This note explains key considerations for employers dealing with the impact of COVID-19. The law and guidance in this area continues to evolve. We recommend seeking specific advice before taking action. The information in this note is correct as of 4 June 2020.

Coronavirus Job Retention Scheme – "Furlough"

The UK Government announced the Coronavirus Job Retention Scheme on 20 March, and has since published a number of iterations of the guidance for employers, most recently on 29 May. The Chancellor has issued two Directions to HMRC, on 15 April (the Direction) and 20 May (the Further Direction); these take precedence legally and should be followed in case of inconsistency. Employers of any size in any sector can currently claim a subsidy to cover 80% of an employee's salary up to a limit of £2,500 per month if the employee is placed on furlough leave. This is a gross payment and individuals will have to pay Income Tax and National Insurance contributions on any payments received. The employer can also claim back the employer National Insurance Contributions (NICs) and the minimum auto-enrolment employer pension contributions (3%) on that wage. The employer still pays the employee but is able to recover certain sums via HMRC.

On 29 May, the Chancellor announced further details of the "final phase" of the eight-month scheme, which will last until October 2020, with an end to new entrants coming onto the scheme, in return for greater flexibility from 1 July.

The scheme is designed to help employers whose operations have been severely affected by coronavirus (COVID-19) to retain their employees and protect the UK economy. However, all employers are eligible to claim under the scheme and the Government recognises different businesses will face different impacts from coronavirus. It is not necessary to establish a legal redundancy situation.

Key elements of the scheme are:

  • Employers can only claim the subsidy for employees who were on their payroll on or before 19 March 2020 (extended from 28 February 2020) and which were notified to HMRC on a real time information (RTI) submission on or before 19 March 2020.
  • The start date for the furlough period is the date the employee stopped working. Claims can be backdated to the date furlough started, from 1 March 2020 onwards.
  • Employees who were made redundant or left employment for any other reason after 28 February 2020 can be re-hired and placed on furlough, but an RTI notification must have been made on or before 19 March 2020.
  • The furlough period must last a minimum of three weeks. Workers can be furloughed multiple times, provided they are on furlough for at least three weeks each time.
  • There is now an end date to the scheme. The CJRS will be closed to new entrants from 30 June 2020. As employees must be furloughed for at least three weeks, this means that the last date for furloughing an employee for the first time will be 10 June 2020. Employers will have until 31 July to make any claims in respect of the period to 30 June.
  • Employers must agree with the employee the main terms and conditions upon which the employee will cease work. The Direction provided that an employer and employee had to agree in writing that the employee would cease all work in relation to their employment, which created concern that CJRS claims could be rejected or reversed where there was no express written agreement between parties that there would be no work. Thankfully, the Further Direction cleared this up, by confirming that the agreement to furlough only needs to be notified to furloughed employees in writing. In practice, this means the employees do not have to actively write back and confirm their agreement. A record of this correspondence should be kept by the employer until at least 30 June 2025.
  • Until 31 July, employers can continue to reclaim up to 80% of wage costs up to a cap of £2,500 per month, plus employer National Insurance Contributions (NICs) and the minimum auto-enrolment employer pension contributions (3%) on that wage.
  • Employers must pass on the full grant claimed under the CJRS (less any deductions for employee income tax and NICs which must be paid to HMRC and any employee pension contributions which must be invested in the pension scheme in the usual way).
  • The employee must not carry out any work for their employer while on furlough (however, they can undertake training and do volunteer work). If employees are asked to complete training (e.g. online courses) whilst on furlough leave, they should be paid at least the NMW for the time spent training. Employers can help furloughed employees find new work or volunteering opportunities whilst on furlough if this is in line with public health guidance.
  • If their contract allows, employees can continue (or take up) a second job while on furlough. An employee can be furloughed from more than one job.
  • Employers can choose to top-up the furloughed employee's salary to 100% but they do not have to (note: reducing salary will be a change to terms and conditions and usual employment law applies).
  • The 80% figure is a maximum. It may not cover 80% of the employee's contractual entitlements as it is based on a set reference period and has built in limitations. For salaried employees, their gross salary in the last pay period prior to 19 March 2020 should be used to calculate the 80% subsidy (and applying the cap). This is a change from the previous guidance, which referred to pay on 28 February 2020. Employers who have based claims on 28 February 2020 based on previous guidance can still chose to use that figure for the first claim, but thereafter should use the last pay period prior to 19 March 2020. The post salary sacrifice salary should be used for the calculation. Employers can claim any regular payments they are obliged to pay, including for past overtime, fees and compulsory commission payments. Discretionary bonuses, tips, benefits-in-kind and non-compulsory commission payments are not included. Benefits provided through salary sacrifice should not be included in the reference salary.
  • For employees whose pay varies, the employer can claim for the higher of the same month's earning from the previous year (e.g. earnings from March 2019); or the average monthly earnings in the 2019-20 tax year.
  • Employees who are on unpaid leave, sick leave, shielding or with caring duties can be furloughed. While furlough is not intended to replace short-term sickness absence, there is no prohibition on furloughing those who are off sick (although the 3-week minimum furlough period, explained below, will apply).
  • Employers cannot claim for: additional National Insurance or pension contributions made because it chose to top up salary beyond 80%; or any pension contributions that are above the mandatory employer contribution.
  • Both the Apprenticeship Levy and Student Loans should continue to be paid as usual. CJRS grants do not cover these.
  • Company directors and LLP members can be furloughed provided they are paid through PAYE and furlough is formally adopted as a decision of the company/partnership. They can continue to fulfil statutory duties as necessary but must not provide services for or on behalf of the company or generate revenue.
  • From 1 July, employers will be able to bring employees who have been furloughed back to work on a part-time basis. The employee would be entitled to be paid their normal wage by their employer for the days/hours that they work, and the subsidy under the CJRS would cover the remaining days. For example, we understand that if someone works one day a week in July but is contracted to work four days a week, then they would be paid in full by their employer for the days worked, and the remaining three days per week could be recovered under the CJRS subject to the caps. Further guidance on the new arrangements, and how employers should calculate claims is expected to be published on 12 June 2020. Employers should agree any part time furlough arrangements with employees, and confirm that agreement in writing.
  • From 1 August, if employees remain on furlough then the subsidy will remain at 80% of salary up to £2,500/month, but the employer will have to cover national insurance and any pension contributions. From 1 September, the subsidy will be up to 70% of salary, up to £2,190/month, with employers expected to cover at least 10% of the salary to bring it up to 80% or £2,500/month. From 1 October, the subsidy will be up to 60% of salary, up to £1,875/month, with employers expected to cover at least 20% of salary.
  • The Government will continue to monitor abuse of the scheme, and employees will be encouraged to make reports to the HMRC fraud hotline if they believe they are not getting paid correctly. The Government has stated that 'HMRC will not hesitate to take action against those found to be abusing the scheme'.

