What does “furlough” mean for employers?

25th August 2021

As the situation with regard to Government support and action is regularly changing, this article is periodically updated. Please contact one of our employment team lawyers for the latest position with regard to your own situation.

What is the Coronavirus Job Retention Scheme?

Since the Chancellor’s initial announcement about the Coronavirus Job Retention Scheme (CJRS/the scheme) on 20 March 2020, many key questions such as “what does furlough mean?”, “how can I put my staff on furlough?” and “who is eligible?” have now been answered. If employers could not maintain their current workforce because their operations had been severely affected by coronavirus, they could (fully, or flexibly since 1 July 2020) furlough employees and apply for a grant from HMRC. The portal for making claims opened on 20 April 2020. Claims for 67,000 jobs were made in the first 30 minutes, and 1.3 million individuals were reported as furloughed on its first full day.

As at 30 June 2021, the latest available figures at the time of writing, a total of 11.6 million jobs have been supported by the CJRS at various times. The Office for Budget Responsibility estimate that from March 2020 to the end of September 2021 the total cost of furlough will come to £66 billion, although many high-profile employers have pledged to repay furlough claims which HMRC is facilitating.

On 3 March 2021, as part of the Budget, the Chancellor announced an extension of the furlough scheme to the end of September 2021 for all parts of the UK. Claims for September must be submitted by 14 October 2021 and any amendments made by 28 October 2021. Despite four previous extensions, commentators have deemed any further extension extremely unlikely, despite calls by groups such as the TUC for a permanent short-time work scheme. The Government’s intention is that most furloughed workers will be able to return to work as restrictions lift and the economy opens up.

Latest ONS figures show that there were 540,000 employers with 1.9 million staff on furlough on 30 June 2021. On 31 May 2021, the figure was 2.4 million. These are down from a peak of 5.1 million in January 2021. The accommodation and food services sector saw the biggest reduction in the number of furloughed workers (down 291,000). The next release will be published on 9 September 2021.

Employer contributions and next steps

Whilst at the very start of the scheme, the Government paid 80% of the wages of furloughed employees up to a monthly limit of £2,500 for the hours the employee was on furlough (with employers only having to contribute employer’s NICs and minimum pension contributions from August 2020), Government contributions were tapered down in September and October 2020. However in a dramatic U-turn, the CJRS was extended, reverting to an 80% Government contribution for hours not worked (with employers still paying employer’s NICs and minimum pension contributions), just days before it was due to end on 31 October 2020.

In July 2021, the Government’s contribution was reduced to 70% with employers required to pay 10% of employees’ wages for hours not worked. Since 1 August 2021, the Government’s contribution was reduced further to 60% for hours not worked up to a cap of £1,875 per month  with employers required to contribute 20% so that furloughed employees receive at least 80% of their usual wages up to a cap of £2,500 a month.

Individuals may still be on flexible furlough, and for details of this part of the scheme, please see our separate article What is Flexible Furlough and what does it mean for employers?

With the scheme end on 30 September 2021 fast approaching, employers need to think about their next steps if they are unable to bring workers back to work full time. As was the case last year with the end of the furlough scheme in sight, employers may be having to consider redundancies and may already have had to comply with or prepare for the collective consultation requirements of 45 and 30 day consultation periods for redundancies of 100 or more or 20 or more employees. This is likely to hit the travel and creative arts/entertainment sectors the hardest. However many other industries are seeing an upturn in work and a shortage of skills, so it is to be hoped that redundancies will be kept to a minimum, or that alternative agreements with staff such as reduced hours can be made where appropriate. If you are considering any of these options please do not hesitate to get in touch with your usual Blake Morgan contact.

Our other article explores two recent cases where Employment Tribunals had to decide whether a redundancy dismissal was fair while the option for furlough remained open to the employer, and the results were different in each case, showing how fact-sensitive it is. Whilst furlough will obviously only continue to be an option for a limited time, it is worth understanding the logic of the Employment Tribunals’ decisions which may be relevant even when furlough is no longer an option.

Previous developments

Last year, when the end of the furlough scheme was planned for 31 October 2020, many employers considered and in fact made redundancies. The furlough scheme was to be replaced with a new wage subsidy scheme, announced by the Chancellor on 24 September 2020, known as the Job Support Scheme, designed to be available to employees regardless of whether or not they had used the furlough scheme.

