Coronavirus Job Retention Scheme (furlough)

14 April 2020

This advice note considers the provisions of the Coronavirus Job Retention Scheme (“CJRS”) announced by the Government on 20 March 2020.

It is important to note that the situation is very fluid and Government guidance is changing regularly. We are keeping our ears close to the ground for our clients who are all, understandably, keen for more certainty regarding the application of the furlough scheme.

The information in this note is based on updated information released by the Government as at 9 April 2020.

What is the CJRS?

The CJRS is a scheme designed to assist all UK employers to access support to continue paying part of their employees’ salary for those employees that would otherwise be laid off during the coronavirus outbreak (See our previous note for more details on the scheme in general).

HMRC Guidance

HMRC have already begun to flesh out the bones of the political statement regarding the CJRS. Further guidance dated 9 April 2020 regarding the scheme which can be found at

Who can apply?

HMRC have confirmed that the scheme will be open to

  • businesses
  • charities
  • recruitment agencies (agency workers paid through PAYE)
  • public authorities

Any applicant must have created and started a PAYE payroll scheme on or before 28 February 2020 and have a UK bank account.

Employers must confirm in writing that they have been furloughed and a record of this communication must be kept for 5 years. The Government has indicated that HMRC will carry out retrospective audits under the CJRS.

Who can be placed on ‘Furlough’?

The following are eligible for furlough under the scheme

  • full-time employees
  • part-time employees
  • employees on agency contracts
  • employees on flexible or zero-hour contracts
  • apprentices
  • company directors – this should be formally adopted as a decision of the company by the board of directors, noted in the company records and communicated in writing to the director concerned. Directors can still carry out their statutory duties during furlough e.g. filing annual return at Companies House, attending AGM etc.

The scheme also covers employees who were dismissed or resigned on or after 28 February 2020, if they are rehired by their employer. Whilst there is no legal obligation on an employer to offer furlough to someone in these circumstances, equality and discrimination law will apply in the usual way. Employers should be aware that there is risk that some employees may accrue employment rights re: unfair dismissal by reaching the 2 years qualifying service if they are rehired. Employers should also note that employees will accrue holiday entitlement as normal during any period of furlough.

However, it should be noted that to be eligible under the scheme employees must have been on a company’s PAYE payroll on 28 February 2020.

Employees hired after 28 February 2020 cannot claim for furlough in accordance with this scheme.

Can an employee undertake any work whilst on furlough?

To be eligible for the subsidy an employee cannot undertake work for or on behalf of the organisation when on furlough. This includes providing services or generating revenue to the employer or any organisation linked or associated with the employer.

If an employee is working, but on reduced hours, or for reduced pay, they will not be eligible for this scheme.

A furloughed employee can take part in volunteer work or training, as long as it does not provide services to or generate revenue for, or on behalf of your organisation.

Employees can undertake training courses whilst they are furloughed. However, they must be paid at least the NLW/NMW for the time spent training, even if this is more than the 80% of their wage that will be subsidised.

Unless the contract of employment prohibits secondary employment or the employer has stipulated that the employee cannot work for anyone else in the furlough letter, then employees are permitted to work for another employer whilst they have been placed on furlough.

What is the minimum furlough period?

To qualify for reimbursement under the CJRS an employee must be furloughed for a minimum of 3 consecutive weeks. They can then come off furlough. This means that employers cannot rotate staff weekly between furlough and non-furlough. Employees can be furloughed multiple times, but each separate instance must be for a minimum period of 3 consecutive weeks.

Do I have to close entirely?

No. You do not need to place all your employees on furlough. To be eligible for the subsidy employers should write to their employee confirming that they have been furloughed and keep a record of this communication.

However, as stated above, those employees who you do place on furlough cannot undertake work for you.

What is the tax status of any payments?

While on furlough, the employee’s wage will be subject to usual income tax and other deductions.

All employers remain liable for associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on behalf of their furloughed employees and employers can claim for reimbursement of these too. However, employers cannot claim for national insurance contributions or pension contributions they make because they have chosen to top-up an employee’s salary

Can I furlough employees who are sick/self-isolating?

Employees on short-term sick leave or self-isolating should get Statutory Sick Pay until the end of the 7 or 14 day period as appropriate. However, they can be furloughed after this. The government guidance states:-

“The Coronavirus Job Retention Scheme is not intended for short-term absences from work due to sickness, and there is a 3 week minimum furlough period.

Short-term illness/ self-isolation should not be a consideration in deciding whether to furlough an employee. If, however, employers want 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.”

This suggests that employers can still furlough employees on short-term sickness absence or self-isolating if other employees being furloughed. The key point is that the CJRS should be abused by using furlough to ‘top up’ the small amount of SSP for short-term absence.

Employers are entitled to furlough employees on long-term sick leave. It is up to employers to decide whether to furlough employees on sick leave or to leave them on SSP or company sick pay (if applicable). Employers will need to consider potential risks around disability discrimination when deciding whether or not to furlough employees on long-term sick leave.

