that day. Their employer will also need to have submitted a claim for any other employee in their organisation in relation to a furlough period of at least 3 consecutive weeks taking place at any time between 1 March and 30 June.

Employee agreement

To submit a claim for a furloughed employee, the original Direction stated that the employer and employee must have ‘agreed in writing that the employee will cease all work in relation to their employment’. This differed from the position under the guidance which merely required the employer to confirm in writing to the employee that they have been furloughed. The updated versions of the Direction (including the version published on 26 June) 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 updated Direction (but this will depend on the specific communications). 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.

The Direction confirms that records of any agreement or confirmation of the agreement should be kept until at least 30 June 2025.

Calculating the reference salary

The Direction also contains detailed provisions regarding the calculation of the reference salary (the salary/wage used to calculate the claim) and distinguishes between ‘fixed rate employees’ and other employees. Employers will need to consider these provisions to categorise employees correctly.

For fixed rate employees (essentially those who receive an annual salary for basic contractual hours – although the definition is more nuanced than that), the reference salary is the amount payable to that employee in the latest salary period which ended on or before 19 March 2020 (minus the elements of pay for which you cannot claim). For most monthly paid fixed rate employees, this means that the relevant pay period will be February 2020.

For those who are not  fixed rate employees, the reference salary will be the greater of (a) the average monthly (or other relevant period) amount paid to the employee for the tax year 2019/20 before the period of furlough began or (b) the actual amount paid to the employee in the corresponding calendar period in the previous year.

Excluded elements of pay

The Direction stipulates that the employee’s reference salary should not include any payment that is not regular salary or wages. This means certain elements of an employee’s pay will need to be excluded. For example, the Direction states that employers should not include any elements of salary or wages which vary as a result of performance either by the business or the employee, unless those elements constitute non-discretionary payments.

The Direction states that non-discretionary payments may include:

  • overtime, fees and commissions;
  • payments ‘made in recognition of the employee undertaking additional or exceptional responsibilities’;
  • payments ‘made in recognition of the circumstances in which the employee undertakes the employee’s duties or time when they are undertaken’; or
  • payments made ‘in recognition of other matters similar to those described above’.

It also states that there must be a legally enforceable agreement which prescribes the method for calculating a non-discretionary payment. For further detail on non-discretionary payments, see the guidance on steps to take before calculating your claim using the Coronavirus Job Retention Scheme.

Helpfully, the definition of ‘regular’ pay has also been modified to remove the previously ambiguous wording referring to regular wages not including any amount that is ‘conditional on any matter’. The meaning of this phrase had not been clear and called into question the inclusion of a number of payments (eg payments made under a zero hours or casual work arrangement where any work (and pay) is conditional on it being offered and accepted), and so its removal was a welcome change.

These are complex provisions and determining what should be included in the ‘reference salary’ will need careful thought not least as the separate government guidance includes further information on what ‘regular payments’ might include. Employers may wish to take specific legal advice on this.

Flexible furlough

Detailed information on flexible furloughing (including the calculations required) can be found in our full briefing on the Government's guidance on the Coronavirus Job Retention Scheme.

The updated Direction contains detailed provisions on the mechanics of flexible furlough and how claims should be calculated and submitted. These include detailed formulae for calculating employees’ usual hours (save for salaried employees where the new Direction confirms that their ‘usual hours’ can be those set out in their contract of employment) and for working out what employers can actually claim for under arrangements where employees are now undertaking some work.  

Following the publication of updated guidance on 12 June, there was an argument to suggest that you could avoid the additional calculations summarised 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.

Sick leave

The first updated Direction has clarified the position concerning employees on sick leave. 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 could not 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.

Unpaid leave

The first updated Direction resolved some previous ambiguity between the Direction and the guidance and now confirms that staff cannot be on unpaid leave and furloughed at the same time and that, for employees 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; or
  • 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.


The Direction confirms that any training carried out by staff during furloughed hours (i.e. when they are not working any of their usual hours for their employer) 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, such 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.

Furloughed directors

The Direction makes clear that statutory directors who have been furloughed are only permitted to do a very limited amount of work during furloughed hours. That work is limited to the director fulfilling a duty or other obligation arising from an Act of Parliament relating to the filing of company's accounts or provision of other information relating to the administration of the director’s company. Employers who have furloughed directors will need to ensure that the only duties they carry out during any furloughed hours fall within this very narrow ambit.

Trustees of an occupational pension scheme

The Direction makes clear that trustees of occupational pension scheme who are furloughed can carry out their trustee duties. The updated Direction clarifies that this exception will not apply (during any furloughed hours) where the employee is fulfilling their duties as an independent trustee and their employer’s business activities include providing the services of trustees/managers or undertaking duties as an independent trustee.

The Direction contains some complex (and not necessarily very clear) requirements for employers to consider before making a claim for any period after 1 July. It is advisable to take the time to make considered decisions as to the amounts you intend to claim for before submitting a claim (and/or any further claim) to HMRC’s portal.

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


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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