For many employers, this was too little too late and redundancies had already been made, especially where the collective redundancy consultation period was 45 days, and needed to have been concluded by 31 October. As we know, the Job Support Scheme and the extension to it of the “Job Support Scheme – Closed” were abandoned, and the furlough scheme extended to coincide with a national lockdown in England from 5 November 2020, firstly until 31 March 2021, then to 30 April 2021 and then to 30 September 2021. Whether the Government will resurrect the Job Support Scheme when the furlough scheme finally comes to an end remains to be seen.

Finally, whilst further details were announced (on 1 October 2020) and then withdrawn (on 5 November 2020) as to how employers who have furloughed staff may be eligible for the Coronavirus Job Retention Scheme Bonus, with the Chancellor announcing that it was withdrawn, the underlying provisions remain for it to be resurrected if the Government decides to. Please see our previous article on this here, although note that it is still currently unavailable.

Government Guidance

With regard to details of the CJRS, whilst much has been clarified, HMRC Government Guidance, which was first published on 26 and 27 March 2020, has been updated piecemeal on numerous occasions. To complicate matters, Treasury Directions were published on 15 April, 20 May, 25 June, 1 October, 12 November 2020, 25 January 2021, and most recently 15 April 2021 under the Coronavirus Act 2020, which have in several places been at odds with the HMRC Guidance documents. This article is based on the most recent version of the HMRC publications, last updated in August 2021, and all the Treasury Directions.  Despite the various contradictions, a HMRC spokesperson stated on 23 April 2020 that “HMRC will act at all times in accordance with the Direction. HMRC’s interpretation of the Direction is set out in our published guidance. It is our expectation that customers should consider the guidance in the first instance when seeking to understand the operation of the scheme and HMRC’s interpretation of the Direction.”

The main HMRC Guidance publications are:

Separately, there continues to be Guidance for employees:

Public health is a devolved matter and any restrictions can vary across the UK. As business uncertainty has continued for so long, the financial measures and support from the Government have become vital for many organisations’ capacity to survive the COVID-19 crisis.

Who may be put on furlough?

If employers cannot maintain their current workforce because their operations have been severely affected by coronavirus, they can (fully or flexibly) furlough employees and apply for a grant from HMRC.

A significant change was made prior to the lockdown in England in November in that for claims from 1 November 2020, employers do not need to have previously furloughed an employee before 30 October. Therefore, any employee can effectively be newly furloughed for the first time as long as the employer has made a PAYE RTI submission to HMRC between the 20 March 2020 and 30 October 2020, notifying a payment of earnings for that employee.

Additionally, since the Chancellor’s announcement on 3 March 2021 of the extension of furlough beyond April 2021 to the end of September 2021, 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 have been able to be furloughed since May 2021 as long as they were employed by 2 March 2021.

Importantly, since 1 November 2020, there is no maximum number of furloughed employees that the employer can claim for at any one time. Previously the number of employees an employer could claim for in a single claim was limited by how many it had previously claimed for. The seventh Treasury Direction published on 15 April 2021 has substantially continued the previous stated purposes of the CJRS:

“Integral to the purpose of CJRS is that the amounts paid to an employer pursuant to a CJRS claim are only made by way of reimbursement of the expenditure incurred or to be incurred by the employer in respect of the employee to which the claim relates whose employment activities have been adversely affected by the coronavirus and coronavirus disease or the measures taken to prevent or limit its further transmission.”

All employers are eligible for the grant – and it is clear that it is a grant and not a loan. The scheme is very comprehensive and qualifying employers are now those with a qualifying PAYE payroll scheme registered on HMRC’s RTI system for PAYE on or before 30 October 2020 (or on or before 2 March 2021 for claims starting on or after 1 May 2021), enrolled for PAYE online, and who have a UK, Isle of Man or Channel Island bank account. This includes businesses, charities, recruitment agencies and public authorities, although the Guidance notes that few public authorities should be furloughing because most of their staff will be providing essential public services. Note that employers who receive public funding for staff costs will generally not be allowed to furlough staff, although there are some exceptions.

There is no longer the restriction that only employees who were furloughed for three weeks or more on or before 10 June 2020 may be furloughed – it is open to all.

