What is flexible furlough and what does it mean for employers?


6th April 2021

On 3 March 2021, in his Budget announcement, the Chancellor announced an extension of the furlough scheme to the end of September 2021 for all parts of the UK. The Government’s contribution to employees’ wages remains at 80% for hours not worked up to a cap of £2,500 per month but only to the end of June 2021. Employers will be required to contribute to wages for hours not worked, specifically, 10% from July 2021 and 20% in August and September 2021. The Job Support Scheme and its extension for closed businesses remain postponed. For more details of other recent furlough developments, read our articles on the extension of furlough and what furlough means for employers.

This article was first written on 1 June and updated on 28 October 2020 and 6 April 2021.

It was on 20 March 2020 that the Chancellor announced the temporary introduction of the Coronavirus Job Retention Scheme, more commonly known as the furlough scheme. It has turned out to be anything but a temporary measure and will be in place for 18 months by the time it ends in September. The practical implications of this unprecedented measure have been debated constantly ever since. Extensive guidance has been published and updated on numerous occasions, most recently on 1 April 2021.

The concept of flexible furlough was introduced on 1 July 2020. Flexible furlough still continues to be relevant as various restrictions continue to be imposed and is likely to remain relevant over the next few months especially as certain sectors such as hospitality and retail will not be operating to their usual pre-COVID 19 levels for some time.

What is flexible furlough?

For furlough before 1 July 2020, it was a key principle of the scheme that workers could not do any work for their employer, although in certain circumstances they could take part in volunteer work, study or training. Since 1 July 2020, the revised scheme allows furloughed workers to work part-time (flexible furlough) for any amount of time and any shift pattern and employers are required to pay employees in full for the hours worked. Specifically, employers need to pay their employees at their usual rate of pay for the hours worked (and the employer NICs and pension contributions on that pay) and the remaining days or hours, ie furloughed days/hours, are paid under the scheme, subject to the relevant cap which is proportional to the hours not worked.

It was clear, back in summer 2020, that the ongoing cost of the furlough scheme was not sustainable in the long-term. At that time, the Chancellor also stated that he wanted “to avoid a cliff edge and get people back to work in a measured way”. Hence the introduction of flexible furlough which was welcomed by both employers and their staff.

HMRC published numerous updated Government Guidance documents on its websites with further details during 2020, which have been updated several times since, including Guidance to assist employers in making the appropriate calculations for establishing “usual hours” worked and “furloughed hours”. Most of the provisions of the furlough scheme are unchanged and the key points of the scheme and links to some of the updated Guidance can be found in our related article on The extension of furlough to September 2021 and What furlough means for employers.

In the context of flexible furlough, there are particular challenges for employers.

Furlough agreements

Furlough agreements under the original scheme covered a range of matters such as the period of furlough, the arrangements with regard to wages, annual leave and what notice was required to end furlough. For flexible furlough, if they have not already done so, employers have to prepare new written furlough agreements to reflect the changed arrangements, whether this is a supplemental letter or a new furlough agreement to reflect the changed requirement to carry out some work. Employers are required to:

  • make sure that the agreement is consistent with employment, equality and discrimination laws
  • keep a written record of the agreement for five years
  • keep records of how many hours their employees work and the number of hours they are furloughed (such as, not working)

Further, for flexible furlough, the supplemental letter or new furlough agreement needs to specify the arrangements for returning to work. For instance, whether, the individual would be working from home or returning to the workplace. If the latter, then the employer should specify what steps they had taken to make the workplace COVID-19 secure taking into account the current Guidance applicable to the relevant part of the UK.

Whatever decision is made about how to notify staff about the changed furlough arrangements, employers still need their staff’s consent prior to making any changes. Government guidance still confirms that: “If you flexibly furlough employees, you’ll need to agree this with the employee (or reach collective agreement with a trade union) and keep a new written agreement that confirms the new furlough arrangement.” However, as previously, the employee does not need to provide a specific written response, so long as the employer can evidence the agreement in writing. (In reality, regardless of what was required to claim under the furlough scheme, previously furloughed staff should have signed a written agreement as well to avoid potential claims of unlawful deduction from wages where salary had been reduced to less than 100% of pay.)

In relation to annual leave, the Guidance states that if employees are flexibly furloughed then any hours taken as holiday during the claim period should be counted as furloughed hours, rather than working hours. It confirms that employers should not put employees on furlough for a period just because they are on holiday for that period – they should only be put on furlough because the employer’s operations are affected by Coronavirus.

Employers need to consider for how long staff can be taken off furlough. That may be easy to determine in some cases with staff returning consistently for say, two days a week and being furloughed for the remainder. In other cases, the decision about the length of time that an individual will work may have to be looked at on a weekly or monthly basis.

Another tricky issue for many employers is in deciding who to take off furlough (and for how long). Employers must not act in a discriminatory way and need a fair system of selecting who should come back to work taking into account the business needs and the skills required, but with regard to equality and discrimination legislation.

Calculating the claim for flexibly furloughed staff

Perhaps the most difficult aspect of flexible furlough is knowing what to claim for the furloughed hours.

In a flexible furlough scenario, the employer has to work out the employee’s usual hours in the claim period and record the actual hours they work as well as their furloughed hours for each claim period. See the Government Guidance here. There are two different calculations for working out the employee’s usual hours, depending on whether they work fixed or variable hours.

Fortunately, there is specific Guidance on how to do the calculations with numerous worked examples. The Guidance also links to an online calculator. It is important to remember that where employers are claiming for employees who are flexibly furloughed, they will need to work out the employees’ usual hours before they use the calculator.

Although the calculator can be used to work out what can be claimed, including for most employees who are paid either regular or variable amounts each pay period (for example, weekly or monthly) it cannot be used in all circumstances. For example, the calculator cannot be used if employees have been transferred under the TUPE Regulations, and the list of other scenarios where it cannot be used is set out.

Another point worth mentioning relating to usual hours is the calendar “lookback” method where the calculation is based on the corresponding calendar period in a previous year. For example, in the claim month of February 2021, the lookback period is February 2020. However, in the claim months of March and April 2021, the lookback period is March and April 2019 and not March and April 2020. This is because the furlough scheme was already in place in March 2020 and somebody furloughed in those first two months might have been on less pay and it is not appropriate to use March and April 2020 as the corresponding calendar period. Note that the Government will be providing updated Guidance “in due course” about the lookback periods for claim periods starting on or after 1 May 2021.

Finally, it is important to be aware that for claim periods starting on or after 1 May 2021, employers can claim for employees who were employed on 2 March 2021, as long as they have made an RTI submission to HMRC between 20 March 2020 and 2 March 2021. Significantly, this means that those who could not be furloughed because they were not employed before 31 October 2020 under the previous rules can now be furloughed from May onwards as long as they were employed by 2 March.

Comment

Even though lockdown restrictions are likely to be eased in the coming weeks and months, the considerable economic uncertainty makes it inevitable that flexible furlough will continue to be used by employers for the duration of the furlough scheme.

Extensive Government guidance about the furlough scheme has been published and we have written regularly about it.

This article was first written on 1 June and updated on 28 October 202 and 6 April 2021.

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