The Coronavirus Job Retention Scheme has been devised by the Government to provide support for employers whose operations have been affected by Covid-19. The Scheme provides grants reimbursing up to 80% of salary for qualifying employees. Claims can be backdated to 1 March and will be open until the end of October 2020.

How will the scheme work?

UK employers can temporarily place staff on a leave of absence and claim back up to 80% of salary (subject to a cap of £2,500 per month), as well as associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that wage.

Claims are be made through the Government gateway online portal and are administered by HMRC. After a claim has been submitted online the employer receives a claim reference number. HMRC check that the claim is correct and then pay the amount via BACS into the employer's nominated UK bank account.

Can charities use the Scheme?

Yes, the Scheme is open to all UK employers, including charities and other not-for-profit organisations, provided they:

  • had a PAYE payroll scheme on 19 March 2020;
  • enrolled for PAYE online; and
  • have a UK bank account.

Guidance published by HMRC says that employers that continue to receive public funding for staff costs during this period will be expected to use that money to pay staff, rather than putting them on furlough leave. Charities that are primarily funded from public funds should therefore consider taking advice before using the Scheme.

Who can be placed on furlough leave?

The Scheme is open to all employees including full-time, part-time, casual, zero-hours and agency staff. It is also available for workers, office holders (including company directors), salaried members of Limited Liability Partnerships (LLPs), and agency workers.

Self-employed contractors do not qualify for support under the Scheme, but the Government is setting up a separate scheme to provide similar support to the self-employed.

What about employees who have already been made redundant, or who have been given notice of redundancy?

In order to qualify for furlough leave, the employee must have been on your PAYE payroll on 19 March 2020. This means that anyone who has been hired since that date cannot be placed on furlough leave. If staff were made redundant or stopped working after 28 February and before 19 March, however, you can rehire them and place them on furlough leave.

If you have given notice of redundancy to employees but they are still employed it is open to you to put them on to furlough leave instead. If you fail to consider furlough as an alternative to redundancy, employees with over two years' continuous service could claim that the dismissal was unfair.

What is covered by the Scheme?

Under the current rules, employers can claim:

  • Up to 80% of basic salary, subject to a maximum of £2,500 per employee per month. Any fees, commission, or bonuses cannot be included in this calculation. Non-monetary benefits (including taxable benefits in kind or benefits provided through salary sacrifice schemes) also need to be excluded from the reference salary.
  • Any enhanced (earnings related) contractual maternity, adoption, paternity or shared parental pay.
  • Additional sums for employer National Insurance contributions and minimum (3%) automatic enrolment employer pension contributions, based on the amount of grant received. You can only claim for pension contributions if the employee is in a workplace pension scheme.

Employers are responsible for calculating the amount claimed and guidance on how to perform the salary calculation can be found here.

A Government press release issued following an announcement by the Chancellor on 12 May 2020 states that from August 2020 employers will be required to pay a percentage towards the salaries of their furloughed employees. More specific details will be made available by the end of May 2020.

Do we have to make up the difference between the Government grant and full pay?

You must pay the employee at least the amount you receive from HMRC under the Scheme, but you can choose whether to top up salary beyond the amount reimbursed by the Government. Remember, if you decide to top-up salary, employer National Insurance contributions and pension contributions on the additional salary will not be funded through the Scheme.

If you decide to reduce employees' pay while on furlough leave to the amount of the grant, you will need to think about how to vary their contracts of employment in order to avoid breach of contract claims (see How do we place someone on furlough leave?).

What about the National Living Wage (NLW) and National Minimum Wage (NMW)?

NLW and NMW rules will not apply to employees on furlough leave because they will not be working. If workers are required to undertake training while on furlough leave they must be paid NMW/NLW for this, even if that means the employer needs to top up the Government grant.

How do we place someone on furlough leave?

Unless there is a lay-off clause in your contracts of employment allowing you to provide employees with no work for a period of time, you should get the employee's agreement to place them on furlough leave. Employees are likely to agree, when faced with the alternatives (e.g. redundancy), but you should still discuss the proposal with them first and explain why you need to put them on furlough leave. We suggest that you plan to consult with staff for a minimum of 7 days (in line with the case law), although the variation to the employee's contract will be effective from the date that their agreement to the change is documented.