The mechanics

The Government started accepting claims from employers on 20 April 2020, and 7.5 million employees had been registered by 12 May 2020. The scheme will run until the end of October, and the Chancellor has stated that there will be no further extensions. The UK Government has ruled out additional funding for Scotland should the lockdown last longer north of the border.

Employers must be enrolled for PAYE Online in order to access the scheme, and must have been operating PAYE on or before 19 March 2020.

As noted above, to access the scheme employers must designate affected employees as 'furloughed workers' and notify the employees of this change. Employers should send a 'furlough letter', confirming this in writing. This letter must be retained until at least 30 June 2025.

Changing the status of employees and reducing their pay remains subject to existing employment law and may be subject to negotiation and agreement. With the alternative often being redundancy, or continuing to work potentially on reduced pay/hours, most employees are likely to accept furlough. Employers can choose which employees to furlough but should be mindful of discrimination law.

Employers must submit information to HMRC about the employees who have been furloughed and their earnings through the online portal confirming: the ePAYE reference number; the number of employees being furloughed; the claim period; the amount claimed; the bank account number and sort code; and contact details.

Once a claim is accepted, HMRC will make payment to employers via BACS. Employers must pay the employee the full grant received from HMRC (i.e. no fees can be charged), less usual PAYE deductions. Employers can also claim for Employer NICs on the subsidised furlough pay (which should then be accounted for to HMRC in the usual way) and for minimum required pension contributions (which must then be paid into the appropriate pension scheme). Employers cannot claim for additional NICs or pension contributions made because an employer chose to top up salary beyond 80%; or any pension contributions that are above the mandatory employer contribution. HMRC will be able to retrospectively audit all aspects of a claim.

New flexibility and taper of the scheme

As noted above, the Chancellor announced on 29 May 2020 that the scheme is changing, and from 1 July 2020 employers will be able to bring furloughed employees back to work, whilst still claiming under the scheme. Under the new 'flexible furlough' employers will be able to bring furloughed employees back to work for any amount of time and any shift pattern. The employer will still be able to claim under the scheme for such employees' normal hours not worked but will have to pay in full for any hours worked, and will be responsible for tax and NI contributions on those payments. To be eligible for the grant, employers will have to agree with their employees any new flexible furloughing arrangement and confirm that agreement in writing.

The scheme will be closed to new entrants from 30 June 2020, and employers will only be able to furlough employees that have been furloughed for a full three weeks before 30 June. This means that the last date for furloughing an employee for the first time will be 10 June 2020. Employers who wish to make use of the flexible furlough will need to have furloughed all relevant staff by 10 June 2020.

