What does “furlough” mean for employers?

29th July 2020

The situation with regard to Government support and action is changing regularly and this article is periodically updated. Please contact one of our employment 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, 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, and the portal for making claims opened on 20 April.

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 19 July 9.5 million workers had been furloughed at an estimated cost of  £29.6 billion, although some high-profile employers have now pledged to repay furlough claims which HMRC has said it will facilitate.

Many of these individuals may now have begun periods of 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?

Government guidance

Whilst much has been clarified, HMRC Government Guidance which was first published on 26 and 27 March has been updated piecemeal on numerous occasions. To complicate matters, Treasury Directions were published on 15 April, 20 May and 25 June 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, updated throughout July, and the three Treasury Directions.  Despite the various contradictions, an HMRC spokesperson stated on 23 April 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 the lockdown regulations vary across the UK. England was the first to announce an easing of the lockdown regulations. Please see our separate article on Working Safely during COVID-19 for further information. As business uncertainty is likely to continue for the weeks and months to come, 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. Since 1 July the employee must have previously been furloughed for the full 3 weeks at any time between 1 March and 30 June (this limitation does not apply to those returning from family leave or military reservists). In addition, since 1 July, the maximum number of furloughed employees that the employer can claim for at any one time cannot be more than the maximum number of employees they  claimed for regarding any claim ending by 30 June. There are some exceptions where the cap may be increased to include those returning from family leave, military reservists and relevant transferred employees. The scheme is designed to help employers to retain their employees and protect the UK economy. The third Treasury Direction published on 25 June stated:

“Integral to the purpose of the CJRS is that the amounts paid to an employer pursuant to a CJRS claim are used by the employer to continue the employment of employees in respect of whom the CJRS claim is made whose employment activities have been adversely affected by the coronavirus and coronavirus diseases 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 covers all UK employers that had created and started a PAYE payroll scheme on or before 19 March 2020 (this was amended from previous versions which referred to 28 February), enrolled for PAYE online and have a UK 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.

The intention is clearly to save jobs with this scheme. The scheme was originally due to run from 1 March to 31 May, was then extended to four months, i.e. until the end of June, for those on the employer’s PAYE on or before 19 March 2020, and also extended to cover employees who were made redundant, or stopped working for their employer on or after 28 February 2020 and prior to 19 March 2020. They were able to be re-hired by their employer and put on furlough and a claim made for their wages through the scheme (although they did not have to be).

Previously the guidance stated that fixed-term workers whose contracts had come to an end and who did not have their contract renewed or extended on or before 19 March could not qualify for the furlough grant. However, on 23 April the guidance was changed to allow those whose fixed-term contracts ended after 28 February, or after 19 March, to be rehired and put on furlough, providing a RTI payment submission for the worker had been notified to HMRC on or before the 28 February or 19 March respectively. This means that most PAYE fixed term workers can be rehired and put on furlough, except where they began and ended their fixed-term contract between 28 February and 19 March. With this change, HMRC has bowed to pressure to put fixed-term workers on the same footing as others who were made redundant or stopped working for the employer between 28 February and 19 March, rectifying perceived unfairness.

On 12 May, the Chancellor announced that the scheme would be extended to 31 October. Some details of the changes were given on 29 May, with further details published on 12 June. There were no changes to the scheme until the end of July in relation to employers’ contributions. From 1 August however, employers must pay employer NICs and pension contributions. Employers must then start making contributions to wages from September when 10% is payable, increasing to 20% in October. Since 1 July, the scheme  enables employees that have been previously furloughed for 3 consecutive weeks at any time between 1 March and 30 June 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 currently subject to the public sector IR35 off-payroll working rules. Company directors who are paid annually are eligible to claim under the scheme provided that they meet relevant conditions. This includes being notified to HMRC on an RTI submission on or before 19 March 2020, which relates to a payment of earnings in the 19/20 tax year.

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).

Specific rules relate to those on sick leave or entitled to SSP – see further below.

There is also a question mark over employees who transferred under TUPE after 28 February. Whilst the guidance does now deal with TUPE, it may only apply to “business transfers” and not “service provision changes” (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 were made to clarify this in the recent updates to the guidance or the most recent Treasury Direction. Unofficially, HMRC have expressed a view that SPCs are covered but this has not yet been confirmed in writing and employers are advised to be wary about relying on this in the absence of written confirmation from HMRC (which they could seek where appropriate). 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 after 28 February 2020 from the liquidator of a company in compulsory liquidation where TUPE would have applied were it not for the company being in compulsory liquidation.