Despite the soaring costs of the scheme and potential for abuse and fraud, its intention remains to save jobs. It is presumed that the many decisions to extend the furlough scheme rather than pursue the Job Support Scheme was partly because of the larger amounts employers would have to pay (with an increased likelihood of redundancies) and partly to retain a scheme with which employers were familiar rather than introduce a completely new scheme.

Since 1 July 2020, the scheme enables employees to work part-time, for any amount of time and any shift pattern. See our article on flexible furlough here for more details.

The guidance for employers Check which employees you can put on furlough to use the CJRS contains an extensive list of employees eligible for the scheme. It includes full-time and part-time employees, employees on flexible or zero-hour or fixed-term contracts, and also makes clear that PAYE “workers” are eligible. It also deals with agency workers, apprentices, office holders, company directors, salaried members of Limited Liability Partnerships (LLPs), and contractors subject to IR35 off-payroll working rules. Company directors who are paid annually are eligible to claim under the scheme provided that they meet relevant conditions. Interestingly, the Guidance refers specifically to employees who are unable to work because they have caring responsibilities resulting from coronavirus. For example, employees that need to look after children can be furloughed (but do not have to be) or those who are clinically extremely vulnerable.

Employees on fixed-term contracts can be furloughed for claim periods starting on or after 1 May 2021 as long as they were employed on 2 March 2021, and the employer has made an RTI submission to HMRC between 20 March 2020 and 2 March 2021. If the employee’s fixed-term contract has not already expired, it can be extended, or renewed. Specific rules relate to those on sick leave or entitled to SSP – see further below.

There has also been a question mark over employees who transferred under TUPE. Whilst the Guidance does deal with TUPE, the wording used suggests it may only apply to “business transfers” and not “service provision changes” (“SPCs” – where a service such as cleaning or catering is transferred from in-house to a contractor, or taken on by another contractor, or taken back in-house). No changes have been made to clarify this in the Treasury Directions, but an update was made to this section in the HMRC guidance on 8 April and it now says:

“If you’re claiming for a period beginning on or after 1 May 2021 and you employ someone who was transferred from another business, you can claim under the normal rules if they were included on a PAYE Real Time Information (RTI) submission to HMRC on or before 2 March 2021.

Otherwise, you may still be eligible to claim in respect of the employees if the TUPE or PAYE business succession rules apply to the change in ownership.”

This slight tweak in wording to “transferred from another business” could possibly be interpreted to cover SPCs. Unofficially, HMRC had previously expressed a view that SPCs are covered, but employers are still advised to seek written confirmation from HMRC in relation to a particular circumstance especially in light of the Treasury Direction wording.

In addition, the Guidance “Check which employees you can put on furlough” does state that a new employer is also eligible to claim under the scheme in respect of the employees associated with a transfer of a business , provided that the employees being claimed for have been employed by their old or new employer on or before 2 March 2021, and transferred to their new employer on or after 1 January 2021, and a PAYE RTI submission was made to HMRC by their old or new employer between 20 March 2020 and 2 March 2021 notifying a payment of earnings.

HMRC will check claims made through the scheme. Payments may be withheld or need to be repaid in full to HMRC if the claim is based on dishonest or inaccurate information. Claim submissions also ask employers if they need to correct errors in previous claims made. If employers knowingly defraud HMRC, there could be criminal prosecutions. HMRC has also put in place an online portal for employees and the public to report suspected fraud under the scheme. There have been thousands of reports of suspected fraud, with a number relating to employers asking employees to work while being furloughed, and the first arrests for furlough fraud have since been made. The Finance Act 2020 received Royal Assent on 22 July 2020 and includes provisions for:

  • Repayment of CJRS payments which an employer was not entitled to;
  • A requirement to notify HMRC of any such amounts the employer was not entitled to within 90 days of the later of:
    • the Act being passed (which worked out as 20 October 2020); or
    • the date when, having previously been entitled, the employer ceases to be entitled to such payments, or, in any other case, the date such payments were received; and
  • Penalties in cases where the employer knew they were not entitled to CJRS payments at the time they were received, or alternatively, if they were originally entitled to such payments, at the time the employer knew that they ceased to be entitled to them.