If you intend to dismiss employees who do not consent to being placed on furlough leave, the duty to collectively consult might be engaged. This duty will arise if you intend to dismiss 20 or more employees within a period of 90 days – this includes dismissal on grounds of redundancy as well as termination and re-engagement on new contractual terms. Complying with collective consultation requirements could have a significant impact on timescales and we suggest you take legal advice if there is any question about whether the duty applies as penalties for failing to comply can be costly.

You must write to employees to inform them that they are being furloughed and keep a record of this communication for a minimum of 5 years. The written agreement should say how long you expect furlough leave to continue and employees must be furloughed for at least three weeks at a time (a period of furlough can be extended by any amount of time after the initial three weeks). Given current uncertainties, it would make sense for employers to include a mechanism for the furlough leave period to be extended or curtailed.

How do we choose who to put on furlough leave?

In some cases, organisations will be closing down completely, or will be ceasing certain parts of their work such as events, for the foreseeable future. In these scenarios, it may be that all employees are placed on furlough leave.

More difficult decisions might arise if there is a reduced requirement for employees as a result of the pandemic. Because employees cannot currently carry out any work while on furlough leave (see What can employees do while on furlough leave?) it is not possible to share the burden by reducing everyone's working hours and still claim reimbursements under the Scheme. Employers should therefore make sure they use fair and objective criteria to select employees for furlough leave, following a similar approach as that used in a redundancy selection procedure.

Employers can choose to rotate furlough leave between employees in minimum 3-week blocks and this could be a way to limit claims of unfairness where some employees will be required to continue to work while their colleagues are placed on furlough leave.

What about employees who are already on sick leave, family leave, or unpaid leave?

Employees on sick leave or who are self-isolating in accordance with guidance published by Public Health England, NHS National Services Scotland, or Public Health Wales should receive Statutory Sick Pay in the normal way. Once they are fit to return to work, they may then be placed on furlough leave. This contrasts with employees who are off on long-term sick leave, who can be placed on furlough leave.

Employees on unpaid leave can be placed on furlough leave, including those who took unpaid leave to care for children at home due to school and childcare facilities closing. If an employee went on unpaid leave on or before 28 February 2020, they cannot be furloughed until the date on which it was agreed that they would return from unpaid leave.

Statutory maternity, paternity, adoption and shared parental leave payments will continue as normal and enhanced (earnings related) contractual maternity, adoption, paternity or shared parental pay can be claimed back under the Scheme (see What is covered by the grant?).

What if employees refuse to go on furlough leave?

If an employer is topping up salary to 100% (see Do we have to make up the difference between the Government grant and full pay?) consent may not be required in order to put an employee on furlough leave, but we suggest you take legal advice before enforcing furlough.

In all other cases, if an employee refuses to go on furlough leave, employers will need to explore alternatives (for example, short-time working or unpaid leave) and might ultimately be left with no choice but to make redundancies. You must still follow a fair process before terminating someone's employment in these circumstances in order to avoid claims.

What can employees do while on furlough leave?

Employees will continue to be employed while on furlough leave and will still be bound by the terms of their contract of employment, subject to any changes agreed with them (see How do we place someone on furlough leave?).

Under the current Scheme rules, employees cannot do any work that provides services or generates revenue for you while they are on furlough leave – this includes work on reduced hours or reduced pay, or work on a voluntary basis. Furloughed workers can be required to undertake training as long as they receive the National Minimum Wage (see What about the National Living Wage (NLW) and National Minimum Wage (NMW)?).

Employees can work in another job while on furlough leave, although the contract of employment will continue during the furlough period so any restrictions on working elsewhere will continue to apply.

Employees can volunteer for another organisation while on furlough leave.

According to the Government's press release issued following an announcement by the Chancellor on 12 May 2020, employees will be able to return to work on a part-time basis while on furlough from August 2020. More specific details will be made available by the end of May 2020

What is the effect of furlough leave on holiday entitlement?

Workers will continue to accrue annual leave whilst they are furloughed, and an amendment to the Working Time Regulations 1998 means that employees will be able to carry forward up to 4 weeks' paid holiday over a two-year period if they can't take their holiday due to coronavirus. 


Government guidance for employers

Government guidance for employees

Guidance published by HMRC

Guidance published by ACAS

This briefing was first published on 6 April and updated on 13 May 2020