Pay can be backdated to 1 March for those furloughed. If they were furloughed after 1 March, remember that the scheme only applies to them from the date they were actually furloughed.

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 now 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 furloughed, and the first arrests for furlough fraud have 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; 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;
  • 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.

What do employers need to do 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 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 Treasury Direction which requires 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, a spokeperson 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, 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 is being asked how they intend 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 clarifies the position in relation to the CJRS (but not necessarily the point about unlawful deductions from wages). It contains provisions about the form of the agreement required to furlough an employee and removes the original requirement that an agreement must be in writing. Instead, it states that the agreement must specify “the main terms and conditions upon which the employee will cease all work in relation to their employment”, be incorporated (expressly or impliedly) into the employee’s contract, and be made in writing “or confirmed in writing” by the employer and this can include email. The agreement or confirmation should be retained by the employer until at least 30 June 2025.

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.
  • 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 shielding, or for a number of different reasons – see the breadth of the amended “purpose” of the scheme in the 25 June’s Treasury Direction above. 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, 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.

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 claim periods must start and end within the same calendar month and must last at least 7 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, and, for claims up to 31 July, employer National Insurance Contributions and employer minimum pension contributions.
  • Their bank account number and sort code (where a BACS payment can be accepted) and the billing address on their bank account
  • 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 – 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
  • 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 6 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
  • 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” 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 (as well as the maximum number of employees they can claim for in that 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.

What will be paid for employees on furlough?

The contribution from the Government under the scheme is gradually being reduced, and contributions from the employer increased. From 1 August, employers will be required to pay employer NICs and pension contributions. Employers will also start making contributions to wages from September when 10% is payable, increasing to 20% in October. For full details, please see our separate article What is Flexible Furlough and what does it mean for employers?

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).

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 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.

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 twelve 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. 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 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.

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.

There was some uncertainty initially about whether or not an employee could take up new employment whilst furloughed. The guidance confirms that they can, provided their employment contract allows this. 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, subject to them having completed the initial three weeks’ minimum period prior to 30 June when the scheme closed to new entrants. 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

Until 17 April, none of the updated guidance expressly stated that furlough leave is distinguished from annual leave or addressed annual leave at all. There was considerable uncertainty as to whether or not an employee/PAYE worker could take some of their paid holiday entitlement whilst on furlough. ACAS Guidance seemed to make clear that this 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.

On 17 April, both the Employee Guidance and Wages Calculation Guidance specified that holiday accrued during furlough, could 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.

Finally, on 13 May, the Government published guidance on 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.

See our article for more details.

Sick leave and pay

This was another area where there seemed to be significant contradictions between the April Treasury Direction, the HMRC Guidance, and SSP amendment regulations which were made on 15 April 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 (as long as they have been previously been furloughed for the minimum 3 week period between 1 March and 30 June). 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.

The guidance also states that employees who are “shielding” in line with public health guidance (or need to stay home with someone who is shielding) can be placed on furlough. 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. However, note that the entitlement to SSP for shielding employees ceases on 31 July. SSP is also not available for those who have to quarantine on entering or returning to the UK from non-exempt countries. As has recently been seen with holidaymakers in Spain, Luxembourg and Belgium 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.

The Treasury Direction of 20 May states that where SSP is being paid or due to be paid to an employee who has been instructed to go on furlough, the period of furlough does not begin until immediately after the end of the period of incapacity. However, unlike the April Treasury Direction, it appears to suggest that the period of incapacity for work should be determined by an agreement between the employer and employee.

This is a complex area and please contact us for advice about employees in such circumstances.

Finally, the Coronavirus Statutory Sick Pay Rebate Scheme opened on 26 May 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 here.


Although we now have several pieces of updated guidance on the scheme for employers and employees, there are still a number of areas of uncertainty. 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.

Whilst the scheme has been a lifeline for businesses, as time goes by, we expect the need to consider redundancies will become more pressing for employers. We do now know that employers can serve out notice periods whilst on furlough and the employer can continue to claim the benefit of the grant, although some high-profile employers have been criticised for doing so.

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), with workers gradually returning to workplaces. Please see our recent webinar recording which covered this topic and flexible furlough and our Q&A article arising out of it. 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. 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 and the scheme 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 29 July 2020.

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