On 26 June 2020, new Guidance was published for employers who have over-claimed or under-claimed when using the scheme, and on 16 September 2020 this was moved to a separate guidance page for employers on what they must do if they have overclaimed a grant through the CJRS. Last updated 27 May 2021, the page links to other Guidance about what factors HMRC will take into account when assessing the amount of the penalty and how to appeal against a penalty. Please also see our regulatory team’s article on Furlough fraud.

What should employers have done to put an employee on furlough?

The Guidance was initially updated to state that “Employers should discuss with their staff and make any changes to the employment contract by agreement. When employers are making decisions in relation to the process, including deciding who to offer furlough to, equality and discrimination laws will apply in the usual way.” However, subsequent updates have included that employers will need to confirm in writing to their employees that they have been furloughed and keep a record of this for five years.

An important update on 17 April 2020 was added that “if this is done in a way that is consistent with employment law, that consent is valid for the purposes of claiming the CJRS. There needs to be a written record, but the employee does not have to provide a written response”. This appears to be dealing with a contradictory provision in the 15 April 2020 Treasury Direction which required the individual to have agreed in writing – one of the many examples of the HMRC Guidance and the Treasury Direction not lining up with each other. On 23 April 2020, a spokesperson for HMRC stated: “I can confirm that we stand by the interpretation that we have articulated in our guidance which is consistent with the Direction…Put simply, the employer and the employee must reach an agreement and an auditable written record of this agreement must be retained. It does not necessarily follow that the employee will have provided written confirmation that such an agreement was reached in all cases.”

On 23 April 2020, this part of the Guidance was updated with additional wording to the effect that “Collective agreement reached between an employer and a trade union is also acceptable for the purposes of such a claim.” Whilst this may be sufficient for the purposes of receiving the HMRC grant, employers who have not received written consent from employees to vary the contract of employment in terms of the amount of pay they will receive leave themselves potentially exposed to a claim for unlawful deduction from wages. The Government was asked how they intended to resolve this issue for the many employers who may not have obtained valid consent to reduce wages before putting employees on furlough in light of the guidance.

The Treasury Direction of 20 May 2020 initially clarified the position in relation to the CJRS (but not necessarily the point about unlawful deductions from wages for those employers who had not obtained employee agreement to reduce wages), but the Treasury Direction of 15 April 2021 still outlines the current provisions at paragraph 7. It states:

  • The employer and employee must have agreed (which can be by means of a collective agreement between the employer and a trade union) that the employee:
    • will do no work in relation to their employment; or
    • will not work for the full amount of the employee’s usual hours in relation to their employment.
  • The agreement must specify the main terms and conditions upon which the employee will do no work or not work the full amount of the employee’s usual hours in relation to their employment.
  • The agreement must be made before the beginning of the period to which the CJRS claim relates (subject to agreed variation during a period of CJRS).
  • The agreement must be incorporated (expressly or impliedly) into the employee’s contract.
  • The agreement must be made in writing “or confirmed in writing” by the employer and this can include email.
  • The agreement or confirmation must be retained by the employer for five years after it is made (or subsequently varied).

Where an employee has been fully furloughed (and no work was permitted) but an employer wants to implement flexible furlough, the furlough agreement will need to be amended by a side letter, or a new furlough agreement prepared to reflect the changed requirement to carry out some work.

How to agree and communicate furlough to staff raises a few issues. There is no UK definition of a furloughed worker. The reference to existing employment law is likely to mean changes to terms and conditions and seeking employees’ agreement to be designated as furloughed workers:

