A guide to Furloughing & the Job Retention Scheme

In response to the economic threat of COVID-19 to the UK economy the government has put in place several methods to support employers and businesses during this crisis.


One of the key measures was the creation of the Job Retention Scheme, whose objective is to support employers to retain those employees who may otherwise lose employment as result of the economic impact of COVID-19.


The below is a summary of some of the key provisions of the scheme. This guidance is set up into three sections - the scheme and its application, extension of furlough arrangements and ended furlough. 

Section 1 - The Scheme and how its applies


What is the job retention scheme?

The scheme allows employers to “furlough” employees. This means that the employee takes a temporary leave of absence from work during which time the employer can reclaim 80% of wages cost capped at £2,500 (plus associated NI and minimum auto enrolment amounts for pensions).


Who does the scheme apply too?

Any UK employer that has a PAYE scheme in place as at 19th March 2020, have enrolled for PAYE online and have a UK bank account.


When does the scheme apply?

The UK government has stated the scheme is for employers who have been severely affected by the coronavirus. However, it says that all employers are eligible to claim under the scheme and the government recognises that different organisations will face different impacts from the coronavirus.


What type of workers are covered?

The scheme covers any individual on PAYE, who was on payroll as of 19th March 2020. This includes full time, part time, temporary, zero hours, and fixed term staff. Office holders (including directors) salaried members of LLP's, agency workers and those who fall into the employment status category of worker are also included.


What is included as in “wages”?

Anything that you are obligated to pay to your employees such as wages, overtime and compulsory commissions can be included. Non contractual commission, bonuses and other discretionary payments are not included where there is no obligation to pay these. Non-cash benefits or those subject to benefit in kind tax are not included.


How do I work out how much someone earns?

For salaried employees it will be the amount they earned in the last pay period prior to the 19th March, but for those with variable or irregular pay you would claim for the higher of

  • The same months earnings from the previous year

  • Average earnings for the tax year 19/20

If the person has been employed for less than 12 months, it would be the average from the period they've been employed


If you previously calculated this based on the 28th February, and this differs from the last pay period prior to 19th March, the HMRC has confirmed you can use this for your first claim.


Can an employee work when furloughed?

From the start of the scheme until 30th June they are not permitted to undertake any work for the company who employs them or a connected company during that time. This includes “volunteering” to do work for the employer if that provides a service or makes money for your company or a linked one. They may be able to undertake training but may need to be paid for this separately.  From 1st July the furlough can be used flexibly so someone can be brought back part time (they must be paid as normal for those days), and then furloughed for the rest of the period. e.g. work 2 days a week and furloughed for 3 days. 


Can the employee work for someone else when furloughed?

Depending on their employment contract, they may be able to go and work for another employer, without losing access to the furlough pay.


Must the money be paid to the employee?

Yes, money claimed must be paid to the employee other than the associated NI and auto enrolment amounts.


Are employees taxed on the amounts paid to them?

Yes, the payments are subject to normal deductions.


Do I need to get agreement from the employee to furlough them?

Normal employment law principles apply, therefore unless there is something in your contracts that would permit you to furlough an employee you would need to seek agreement, as this would constitute a change to terms and conditions. The guidance changed on 15th April and where before it simply said you had to have written to the employee it now states you must have had agreement in writing from them they will not work. This must be kept for 5 years.

How do I select employees for furlough?

In some cases, this will be very straight forward as it may be whole departments or people all doing a certain type of role. In other cases where it may be that there is a reduction of the work that means that some, but not others doing similar or the same work may be furloughed , it would be prudent to follow a selection process to ensure that there is no discrimination. You should be careful of “well-meaning” discrimination, for example selecting someone due to age because you believe that they would be high risk, especially if they have not been told to “shield”.

Can someone be on notice and still furloughed?

Yes, you can furlough someone during their notice period. What is not clear is whether this should be at the Furlough rate of 80% or you would need to top it up to 100%. 

Do I have to top up earnings to 100%?

No, there is no obligation to do this.


How long can I furlough someone for?

In it's current form the scheme runs from the 1st March 2020 to 31st July 2020. The scheme will continue in an amended form until the end of October.  People must be furloughed in blocks of a minimum of three weeks. 

When must I have furloughed someone by?

The scheme will close to new entrants from the 30th June, HOWEVER you will only be able to furlough people who have already been furloughed for the three weeks before this date - so in real terms you have until the 10th June to furlough someone to meet this deadline.


What about employees who are currently “shielded”, because of potential risk?

The updated guidance on the 9th of April suggests that those employees who are not working because they have been shielded can be furloughed. Previously it was only where they would otherwise have been made redundant, but the situation appears to have changed


What about employees who are sick or self-isolating?

An employee who is receiving statutory sick pay (SSP) cannot be furloughed. The guidance was updated to suggest that the employer could select whether someone should be on SSP though, however, the details of the instruction from the treasury now suggest that you cannot place someone who is in their first period of SSP on furlough, and this would override the guidance so the furlough cannot be during the first SSP payment period. It cannot be both furlough and SSP, and where employees are placed on furlough statutory sick play cannot be reclaimed. You should also not use this to “top up” short term absence statutory sick pay.


