The UK government’s furlough scheme (formally called the Coronavirus Job Retention Scheme) was originally extended until the end of March 2021 following an announcement on 5 November 2020 by the Chancellor, Rishi Sunak. He then announced on 17 December 2020 that this scheme would be extended until the end of April 2021. We have updated our Q&A to take account of the changes to the extended CJRS.
Here are our thoughts and conclusions on the scope of the extended scheme and some of the practical issues flowing from it.
What are the key features of the extended CJRS?
- The scheme covers the period from 1 November 2020 to 30 April 2021.
- The government will pay 80% of employees' normal pay for hours not worked, up to a cap of £2,500 per month (reduced in proportion to the hours not worked) until the end of April 2020.
- Employers will pay employer National Insurance Contributions (NICs) and pension contributions.
- Employers can claim the grant for the hours that their employees are not working, calculated by reference to their usual hours worked in a claim period.
- Flexible furlough is allowed, as well as full-time furlough.
- Employers should continue to pay employees for hours worked, and deduct and pay the tax and NICs due on those amounts, in the normal way.
There is also updated HMRC guidance on making CJRS claims and guidance on which employees you can put on furlough, as well as updated guidance for employees.
The employees who can be placed on furlough
- Who is eligible to be furloughed?
Employers can claim under the extended CJRS even if they, or any relevant employees, have not previously used the CJRS.
Employees will be eligible for the extended CJRS as long as employers have made a PAYE Real Time Information (RTI) submission to HMRC between 20 March 2020 and 30 October 2020 notifying a payment of earnings for them, and they:
- are employed by you on 30 October 2020
- were employed by you on or after 23 September 2020 and stopped working for you or were made redundant, and they are re-employed by you
- were on a fixed term contract which expired on or after 23 September 2020, and they are re-employed by you.
- Is there a limit on how many employees can be furloughed?
When the furlough scheme was previously extended, a cap was imposed which meant employers could not claim for more people than they had furloughed previously. However, there is no such cap for claims under the extended CJRS. So there is no maximum number of employees who can be claimed for from 1 November 2020.
- Does it matter why we are furloughing staff?
The government initially indicated that the CJRS was an alternative to redundancy, lay-off or unemployment. The Treasury Direction for the extended CJRS states that it applies to employees "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 suggests there must be a connection between the individual employee claimed for and the effects of the pandemic, or the measures taken in response to it.
The guidance states that employees can be furloughed if you “cannot maintain your workforce because your operations have been affected by coronavirus”; while the employee guidance states:
"The scheme is designed to help employers whose operations have been severely affected by coronavirus to retain their employees and protect the UK economy. However, all employers are eligible to claim under the scheme and the government recognises that different businesses will face different impacts from coronavirus."
So it seems that employers are afforded some discretion as to whether they are entitled to claim under the scheme. But they should ensure that they are not abusing the scheme. No claim may be made if it is "abusive or is otherwise contrary to the exceptional purpose” of the scheme.
- An ex-employee has asked to be re-employed so they can be furloughed – do I have to do this?
No. Employees who were on the payroll on 23 September 2020 who have since been made redundant or stopped working for you, and employees on fixed-term contracts that expired after 23 September 2020, can be re-employed and put onto the extended CJRS. However, there is no requirement for you to do this.
- An employee on maternity leave wants to come back early so she can be furloughed - is this possible?
If an employee wants to end her maternity leave early in order to be furloughed, she must give you at least 8 weeks’ notice. She cannot be furloughed until the end of that 8 week period.
- Can an employee on sick leave be furloughed?
Yes, an employee can be moved from sick leave onto furlough. Although it is not intended that the extended CJRS is used for short-term sickness absence, if an employee is currently on sick leave they can be furloughed.
- Can an employee who is shielding be furloughed?
Those who are clinically extremely vulnerable have been advised to take new shielding measures with effect from 5 November 2020 and may receive a formal shielding notification.
Clinically extremely vulnerable employees who have been advised to shield are entitled to SSP, but it is possible to agree to end a shielding worker's SSP and move them onto furlough.
- What if a furloughed employee has two jobs?
If your employee has more than one employer they can be furloughed for each job. They can also be furloughed in one job and receive a furlough payment but continue working for another employer and receive their normal wages.
- Can employers furlough employees who recently transferred to them under TUPE?