  • If the alternative to furlough is either receiving no pay (if lay-off is an option) or being made redundant, it is likely that many employees will agree to furlough or flexible furlough as a (hopefully) temporary change. However, this should be approached with caution. There may be some employees who would be entitled to a hefty redundancy payment and prefer that alternative, or high earners whose contractual termination rights would lead them to reject the furlough option. The way it is presented to staff is key, and it could be that you are already considering the cost if certain employees were to reject it, and therefore whether to offer it in the first place. If the reason they are put on furlough is because they would otherwise have lost their jobs, it could be difficult to refuse redundancy for a person who has rejected the furlough option. However, it would of course be necessary to have followed a fair redundancy dismissal process before making any redundancies, including collective consultation where this is required. On the other hand, making people redundant without offering them the furlough option could well be deemed an unfair dismissal as some Employment Tribunal cases have already shown.
  • Furlough and flexible furlough are not limited to those at risk of redundancy. It can be used for those with childcare responsibilities (see above), those on sick leave, those clinically extremely vulnerable, or for a number of different reasons – see the breadth of the amended “purpose” of the scheme in paragraph 2 of the Treasury Direction of 15 April 2021. A fair way of selecting employees asked to agree to furlough should be adopted, which will be partially related to those whose skills are needed, or for a variety of reasons, but also with regard to equality and discrimination laws. For example, whilst carers of young children can and may want to be furloughed, no assumption should be made that this would relate to female rather than male staff. Similarly no assumptions should be made in relation to staff who are deemed disabled.
  • The wording of any communication to employees should be carefully drafted. Letters to employees should refer to a variation in terms and conditions (particularly if the employer is not going to top up to the employee’s usual pay), the CJRS scheme and some key points such as the fact that the employee cannot do any work for the employer during the furlough period/any furloughed hours. There may be other aspects employers should consider addressing in such communications, for example the interplay with sick leave and any contractual sick pay, the employer’s discretion to end a period of furlough to rotate staff and what notice they will give to employees to end furlough or flexible furlough.
  • Normally there is an obligation to collectively consult over changes to terms and conditions which involve 20 or more employees at one establishment if non-acceptance could result in their dismissal. There are differing views currently over whether employers can realistically do that in relation to furlough leave or should attempt to do so in the immediate circumstances they find themselves in, but note that the Guidance says: “Employers should discuss with their staff and make any changes to the employment contract by agreement. Employers may need to seek legal advice on the process. If sufficient numbers of staff are involved, it may be necessary to engage collective consultation processes to procure agreement to changes to terms of employment”. Please speak to us about the risks of not doing this in relation to your organisation’s particular circumstances.

For the purpose of the scheme, being furloughed means an agreed temporary period of absence from work (whether for all or only some working hours). Employment law principles continue to apply and employees who have been furloughed have the same rights as they did previously. These include maternity rights, other parental rights, rights against unfair dismissal and to redundancy payments and annual leave continues to accrue.

On 25 April 2020, legislation came into force to ensure that employees with entitlements to statutory maternity and other parental pay (adoption, paternity, shared parental and statutory bereavement pay) after a period of furlough will have those payments based on their pre-furlough pay, if furlough pay was at a reduced level.

On 31 July 2020, the Employment Rights Act 1996 (Coronavirus, Calculation of a Week’s Pay) Regulations 2020 came into force. The Regulations have been amended three times by the Employment Rights Act 1996 (Coronavirus, Calculation of a Week’s Pay) (Amendment) Regulations 2020, the Employment Rights Act 1996 (Coronavirus, Calculation of a Week’s Pay) (Amendment) Regulations 2021 and the Employment Rights Act 1996 (Coronavirus, Calculation of a Week’s Pay) (Amendment) (No 2) Regulations 2021 to reflect further extensions to the CJRS to March 2021. 30 April 2021 and 30 September 2021. The Regulations provide that furloughed employees who are made redundant will receive redundancy pay based on their normal pay, rather than their furlough pay which is often less. The Regulations also apply to statutory notice pay and to basic awards for unfair dismissal claims.

How to claim for furlough

All employers will need to use the HMRC online portal to claim. Employers will need:

  • To be registered for PAYE online and their employer PAYE scheme reference number;
  • The number of employees being furloughed;
  • Each employee’s National Insurance number (employers will need to search for the number if they don’t have it or contact HMRC if their employee does not have a National Insurance number);
  • Each employee’s payroll or employee number (optional);
  • The claim period (start and end date – from 1 July 2020 claim periods must start and end within the same calendar month and must last at least seven days unless the employer is claiming for the first few days or last few days in a month);
  • The full amount claimed including employee wages, but excluding employer National Insurance Contributions and employer minimum pension contributions which the employer will have to pay (now decreased to 60% of pay for hours not worked since August 2021);
  • Their bank account number and sort code (where a BACS payment can be accepted) and the billing address on their bank account; and
  • Their contact name and phone number along with additional identifying information such as their Corporation Tax unique taxpayer reference or company registration number.