The government guidance states that employers can only claim for employees that started unpaid leave after 28 February 2020. The government guidance does not connect unpaid leave with sickness absence. Given that the government guidance now deals with long-term sickness absence separately (see above) it is arguable that the government envisages that the period of unpaid leave relates to something else e.g. an employee who is on sabbatical leave on or before 28 February 2020. The government guidance is unclear on how unpaid leave interacts with long-term sick leave so there is a risk that HMRC takes a different approach to this.

If an employee becomes sick whilst furloughed it is up to the employer to decide whether to keep the employee on furlough at their furloughed rate (the employer remains eligible to claim reimbursement under the CJRS) or move them off furlough onto SSP. If a furloughed employee is moved onto SSP, employers can no longer claim for the furloughed salary.

Employees who are shielding in line with public health guidance (or need to stay at home with someone who is shielding) can be placed on furlough. 

Employee who are unable to work because they have caring responsibilities resulting from coronavirus can be furloughed e.g. employees that need to look after children can be furloughed.

What happens to employees on fixed-term contracts? 

These employees can be furloughed. Their contracts can be renewed or extended during furlough period without breaking the terms of the scheme. However, where a fixed-term employee’s contracts ends because it is not extended or renewed an employer will no longer be able to claim a grant under the CJRS.

How do you calculate what can be claimed?

Employers will receive a grant from HMRC to cover the lower of

  • 80% of an employee’s regular wage or £2,500 per month, plus
  • the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that subsidised wage.

“Compulsory” (contractual) fees, commission and bonuses can be included in the calculation of ‘wage costs’ that can be reimbursed by HMRC under the CJRS. However, discretionary bonus (including tips), commission payments and non-cash payments should be excluded. It is unclear what the Government mean by “discretionary” commission payments. It could be argued that employees who receive regular variable monthly commission under a written commission scheme plan that states that the scheme is “discretionary” is still nonetheless “compulsory” for the purposes of the CJRS on the basis that it has been paid in accordance with the terms of a commission scheme.

The reference salary should not include the cost of non-monetary benefits e.g. value of health insurance or a company car provided to employees, including taxable benefits in kind. Similarly, benefits provided through salary sacrifice schemes (including pension contributions) that reduce an employee’s taxable pay should not be included in the reference salary.

Full time and part time employees- For full time and part time salaried employees, the actual salary before tax as of 28 February 2020 should be used in the calculation.

For employees whose pay varies- where the employee has been employed (or engaged by an employment business) for a full twelve months prior to the claim, you can claim for the higher of either:

  • the same month’s earning from the previous year
  • average monthly earnings from the 2019-20 tax year

If the employee has been employed for less than a year, you can claim for an average of their monthly earnings since they started work.

If the employee only started in February 2020, use a pro-rata for their earnings so far to claim. Once you’ve worked out how much of an employee’s salary you can claim for, you must then work out the amount of Employer National Insurance Contributions and minimum automatic enrolment employer pension contributions you are entitled to claim.

Individuals are only entitled to the National Living Wage (NLW)/National Minimum Wage (NMW) for the hours they are working. Furloughed workers, who are not working, must be paid the lower of 80% of their salary, or £2,500 even if, based on their usual working hours, this would be below NLW/NMW.

Can employee take annual leave when on furlough and what should they be paid?

The Government guidance in relation to the CJRS does not deal with how holiday operates in conjunction with furlough. In the absence of Government guidance, we (and various other legal commentators) have concluded that employers claiming reimbursement of wage costs for employees during furlough should also be able to claim reimbursement in respect of any holiday pay during furlough on the basis that the requirements of the CJRS simply require the employee to be not at work and not working. Employees on holiday are not at work and not working so this is consistent with furlough. On that basis it could be argued that if someone takes say 1 week’s holiday during the furlough this forms part of the 3 weeks minimum furlough period. We should add that this analysis does come with a ‘health warning’ that the Government has not announced its policy on this issue so there is a real possibility that the Government could determine exactly the opposite of what we have suggested and require that holiday is taken outside of furlough with a potential detrimental effect on any claims for reimbursement from HMRC under the CJRS if it is deemed by HMRC that rules around furlough have not been complied with. If you allow the employee to take holiday during furlough (or alternatively require the employee to take holiday during furlough subject to the minimum notice requirements i.e. notice must be double the amount of holiday being taken) then you should pay holiday pay at the normal rate of 100% pay (including the calculation of average commission where appropriate).

Please see separate advice note in relation to the new Regulations around the carry over of holiday to the next 2 leave years.

Can employers of newly TUPE’d employees put them on furlough?

Yes – a new employer is eligible to claim under the CJRS in respect of the employees of a previous business transferred after 28 February 2020 if either the TUPE or PAYE business succession rules apply to the change in ownership.

What will I need to make a claim under the CJRS?

The Government has indicated that it expects the new HMRC online portal to be available by the end of April 2020. To claim you will need:-

  • your ePAYE reference number
  • the number of employees being furloughed
  • the claim period (start and end date)
  • amount claim (per the minimum length of furloughing of 3 consecutive weeks)
  • your bank account number and sort code
  • your contact name
  • your phone number

You will need to calculate the amount you are claiming. It would be prudent for employers to start collating as much of this information as possible now so that they are ready to submit their claim to HMRC when the online portal goes live to avoid any delay.