For claim periods from 1 November 2020, an employer is eligible to claim in respect of the employees of a previous business transferred, if the TUPE or PAYE business succession rules apply to the change in ownership. On the basis of the wording in the Treasury Direction and guidance, it seems that this only applies in relation to a “business transfer” under TUPE, and not where there was a “service provision change” . However, employers in this situation should take legal advice on this point and on their particular circumstances.
To be eligible, employees should have been:
- employed by their old employer before 31 October 2020
- transferred from their old employer to their new employer on or after 1 September 2020
- on a PAYE RTI submission to HMRC by their old or new employer between 20 March 2020 and 30 October 2020 notifying a payment of earnings for that employee.
- What happens where a group of companies has consolidated their PAYE schemes after 30 June 2020?
Where a group of companies has multiple PAYE schemes and there is a transfer of all employees from those schemes into a new consolidated PAYE scheme, the new scheme will be eligible to furlough and claim for employees.
- Can we re-furlough employees who have returned to work?
Yes, provided you agree this with them and all the other conditions are met.
- We have not furloughed any employees before, can we furlough employees now?
Yes, as long as all the conditions for using the scheme are met.
The cost to employers of furloughing staff
- What should we pay furloughed employees?
Employees on flexible furlough must be paid full wages for any hours worked as normal.
Employers can claim the grant for the hours that their employees are not working, calculated by reference to their usual pay and hours worked in a claim period. The grant must be paid to employees in full.
- Who pays for pensions and National Insurance Contributions?
Employers must account for all employer NICs and pension contributions on the full amount the employer pays the employee, including any scheme grant.
- Can you withdraw the contractual benefits of furloughed employees during furlough leave?
Retaining other contractual benefits during furlough leave will likely encourage employees to readily consent to being furloughed. However, the ongoing cost may discourage employers from opting for furloughing over redundancies. Withdrawing contractual benefits is possible but will require employee consent.
- Is there any reputational risk in using the extended CJRS?
There are potential areas that could lead to reputational risk for employers making claims under the extended CJRS.
While not all ineligible claims risk enforcement action by HMRC, there are potentially serious consequences, and reputational risk, for employers (and individual directors and partners) if "furlough fraud" is identified.
Reputational risk may also arise where an employer has made a substantial claim under the scheme and then behaves in a manner which suggests it did not need access to government funds to help it through the coronavirus pandemic (for example where a business awards "excessive" bonuses to senior executives or pays large dividends to overseas parent companies).
Note that it is a condition of making a claim under the extended CJRS that the employer accepts that HMRC will publish information on the internet about the claims made. This includes the name of the employer and a “reasonable indication” of the amount claimed. (An exception may be made where an employer can show that publication would expose its workforce to “serious risk of violence or intimidation”.) In view of this, some employers may choose to avoid this publicity, and the associated reputational risk, by not making a claim under the scheme even though they are eligible to do so.
What the employer can claim back:
- How will the government's grant change during the lifetime of the extended CJRS?
The government's grant will not change between 1 November 2020 and 30 April 2021. During this period, employers can claim 80% of an employee’s usual salary for hours not worked, up to a maximum of £2,500 per month (reduced in proportion to the hours not worked).
Employers must account for all employer NICs and pension contributions on the full amount the employer pays the employee, including any scheme grant.
- How do you calculate the grant for furloughed hours?
Employers can claim the grant for the hours that their employees are not working, calculated by reference to their usual pay and hours worked in a claim period.
For employees on a PAYE Real Time Information (RTI) submission on or before 19 March 2020, (i.e. those previously eligible for furlough) their reference pay and hours will be based on the furlough calculations as applied in August 2020.
For new employers claiming, and new employees hired between 20 March and 30 October 2020, they will have a different pay reference period:
- For those on fixed wages: 80% of wages payable in the last pay period ending on or before 30 October 2020.
- For those on variable wages: 80% of the average wages payable between the start date of their employment or 6 April 2020 (whichever is the later) and the day before their furlough period begins.
For employees who were not previously eligible under the previous CJRS, their usual hours will be calculated as follows:
- For those on fixed wages where pay does not vary according to the number of hours worked – the contracted hours worked in the last pay period on or before 30 October 2020.
- For those on variable hours - the average hours worked between the start date of the 2020/21 tax year and the day before furlough begins.
Making claims under the extended furlough scheme
- How should a claim be made under the extended furlough scheme?
Claims need to be made through an online portal. Information and guidance on how to make a claim are available here.
- Is there a minimum length of furlough and is there a minimum claim period?