For flexibly furloughed employees, employers will also need to:

  • Include the number of usual hours the employee would usually work in the claim period (note this must be based on an employee’s usual hours prior to 19 March 2020 – not any usual hours that were reduced by agreement after this date);
  • Include the number of hours your employee has or will work in the claim period; and
  • Keep a record of the number of furloughed hours the employee has been furloughed in the claim period.

Claims for more than 100 employees can be uploaded using a template from the Government website. Employers will need to calculate the amount they are claiming and HMRC will retain the right to retrospectively audit all aspects of their claim. Employers must keep a copy of all records for six years, including:

  • The amount claimed and claim period for each employee;
  • The claim reference number;
  • The employer’s calculations in case HMRC need more information about the claim; and
  • For flexibly furloughed employees, usual hours worked including any calculations that were required, as well as actual hours worked.

Employers cannot make more than one claim during a “claim period” and should claim for all furloughed employees in each period. An employer can choose the length of the “claim period” (as mentioned above, from 1 July 2020, claim periods must generally last at least seven days) but should bear in mind both how frequently they run their payroll, and how many employees are to be included in the same claim period, because they cannot make another claim in the same period, or for one which overlaps. Employers can now “save” a claim and finish it later but it must be completed within seven days of starting it. If employers want to delete a claim in the online service, they must do this within 72 hours.

If employers make an error in a claim that has resulted in an overclaimed amount, they must pay this back to HMRC. If they are making another claim, they can tell HMRC about an overclaimed amount as part of this and will be asked whether they need to reduce the amount to take account of a previous overclaim. The new claim amount will be reduced to reflect the overclaimed amount and employers should keep a record of this adjustment for six years.

If employers do not plan to submit further claims, they should contact HMRC to inform them about the error and to find out how to pay back any overclaimed amounts. There is Guidance on how to Pay CJRS grants back (see above).

What will be paid for employees on furlough?

The contribution from the Government under the scheme is now 60% with employers required to contribute 20% of wages for hours not worked (plus employer’s NICs and minimum pensions contributions) in August and September 2021.  

Guidance on how to work out pay for furloughed periods/hours with examples and an online calculator has been updated regularly (see links at the top of this article), as well as when the online calculator may not be used.

Employers can claim for any regular payments they are obliged to pay their employees. This includes wages, past overtime, fees and compulsory commission payments. However, any tips (including those distributed through troncs), discretionary bonuses, discretionary commission payments, non-cash payments and non-monetary benefits such as benefits in kind should be excluded. The Guidance of 14 May 2020 added new information on non-discretionary payments clarification and non-discretionary overtime payments. When working out if a payment is non-discretionary, employers should only include payments which they have a contractual obligation to pay and to which their employee had an enforceable right. When variable payments are specified in a contract and those payments are always made, then those payments may become non-discretionary. In that case, they should be included when calculating 80% of the employees’ wages. As for non-discretionary overtime payments, if the employee has been paid variable payments due to working overtime, these payments can be included when calculating 80% of wages as long as the overtime payments were non-discretionary. Payments for overtime worked are non-discretionary when employers are contractually obliged to pay the employee at a set and defined rate for the overtime that they have worked.

An employer can also choose to top up an employee’s salary beyond the limits of the scheme but is not obliged to, although it is important that employers have the agreement of furloughed staff to a reduction in pay if they are not topping up.

This is very much a decision for individual employers. Employees must not work or provide any services for the business during furloughed hours, even if they receive a top-up salary.

To use the correct calculation you will need to know the employee’s “reference date” which could be 19 March 2020, 30 October 2020 or 2 March 2021, which will depend partly on when a payment of earnings was reported to HMRC on a RTI Full Payment submission and when you made a valid Job Retention Scheme claim for that employee. Details of how to calculate pay for those on variable hours are included in the Guidance and where the employee has been employed for a full 12 months, employers can claim for the higher of either the same month’s earning from the previous year or average monthly earnings from the 2019-20 tax year. There is a new “lookback period” section for those who received variable pay providing they worked for you in the same claim month in the previous year if their “reference date” was 19 March 2020. For other reference dates the calculation is different. If the employee has been employed for less than a year, employers can claim for an average of their monthly earnings since they started work.