Does the 80% need to meet minimum wage requirements?

No, minimum wage requirements do not apply to a furloughed salary.


What happens if I've already made someone redundant?

If they were made redundant after the 28th February 2020 you may agree to re employ them and furlough them for the period. There is currently no obligation to do so, however discrimination laws will apply so you should consider this carefully.


What about someone who has left the organization in a different way?

Anyone who has left your organisation after the 28th of February 2020 can be re-hired and placed on furlough, again though you do not have an obligation to do this. Again, discrimination laws will apply here.


I want to make redundancies; do I have to furlough people instead?

During redundancy there is an obligation to consider measures to avoid a redundancy situation, and this may reasonably include furloughing an employee, therefore it would be prudent to seek advice when taking this decision.


Does annual leave accrue during furlough?

Statutory minimum annual leave will still accrue. If you do not wish contractual leave to accrue this should be part of any agreement with the employee.


Can employees take holiday while being furloughed?

Yes, they can. Annual leave will not break the period of furlough, so an employer can still claim the 80% for this time, but will have to top salary up to 100% of normal pay


Can you force someone to take holiday during furlough?

Yes, unless something in your agreement with the employee prevents this, and subject to the minimum notice period set down by law (generally twice as much notice for the time you want them to take). You should be reasonable in how you manage this though and not do anything that might breach the basic trust between you and the employee.  


Can I contact people on furlough? 

Yes. These are still your employees, and although you should not be doing anything that breaches the requirements that they not work, you should be checking on them, keeping them updated on things that may impact them and taking appropriate steps to support them as you would any employee.

What do I need to pay? 

Up until 31st July, nothing. From August the government will start to bring in a phased employer contribution. In August employers will need to pay employer NI and pension contributions. For September the employer will then also need to pay10% of the 80% furlough rate, and October this will increase to 20% from the employer. 

Section 2 - Extending Furlough


Can I extend someone on furlough? 

The UK government has extended the duration of the scheme from 3 months from the 1st March to 4 months. You therefore can, subject to meeting requirements, extend the time someone is furloughed


Do I need to get agreement from employees to extend furlough?

This will depend on what you agreed with them in the first case. Did you put in the right to extend? If you did was that with agreement? It is always sensible to discuss this with the employee regardless so they understand what you are doing this and why. 

Do I need to agree an extension in writing? 

The guidance isn't explicit about this in terms of extension, but it is always sensible to do this sort of thing in writing. Given the change in the guidance in the 15th April update to require the employee to have given written confirmation that they would not work, it would be prudent to not only do it in writing, but to also get them to confirm the fact that they will not work. 


What do I do if someone refuses to extend furlough?

This will depend on your business situation. If someone who is not furlough might be willing to be furloughed, you could look to "swop" them as long as the requirements are met. In a worse case though, you may need to consider whether you have to consider redundancies. You must be careful to follow a fair process though and can't penalise someone because they have refused the extension. 

Section 3 - Ending Furlough


Will people automatically have to come back to work at the end of the furlough period? 

In theory, yes, but practically speaking you should contact people prior to the end of the furlough period and confirm the return. Depending on the situation at the time there may still be the need for alternative working arrangements such as working from home that will require discussion. 


Can I end furlough prior to the closure of the scheme? 

In order to meet the requirements to claim via the scheme you must have furloughed the person for 3 weeks, but generally outside of this you should be able to end furlough without the scheme needing to close. The only thing you will need to check is whether anything in the original agreement you made with the employee that might prevent this. 


Can a person refuse to end furlough before the end of the scheme?

Again, unless there was something in the original agreement that means you can't force them to return prior to the end of the scheme, the employee doesn't have the right to be furloughed and therefore can't refuse to this ending. That said, you should understand why they are refusing and see if there are ways to deal with these concerns as practically speaking forcing someone back to work can lead to its own problems. Have a look at our section on ways to reduced costs here for other options. 

Should I end furlough in writing?

Again the guidance isn't explicit on this, but it is always recommended to do this in writing. The furlough was a change to terms and conditions so a written statement this has ended is sensible to have, and its possible the HMRC will want to see this. 


The furlough period set by the government has ended but I don't have work for the person. What can I do?

The normal legal principles would apply here. You would need to consider if there was a redundancy situation and if there was follow a fair process. The fact someone was furloughed doesn't change the way you would need to do this, and the fact the person was furloughed wouldn't in itself be enough to select them in the event there was a pool of people. 


I rehired someone who was made redundant/had resigned but the scheme is ending now, what do I do as I don't have a need for them?

This hasn't been made clear, but there is no suggestion at this stage that normal rules wouldn't apply so you may need to consider going through a process to exit the employee as you normally would. It may be that this changes though and the government provides clarity on this as the scheme end dates comes closer. 



Please note that this information is for guidance only and should not be regarded as a substitute for taking full legal advice on specific facts and circumstances at the relevant time.