What is the Coronavirus Job Retention Scheme?

Carla Whalen, Partner in the Russell-Cooke Solicitors, charity law and not for profit team,
Carla Whalen
10 min Read

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 a proportion of salary for qualifying workers. Claims can be backdated to 1 March and the Scheme will remain open until 30 October 2020, although it closes to new entrants from 30 June 2020.

How does the scheme work?

For the period from 1 March - 30 June 2020, employers can temporarily place staff on a leave of absence and claim back a proportion of their salary, associated Employer National Insurance contributions, and minimum automatic enrolment employer pension contributions. From 1 July 2020, employers can bring people back to work on a part-time basis while still claiming under the Scheme for days not worked.

Claims are 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 employers, including charities and other not-for-profit organisations, provided they:

  • had a PAYE payroll scheme on 19 March 2020
  • enrolled for PAYE online
  • 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 has set up a separate scheme to provide support to the self-employed.

From 1 July 2020 onwards, employers can only use the Scheme for workers who had already completed a minimum of three continuous weeks' furlough on or before 30 June 2020. This means that the last date for placing workers on furlough leave for the first was 10 June 2020 (unless the person has been on statutory family leave - see What about staff returning from maternity, paternity, or other family leave? below). The Coronavirus Job Retention Scheme Factsheet published on 29 May 2020, and the Chancellor's Written Statement published on 3 June 2020, suggest that it is not necessary for a worker to actually be on furlough leave at the end of June as long as they have been furloughed for a minimum three week period at some point prior to 1 July 2020.

It is also worth noting that, from 1 July 2020, the number of staff an employer can claim for in any claim period cannot exceed the maximum number they have claimed for under any previous claim. This could be relevant for employers who are rotating furlough arrangements between staff.

What about staff returning from maternity, paternity, or other family leave?

Staff returning from statutory maternity, paternity, adoption, shared parental and parental bereavement leave after 10 June 2020 furlough cut-off date are still eligible for the furlough scheme. The only condition is that their employer must have previously furloughed other staff on or before 10 June 2020.

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

In order to qualify for furlough leave, a worker must have been on the 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, you can rehire them and place them on furlough leave.

If you have given notice of redundancy to staff 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, workers with over two years' continuous service could claim that the dismissal was unfair.

Can people be made redundant while on furlough?

Staff can be made redundant while on furlough, although redundancy payments will not be reimbursed under the Scheme. Consultation with staff and representatives will not break a period of furlough leave, but employers may need to think carefully about how to carry out an effective consultation without meeting people face to face.

What can be claimed under the Scheme?

For the period from 1 March - 31 July 2020, 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.

From 1 August 2020, employers are required to pay contributions towards furlough pay as follows:

  • August - employers must pay employer National Insurance Contributions and employer pension contributions on furlough pay
  • September - employers must also pay 10% of furlough pay (with recoverable furlough pay capped at £2,187.50 per month)
  • October - employers must pay 20% of furlough pay (with recoverable furlough pay capped at £1,875 per month)

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

You must pay workers 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 workers' pay while on furlough leave to the amount of the grant, you will need to think about how to vary their contracts 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 workers 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 allowing you to provide workers with no work for a period of time, you should get the worker's agreement to place them on furlough leave. Workers 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 worker's contract will be effective from the date that their agreement to the change is documented.

If you intend to dismiss workers 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 people 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 staff to inform them that they are being furloughed and keep a record of this communication until at least 30 June 2025. If you have already entered into a furlough agreement and wish to change the terms of the agreement (for example, to enable workers to return to work on a part-time basis from 1 July 2020), you should issue a new furlough agreement or vary the existing agreement.

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 workers are placed on furlough leave.

More difficult decisions might arise if there is a reduced requirement for workers as a result of the pandemic meaning that some people will remain at work while others will be placed on furlough leave. Employers should make sure they use fair and objective criteria to select workers for furlough leave, following a similar approach as that used in a redundancy selection procedure.

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

Employees on sick leave or who are shielding in accordance with guidance published by Public Health England, NHS National Services Scotland, or Public Health Wales are entitled to receive Statutory Sick Pay. Government guidance suggests that it is open to employers and employees to agree to bring sick leave to an end and place the employee on furlough leave instead.

Because of differences between the first and second Treasury Directions which contain the Scheme rules, the position with regards to workers on unpaid leave depends on when their period of unpaid leave began and when the employer and worker have agreed it will come to an end. We recommend that charities take advice if they have any doubts about whether a worker who has been, or is currently, on unpaid leave qualifies under the Scheme.

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.

What if workers 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 someone on furlough leave, but we suggest you take legal advice before enforcing furlough.

In all other cases, if a worker 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 workers do while on furlough leave?

Workers 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?).

Until 1 July 2020, workers 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)?).

From 1 July 2020, furloughed workers will be able to return to work on a part-time basis while remaining on furlough for the remainder of the time. 

Workers 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. Workers can also volunteer for another organisation while on furlough leave (although they cannot volunteer for a charity they are employed by).

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 can carry forward up to 4 weeks' paid holiday over a two-year period if they can't take their holiday due to coronavirus. 

Workers can choose to take annual leave during a period of furlough without breaking their furlough leave. Holiday guidance published by the Government also states that employers can require a worker to take annual leave while on furlough, subject to any restrictions that would prevent the worker from enjoying their leisure time (for example, a requirement to self-isolate).

Workers who are paid a fixed salary and have normal working hours will be entitled to holiday pay calculated on the basis of their full salary. Holiday pay for workers with no normal working hours whose remuneration varies according to the amount of work done, should be calculated according to the remuneration earned in the relevant reference period (disregarding any full weeks on furlough when no work was carried out).

Guidance and treasury directions

Government guidance for employers

Government guidance for employees

Guidance on holiday entitlement

Guidance published by ACAS

First Treasury Direction (applies to claims submitted before 22 May 2020)

Second Treasury Direction (applies to claims made on or after 22 May 2020, or earlier claims that would have been compliant with the Second Treasury Direction)

Coronavirus Job Retention Factsheet (published 29 May 2020)

Chancellor's Written Statement (published 3 June 2020)

Statement regarding parents returning to work after extended leave (published 9 June 2020)

This briefing was first published on 15 May 2020 and updated on 17 June. 

Briefings Charities coronavirus employment charities charity law Russell-Cooke Jane Klauber Carla Whalen