Employers must be clear that it is their responsibility to pay employees and seek reimbursement from HMRC. HMRC will not be making payments to employees. Employers are still under an obligation to pay staff or get their agreement to defer payment of wages until the next payroll.

Can employees work whilst being furloughed?

It is a key principle of the current scheme that the individual cannot do any work for their employer during furloughed hours. They can take part in volunteer work or study or training as long as this does not provide services to, or generate revenue for, or on behalf of their employer. The Treasury Direction of 20 May 2020 provides guidance on the sort of study and training that is permitted while an employee is on furlough. Where the purpose of the study or training is to improve the employee’s effectiveness in the employer’s business, or the performance of the employer’s business, that is permitted provided it does not directly provide a service to the employer or generate income or profit for the employer or does not directly contribute significantly in the production of goods the employer intends to supply.

An important change to the scheme since 1 July 2020 was the concept of “flexible furlough”. This meant that employers could bring back employees from furlough for them to carry out work for any amount of time and any shift pattern and employers can still claim under the scheme for hours not worked, subject to the relevant cap. Employers will of course need to pay their employees at their usual rate of pay for the hours worked and are liable for the employer NICs and pension contributions on that pay. Employees who are furloughed and who are union or non-union representatives may undertake duties and activities for the purpose of individual or collective representation of employees or other workers. This does not count as “work”. However, they must not provide services to or generate revenue for, or on behalf of their organisation or a linked or associated organisation. In addition, work undertaken by an employee for the sole purpose of fulfilling their duties as a trustee or manager of an occupational pension scheme is permitted.

The Employee Guidance states that an employee can be put on furlough by one employer and continue to work for another, if it is permitted within their employment contract. If the employee has more than one employer, they can be furloughed for each job. Each job is separate, and the cap applies to each employer individually.

It is not explicit from the Guidance that an employer could agree to allow this where the contract specifically prohibits it, but under normal Employment law principles, contractual changes may be agreed between the parties. Any employee taking up new employment while furloughed will need to complete Statement C of the Employee Statement – this refers to whether they have another job. In reality, where employees may be going in and out of furlough multiple times or being flexibly furloughed with their current employer, any new potential employer may think twice about recruiting a furloughed employee if there are plenty of individuals who are already unemployed and available to work.

Can an employer call back an employee from the furlough scheme as and when they need them, and then put them back on furlough when they do not? Yes. Each period of furlough can be extended by any amount of time subject to agreement. It is possible that those who are not furloughed may contract COVID-19, self-isolate, or need to take holiday and employers will then need staff to cover their absence. It would also help share the workload and loss of pay between staff in a fair way, in addition to allowing staff to retain skills rather than losing them if they are off work for several months.

Holiday and holiday pay

From the outset, ACAS Guidance seemed to make clear that taking holiday during furlough is not only possible, but encouraged. It recognised that an employee/PAYE worker may be unable or not want to take holiday and therefore need to carry it over because they are on furlough, and that employers and workers should do their best to reach agreement on when holiday is taken. Further, whilst on furlough, employees and workers should “get their usual pay in full, for any holidays they take” – i.e. it should not be limited to the 80% furlough grant.

Now both the Employee Guidance and Wages Calculation Guidance specifies that holiday accrues during furlough, can be taken during furlough, and that it should be paid at an individual’s normal rate of pay, rather than the reduced furlough amount. This requires employers to top up pay when holiday is taken if they do not already.

On 13 May 2020, the Government published Guidance Holiday entitlement and pay during coronavirus. The purpose of the Guidance is to help employers understand their legal obligations regarding workers who continue to work and those who are furloughed. The Guidance confirms that workers who are furloughed continue to accrue their holiday entitlements, that holiday can be taken while on furlough and that holiday pay must be based on usual earnings and not the furloughed rate. Note that the scheme Guidance was recently updated to make clear that employees should not be put on furlough simply because they are on holiday for that period. Further, 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.

See our holiday pay article for more details.

Sick leave and pay

This was another area where there seemed to be significant contradictions between Treasury Directions, HMRC Guidance, and SSP amendment regulations made on 15 April 2020 to grant “shielding” employees entitlement to SSP. Although the Guidance states that short-term illness/self-isolation should not be a factor in deciding whether to furlough an employee, if an employer wants to furlough employees for business reasons and they are currently off sick, they are eligible to do so, as with other employees. In these cases, the employee should no longer receive sick pay and would be classified as a furloughed employee. Conversely, if an employee on furlough becomes sick, or has to self-isolate because of someone in their household with symptoms, or under the test and trace regime, their wages cannot be claimed under the scheme if they are moved onto SSP instead of remaining on furlough.