There is no minimum period that an employee has to be on furlough for in order to claim the grant.
However, any claim made through the online portal has to cover a period of at least one week, apart from where you are claiming for the first few days or last few days of a month. This is because claim periods must begin and end in the same month.
A claim can only cover a period of less than seven days if it includes the first or last day of the month and you have already claimed the grant for the same employee for the period immediately before it.
- What is the deadline for submitting claims?
For claims for furlough days in the following calendar months, the deadline days for making furlough claims are:
For October – by 30 November 2020 For November 2020 – by 14 December 2020 For December 2020 – by 14 January 2021 For January 2021 – by 15 February 2021 For February 2021 – by 15 March 2021 For March 2021 - by 14 April 2021 For April 2021 – by 14 May 2021.
Employers need to take care to meet the deadlines for submitting claims in order to avoid missing out on the grant.
Starting and ending furlough
- How flexible is furlough?
- fully furlough employees - they cannot undertake any work for you while furloughed full time
- flexibly furlough employees - they can work for any amount of time, and any work pattern but they cannot do any work for you during hours that you record them as being on furlough.
There is no minimum furlough period and flexible furlough agreements can last any amount of time. Employees can enter into a flexible furlough agreement more than once. This means you can also rotate employees between periods when they are on furlough and periods of work.
Although flexible furlough agreements can last any amount of time, the period that you claim for must usually be for a minimum claim period of seven calendar days as explained above.
You do not need to place all your employees on furlough. You can decide which employees should be furloughed. Some employees could be brought back to work while others are on full-time furlough. Alternatively, employees could be rotated on and off furlough.
If some employees will be furloughed and others at work, it is important to consider carefully how you will decide which employees are furloughed in order to avoid discrimination or other claims.
- What process should be followed when placing employees on furlough leave or extending furlough?
You need to discuss and agree with employees that they will be furloughed or their furlough will be extended (where they are already on furlough).
- Does the employee have to consent to being furloughed?
Yes, you need to agree with your employees that they will be furloughed.
To be eligible for the grant, you must have confirmed to your employee - or reached collective agreement with a trade union - in writing before the start of furlough, that they have been furloughed. The employee does not have to provide a written response. This can be done at any time in relation to the period going forward from the date of the agreement.
Any flexible furlough or furlough agreement made retrospectively that has effect as from 1 November 2020 will be valid as long as it meets the usual requirements. Only retrospective agreements put in place up to and including 13 November 2020 may be relied on for the purposes of a retrospective period claim.
Agreements may, however, be varied during the claim period.
If you agree a flexible furlough arrangement with an employee you need to keep a new written agreement that confirms the new furlough arrangement. It will need to cover the hours the employee will work and the hours they will be furloughed for.
You need to keep a copy of furlough agreements for at least five years. You also need to keep records of how many hours your employees work and the number of hours they are furloughed (i.e. not working).
- What if the employee doesn’t agree to be furloughed?
If an employee does not agree to be furloughed or does not agree to their furlough being extended you will need to consider your options. If there is work to do, you could bring them back to work and agree to furlough someone else instead, or you may need to consider alternatives. We can advise on this.
- What happens when the scheme closes?
When the scheme closes, you need to decide whether to:
- bring your employees back to work on their normal hours
- agree reduced working hours or some other arrangement with your employees
- consider commencing consultation on redundancy which may lead to ending their employment (however normal redundancy rules apply to furloughed employees and they should be "pooled" with employees doing the same or similar work who are not on furlough).
- Can employees do any work during furloughed hours?
During hours which you record your employee as being on furlough, they cannot do any work that makes money or provides services for your organisation, or any linked or associated organisation.
It is a good idea to draw this to your employees' attention because if they do work for you or a linked/associated organisation you may have to repay the grant.
- What can employees do during furloughed hours?
Employees can volunteer for another employer/organisation or work for another employer (if that is allowed under their contract with you) during furloughed hours.
Training for your company during furloughed hours is also allowed and encouraged. That is as long as the employee does not provide services to or generate revenue for their employer's organisation or a linked/associated organisation by doing the training. For example, training to improve the employee's skills or effectiveness in their role or to improve the performance of the business is allowed.
Employees must be paid at least the National Minimum Wage/National Living Wage for time spent doing training at your request during furloughed hours. In most cases, furlough pay will be sufficient to cover this but if not, you will need to top up pay to the employee's minimum wage.
