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


1st September 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.

From 1 July 2021, the Government paid 70% of wages up to a maximum cap of £2,187.50 for the hours the employee is on furlough. Employers had to top up employees’ wages so that they received 80% of their wages (up to £2,500) for the hours they are on furlough. The caps are proportional to the hours not worked. From 1 August 2021, the Government paid 60% of wages up to a maximum cap of £1,875 for the hours the employee is on furlough.

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.

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 19 August 2021.

The concept of flexible furlough was introduced on 1 July 2020. Flexible furlough  continues to be relevant as certain sectors such as passenger air transport, travel agency and tour operator activities and photographic, creative, arts and entertainment activities all still have high levels of furloughed jobs, some of which are likely to be flexibly furloughed.

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 allowed furloughed workers to work part-time (flexible furlough) for any amount of time and any shift pattern and employers were  required to pay employees in full for the hours worked. Specifically, employers had  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, were  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 2021, which have been updated many times since, including Guidance to assist employers in making the appropriate calculations for establishing “usual hours” worked and “furloughed hours”.  The key points of the furlough 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 have been 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,  employers had  to prepare new written furlough agreements to reflect the changed arrangements, whether this was a supplemental letter or a new furlough agreement to reflect the changed requirement to carry out some work. Employers were 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 worked and the number of hours they are furloughed (such as, not working)

Further, for flexible furlough, the supplemental letter or new furlough agreement had 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 have specified 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 was made about how to notify staff about the changed furlough arrangements, employers still needed their staff’s consent prior to making any changes. Government guidance stated 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, the employee did not need to provide a specific written response, so long as the employer could 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 stated that if employees were flexibly furloughed then any hours taken as holiday during the claim period should be counted as furloughed hours, rather than working hours. It confirmed 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 also had to consider for how long staff could be taken off furlough. That might have been  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  worked had to be looked at on a weekly or monthly basis.

Another tricky issue for many employers was in deciding who to take off furlough (and for how long). Employers must not act in a discriminatory way and needed 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 was knowing what to claim for the furloughed hours.

In a flexible furlough scenario, the employer had to work out the employee’s usual hours in the claim period and record the actual hours they worked as well as their furloughed hours for each claim period. See the Government Guidance here. There were two different calculations for working out the employee’s usual hours, depending on whether they worked 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. Where employers claimed for employees who werelexibly furloughed, they had to work out the employees’ usual hours before they used the calculator.

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

Finally, in these last few weeks of the furlough scheme, it is important to be aware of the dates for making claims for payments:

  • Claims for furlough days in August 2021 have to be made by 14 September 2021.
  • Claims for furlough days in September 2021 must be made by 14 October 2021 and any amendments must be made by 28 October 2021.

Comment

Even though lockdown restrictions have eased considerably in recent months, many employers continue to make use of the furlough scheme and the option of flexible furlough. As at 30 June 2021, there were 540,000 employers with 1.9 million staff on furlough and many of these employers are likely to continue using the furlough scheme right up to its end date of 30 September 2021. That probably won’t be the last we hear of the furlough scheme however. We have already had some Employment Tribunal decisions about the furlough scheme in the context of unfair dismissal and redundancy claims, (see our other article) and there are likely to be many more claims in the months ahead.

This article was first written on 1 June 2020, updated on various occasions and last updated on 1 September 2021.

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