“Shielding” has officially ended in England and Wales and clinically extremely vulnerable people are no longer entitled to SSP on the basis of shielding. However, the Guidance states that even though “shielding” guidance is no longer in place, those who are clinically extremely vulnerable may still be furloughed in line with public health guidance (or those who need to stay home with someone who is vulnerable). This also includes employees on long-term sick leave, and appears to leave the discretion up to the employer as to whether to furlough them or leave them on sick leave.

SSP is also not available for those who have to quarantine on entering or returning to the UK from non-exempt countries. Quarantining requirements are changing regularly in response to changing situations abroad. If any such employees cannot return to work or work from home, the employer could explore furlough subject to eligibility or other types of statutory leave.

It is important to note that there are different self-isolation rules and penalties depending on whether people are travelling to England, Wales, Scotland and Northern Ireland and it is advisable to check the recent guidance for the relevant country.

Note that regulations came into force in England on 28 September 2020 prohibiting an employer from knowingly permitting a worker to attend anywhere other than where they are self-isolating, including those who are self-isolating because they live with someone who has tested positive for COVID-19 if they are obliged to self-isolate. The fine for employers starts at £1,000. Whilst many employees are no longer required to self-isolate under a change in the rules from 16 August 2021, those employees who are required to self-isolate are also now obliged to tell their employer if they are due to undertake work at any place other than where they are self-isolating. The Welsh Government has similarly announced strengthened regulations and support for employees and employers who are required to self-isolate. Additional financial support to supplement SSP is available for those facing financial hardship, subject to eligibility.

Finally, the Coronavirus Statutory Sick Pay Rebate Scheme opened on 26 May 2020 for employers with fewer than 250 members of staff. Under the scheme, employers can apply to HMRC to recover the costs of paying certain coronavirus-related SSP for two weeks. The money should be received within six working days. Details of the scheme and how to apply can be found on the Government website here.


The scheme has been a lifeline for businesses, but it will end 30 September 2021.

Although we now have numerous pieces of updated Guidance on the scheme for employers and employees, there were still a number of areas of uncertainty but these have gradually been clarified over the 18 months. In addition, although there are still some contradictions/tensions between HMRC Guidance and the Treasury Directions, and in normal circumstances the Treasury Directions would take precedence, the claims portal asks employers to declare that they are making the claim in accordance with HMRC Guidance.

Employers who nevertheless need to make redundancies must remember that since 1 December 2020, employers can no longer claim the furlough grant during notice periods, and will need to pay notice pay (at 100% of pay) for those serving out notice periods whilst on furlough – please see our article on the main changes that were made to the furlough scheme from 1 November 2020 and 3 March 2021. This article also covers the requirements for furlough agreements and the new system whereby HMRC are naming those employers using the furlough scheme from December 2020 onwards, including categorising them into bands according to the amounts claimed under the scheme.

Employers will also need to consider their approach to the “new working norm”, as well as other potential claims which may arise out of their duties towards employees and workers at this extremely difficult time, such as claims for detriment or dismissal for raising concerns that constitute protected disclosures under the whistleblowing legislation, or refusing to attend the workplace on health and safety grounds (which require no qualifying period of service), in cases where workers are returning to workplaces.

We have a number of webinar recordings which may be of interest including our webinar recordings on:

A number of employers are already making preparations for a different style of workplace going forward, where working from home is much more normal, and looking at how this can be achieved both practically and from a legal perspective. As well as our webinar above on managing new ways of working, we are on hand to help you identify the relevant considerations and implement them if you are considering such changes.

As this area has been changing so often, it is important to contact one of our employment law experts about the current position regarding furlough for the most up-to-date information, or for help with any other employment-related queries raised by the COVID-19 crisis. Our Blake Morgan colleagues also remain on hand to advise your business generally and we can put you in touch with the right person for any other queries.

This article has been co-written by Ruth Christy and Debra Gers. It was first published on 30 March 2020 and last updated on 25 August 2021.

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