The Coronavirus Job Retention Scheme (the "Scheme") is designed to provide payments to employers for the costs of furloughed employees. The Scheme has been extended until 31 March 2021.

HMRC's current guidance is available here.

The Scheme covers the period 1 March 2020 to 31 March 2021. The Scheme was originally due to end on 31 October 2020 and provided reducing amounts of grant under a "phase out", together with additional flexibility in the period between 1 July and 31 October. The Scheme was effectively relaunched for the period 1 November 2020 to 31 March 2021. This note focuses on this later period.

From 1 November 2020 the Scheme will reimburse up to 80% of an employee's usual wages for hours not worked, subject to a maximum of £2,500 per month. The Scheme will be reviewed again in January 2021 and may be subject to change.

To be included within the Scheme an employee must have been employed (and paid) by 30 October 2020 at the latest.

Some of the key features of the Scheme, in its updated form, are highlighted below.

The amount that can be claimed

From 1 November 2020, the Scheme will reimburse employers for 80% of a furloughed employee's salary for the hours not worked (up to a maximum of £2,500 per month). However, there will be no reimbursement for associated employer's costs (such as employer's National Insurance Contributions ("NICs") or employer pension contributions).


Employers are able to agree with employees how much they will be paid during furlough for the hours they do not work, but any pay in excess of the limit of £2,500 per month (or associated pro-rata), including any "top up" payments that employers may choose to make, will not be reimbursed under the Scheme.

Unless otherwise agreed with employees in line with usual employment law considerations, employees must receive full pay for any hours they work, and their usual pay for any holidays they take (including bank holidays).


The Scheme is open to any UK employer with a PAYE scheme and UK bank account.

To be eligible, employees must have been paid via PAYE as at 30 October 2020. Any employees who have been made redundant on or after 23 September 2020 can be re-hired and put on furlough immediately. Any employees who have not already been paid via PAYE by 30 October 2020 are not covered.

HMRC guidance highlights that where staff costs are publicly funded (whether the employer is within the public sector or not), employees should not be furloughed.

Employees can be furloughed in a flexible manner - this could be a full cessation of work or a reduction in an employee's usual working hours.

Employees do not need to be furloughed for a minimum period, although claims under the Scheme must be for a minimum period of seven (calendar) days. With "flexible furlough" arrangements employees who have been furloughed can return to work and be put on furlough again in the future, or change the number of hours they are working.

From 1 December 2020 claims cannot be made for any employees who are serving their notice period.

Working out an employee's salary


The claim should be calculated based on the employee's actual gross salary (excluding any bonuses, commission, and similar items) for the last pay period ending on or before:

  • 19 March 2020 for employees who were already employed and paid by this date, or for whom a valid claim was made under the Scheme relating to any period up to (and including) 31 October 2020; or
  • 30 October 2020 for other employees.


For employees who were already employed and paid by 19 March 2020, or for whom a valid claim was made under the Scheme relating to any period up to (and including) 31 October 2020, the claim is calculated based on the higher of (1) the same month's earnings from the previous year; or (2) the average monthly earnings from the 2019-20 tax year.

For other employees, the average monthly earnings payable between 6 April 2020 (or the first day of employment, if later) and the day before they are furloughed (on or after 1 November 2020) should be used.

Tax treatment - employer and employee

Payments to employees during furlough are to be treated as normal salary payments. This means they need to be paid via payroll and subject to the usual deductions via PAYE for income tax and NICs (including payment of employer's NICs).

The reimbursement from HMRC via the Scheme will need to be included in the calculation of taxable business profits for corporation (or income) tax purposes. However, the employer will still be able to deduct the costs of paying salary to furloughed employees and therefore the net tax effect should be neutral.

Employment law considerations

Employers cannot unilaterally decide to place employees on furlough, whether full or part-time (unless there are specific contractual provisions already in place). Therefore, agreement will need to be reached with employees (or, in certain cases, with representative bodies such as trade unions). Given the most obvious alternative to furlough would be redundancy it is not anticipated that reaching agreement will be too arduous.

It is recommended that agreements are in writing, and it is a requirement that employer confirm the furlough in writing with the employee, which must be retained for five years.

In addition, the following considerations from an employment law perspective are likely to be key:

  • Reaching agreement with employees on the amount they will be paid during furlough;
  • Complying with equality and discrimination legislation when choosing whom to furlough;
  • Deciding how contractual benefits in kind will be treated during furlough (and reaching agreement with employees if these are to be altered or suspended) - the default position being for them to continue as usual; and
  • Noting that employees on furlough continue to have their usual employment rights (e.g. in relation to parental arrangements, sick pay, redundancy, and unfair dismissal etc).

The National Minimum Wage ("NMW") does not apply to employees who are furloughed as they are not working. However, if employees are undertaking any training (which is permissible - see below) they will need to receive the NMW for these hours (even if this means the employer will need to pay them more than is reimbursed by the Scheme).

Employers will need to keep sufficient records of agreements with employees and copies of their communications to employees confirming they have been furloughed.

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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.