- Can employees ask or can an employer require employees to take annual leave during furlough leave?
Yes. Holiday leave continues to accrue during furlough and employees can take holiday leave whilst on furlough. This means that, where an employee has pre-booked holiday then they will be able to take it, and you do not need to allow them to reschedule it, unless they would ordinarily have the right to reschedule.
You may take the view that you would like employees to take as much holiday as possible during furlough so that it does not build up and is all taken on return to work, just when the business needs to get up and running. You can require employees to take leave during a particular period by giving your employee notice of twice the length of leave (e.g. 10 days' notice to take 5 days' holiday), unless your employment contract says otherwise. Employers who are considering doing this should take advice.
Where an employee is flexibly furloughed, any hours taken as holiday leave during the claim period should be counted as furloughed hours and not working hours. The guidance says that employees should not be placed on furlough simply because they are on holiday for that period.
Furloughed employees must be paid their usual holiday pay where they take holiday during furlough, not their reduced furlough pay. You will need to top-up their pay so that they get full holiday pay.
You can attempt to agree with employees to vary their holiday entitlement as part of the furlough agreement. However, they must get at least their statutory minimum holiday entitlement.
- What if a furloughed employee goes on maternity or other family related leave?
The employee's statutory maternity pay should be calculated based on the pay they would have received had they not been on furlough. So the amount of their statutory maternity pay will not be impacted if they are on a lower rate of furlough pay during the period for calculating statutory maternity pay. The position is the same for employees going on shared parental, adoption, paternity or parental bereavement leave.
- What if an employee becomes sick while furloughed?
If an employee becomes sick while on furlough, the employer can decide whether to move them onto SSP or to keep them on furlough, at their furloughed rate.
If the employee remains on furlough, you can continue to claim their salary through the scheme. If however they are moved onto SSP, you can no longer claim for the employee’s furloughed salary under the scheme.
Dismissal and redundancy during furlough
- Can we make furloughed employees redundant whilst they are still on furlough?
For claim periods in November, you can claim the grant for furloughed employees who are serving their statutory or contractual notice period, although it cannot be used for redundancy payments.
For claim periods between 1 December 2020 and 31 January 2021, you cannot claim for any day during which the furloughed employee was serving a contractual or statutory notice period. This includes people serving notice of retirement or resignation. It is not clear from the Treasury Direction whether this will also apply to claim periods from 1 February to 30 April 2021, but we anticipate that the position will be the same.
It appears that this change in policy is to discourage employers from dismissing employees during this period.
- What risks do we face when making furloughed employees redundant?
If you are considering making redundancies while the furlough scheme is still open, you should be ready to explain why it is necessary to make redundancies whilst that support is still available.
As always, you will need to ensure that any criteria applied to select employees for redundancy is not discriminatory.
Unfair selection for redundancy risks employees bringing unfair dismissal claims. Consider the fairness of objective selection criteria when applying those criteria across pools of furloughed and non-furloughed employees.
- What timescale should we bear in mind when making large scale redundancies?
If you are proposing to dismiss 20 or more employees at one establishment within a 90 day period, the obligation to collectively consult under the Trade Union and Labour Relations (Consolidation) Act 1992 is triggered.
Consultation with employee representatives must begin at least 30 days (for between 20 and 99 dismissals) or 45 days (for 100 or more dismissals) before the first dismissal is proposed to take effect - rather than the date the employee actually leaves, as it may be that volunteers for redundancy could leave before the end of the consultation period.
You may need to factor in time for the election of employee representatives (carried out remotely) as well and ensure you notify the Department for Business, Energy and Industrial Strategy of the proposed redundancies on an HR1 form and provide the information required by law to the employee representatives.
Whether or not collective consultation is required, you will also need to engage in consultation on an individual basis with employees at risk of redundancy.
- What are employee representatives or those engaged in consultation entitled to be paid if they are furloughed?
Trade union or employee representatives may participate in collective consultation whilst on furlough. The same will apply to employees engaging in consultation on an individual basis. They are only entitled to receive furlough pay during hours when they are furloughed.
- What records do employers need to keep?
You must keep a copy of all records for 6 years including:
- the amount claimed and claim period for each employee
- the claim reference number for your records
- your calculations in case HMRC need more information about your claim
- for employees you flexibly furloughed, usual hours worked including any calculations that were required
- for employees you flexibly furloughed, actual hours worked.
Furlough agreements with employees must also be kept for at least 5 years.