On 29 May 2020 the Chancellor also announced changes to the Government's funding of the CJRS. From 1 August 2020, the Government will continue to pay wages up to £2,500 per month. However, employers will have responsibility for paying employer NICs and employer pension contributions. From 1 September 2020, the Government's contribution will reduce from 80% of wages, to 70% of wages, and the cap will reduce to £2,187.50. Employers will continue to paying employer NICs and employer pension contributions, and will be required to pay 10% of wages, to top up to 80% subject to the cap of £2,500. From 1 October 2020, the Government's contribution will reduce further, to 60% of wages up to a cap of £1,875. Employers will continue to paying employer NICs and employer pension contributions, and will be required to pay 20% of wages, to top up to 80% subject to the cap of £2,500. The contributions will differ if an employee is working part time while furloughed, and the further guidance should set out how this will work in practice.

Public sector employers

Furlough in the public sector is likely to be rare. The guidance states that where employers receive public funding for staff costs, and that funding is continuing, employers are expected to use that money to continue to pay staff in the usual fashion, and not furlough them. This also applies to non-public sector employers who receive public funding for staff costs. The guidance goes on to say that in a small number of cases, for example where organisations are not primarily funded by the government and whose staff cannot be redeployed to assist with the coronavirus response, the scheme may be appropriate for some staff. This demonstrates that the preference is for workers in, or funded by, the public sector to be reallocated to assist in the response to COVID-19 where possible, albeit the mechanisms for doing so and contractual implications are less clear. Organisations that rely on public sector funding should seek specific advice on whether furlough is appropriate for them, and should also discuss the matter with their public sector funder.

Taking holidays

Workers who are not on sick leave or furloughed can be instructed to take statutory annual leave (up to 28 days for a full-time worker) by their employer, provided they are given the required level of notice. The notice must be at least twice the length of the period of leave that the worker is being ordered to take (e.g. two weeks' notice of requirement to take one week's annual leave). 5.6 weeks' leave under the Working Time Regulations 1998 will continue to accrue during furlough leave. Employees can agree what should happen in respect of holidays in excess of their WTR entitlement.

The Government has confirmed that employees can, and normally should, be expected to take holiday during furlough leave. Employees must be paid their normal salary in respect of any holidays taken during furlough leave, but the employer can claim the 80% subsidy under the CJRS as usual. Where the business's financial situation means that it is unable to top up the furlough pay during annual leave, under amendments to the Working Time Regulations 1998 this may mean that it is not reasonably practicable for the employee to take holiday, and that the holiday allowance for the current holiday year may be carried forward for up to two years.

Sick pay

Where an employee is sick with COVID-19 or is self-isolating in accordance with government guidance, they are entitled to Statutory Sick Pay (SSP) from day one (rather than day four as is usually the case). If they would normally receive enhanced employer sick pay, then the expectation is that this would also be payable. Employees can self-certify for seven days and thereafter would need certification for their absence. The UK Government has made this easier to do for people with COVID-19: an employee can call 111 or go online to receive an isolation certificate, which is then issued by email.

For employers with fewer than 250 employees, the first two weeks of Statutory Sick Pay can be reclaimed from the government.

Essential workers

The Government has issued guidance to employers on work during lockdown Guidance for employers and businesses on coronavirus (COVID-19).

Key to this guidance is that employers should make every possible effort to enable working from home as a first option. Where working from home is not possible, workplaces should ensure that they comply with the social distancing guidelines set out by the government. In each individual business the necessity for work to be done on site should be carefully considered taking into account health and safety and reputational risk. Employees who are vulnerable or, who live with vulnerable individuals, should be supported to follow the recommendations set out in guidance on social distancing and shielding respectively. Where the social distancing guidelines cannot be followed in full in relation to a particular activity, businesses should consider whether that activity needs to continue for the business to operate, and, if so, take all the mitigating actions possible to reduce the risk of transmission between their staff.

Where employees object to attending work during lock-down or raise individual concerns, employers should be considerate and seek to support staff by understanding concerns and find a solution wherever possible. Kneejerk reactions to discipline or dismiss should be avoided. Legal advice should be taken if specific problems arise.

There will come a point where lock-down is eased and businesses need to look at ways to re-open. Care should be taken at all times to follow Government Guidance and to ensure the health and safety of staff and others accessing premises.

Emergency Volunteer Leave

The UK Government has introduced Emergency Volunteer Leave to help tackle the spread of COVID-19 and to support the health service. Workers can temporarily leave their job and volunteer for a set period in the NHS or social care sector during the COVID-19 pandemic. The key terms of the scheme are:

  • The worker will need to be certified by an appropriate authority, such as the Department of Health, an NHS Commissioning Board or a local authority;
  • The certified worker will be required to give their employer at least three working days' notice of their intention to take emergency volunteer leave.
  • Leave must be taken in a block of two, three or four consecutive weeks and is unpaid.
  • A UK-wide compensation fund is being established to compensate volunteers for loss of earnings and any travel or subsistence expenses.
  • Employers with more than ten employees will be unable to refuse emergency volunteer leave where an employee has been certified.
  • During volunteer leave, an employee will remain entitled to all the terms and conditions of their employment that would normally apply (other than remuneration) and will have the right to return to their usual job at the end of their leave on no less favourable terms and conditions.

It will be unlawful to subject employees to any detriment because of emergency volunteering, and dismissals connected to emergency volunteer leave will be automatically unfair. Government guidance has stated in general terms that an individual can carry out volunteering during furlough leave, however it is not yet clear how a request to volunteer under these new statutory provisions sits with furlough leave and pay. The early indications are that uptake of this new scheme will be very high and so employers will need to prepare to be able to accommodate potential requests for emergency volunteer leave.


How do I apply for the scheme?

The portal for applications went live on 20 April 2020, and can be accessed here. A step by step guide has been produced, setting out all of the information that employers need to make a claim.

Will I need to pay the furlough subsidy back at some point?

No. Employers are receiving a grant, not a loan. You will not need to re-pay any subsidy sums received under the Job Retention Scheme.

How do I calculate the salary for an employee who uses the salary sacrifice scheme?

A very important limitation to be aware of is that the figure post-salary sacrifice should be used to calculate the reference salary. This means employers get less of the 'headline salary' by way of grant in relation to employees who use salary sacrifice. While HMRC have stated that Covid-19 is a 'life event' which permits changes to salary sacrifice arrangements, making changes now will have no impact on the grant an employer can claim under the CJRS because it is calculated based on the reference salary which is pre 19 March 2020

Can remaining work be reallocated to other employees so that an employee can be furloughed?

Yes. If there is less work overall for a team, the employer could furlough some workers and reallocate their work to the team members who are still working. Alternatively, employers could rotate employees on furlough to spread the workload (the minimum period of three weeks applies to each instance of furlough).

Is the subsidy cap £2,500 or 80% of £2,500?

The monthly cap is £2,500. This is a gross payment and individuals will have to pay Income Tax and National Insurance contributions on any payments received. The 80% figure is a maximum. It may not cover 80% of the employee's contractual entitlements as it is based on a set reference period and has built in limitations as explained above. Employers can also claim for Employer NICs on the subsidised furlough pay (which should then be accounted for to HMRC in the usual way) and for minimum required pension contributions (which must then be paid into the appropriate pension scheme). As explained above, the grant available under the scheme is tapering down from 1 July.

If paying 80% means the employee receives less than the National Minimum Wage (NMW) do I need to top up to the NMW?

No. You will be able to pay the 80% only less deductions for tax and NICs assuming the contractual entitlements have been aired accordingly even if that amount is lower than the NMW. However, you will need to pay NMW for employees on furlough who are being required to complete training.

Do benefits continue for furloughed employees?

This would be a matter for agreement between employers and employees but the starting point is that all contractual terms remain in full force and effect. Any suspension of employee benefits should be agreed with employees where possible, albeit the UK Government has stated that employers are not required to top-up to 100%. Employers will be able to claim the 3% employer minimum auto enrolment contributions and employer National Insurance contributions (NICs). Any changes to pension may require additional consultation.

What is meant by training and volunteering?

The Government has specified that those on furlough should not work. However, they are permitted to participate in training or to volunteer, as long as this does not fall outwith the definition of work, defined below.

Employers can help furloughed employees find volunteering opportunities whilst on furlough if this is in line with public health guidance. In relation to training, the guidance states that furloughed employees can engage in this as long as in undertaking the training the employee does not provide services to, or generate revenue for, or on behalf of the employer.

Further guidance on this will be of great benefit. For example, an employee completing online training courses (such as diversity training) while on furlough will be permissible. It is less clear that employees who carry out training as a substantial part of their role will be permitted to continue because this could be classed as work.

What work can employees do while on furlough leave? For example, can they check emails on a daily basis and pass work to colleagues who are not furloughed?

As explained above, UK Government guidance states that employees on furlough should not work. Work is defined as providing services to or generating revenue for, or on behalf of the employer or a linked or associated organisation. The Direction goes further and says that "An employee has not ceased all work for an employer if the employee works for a person connected with the employer or otherwise works indirectly for the employer". There is no de minimis level of work permitted. Employees can keep in touch with work for HR matters connected to their own employment and to do training, but unless and until they are brought back on a part-time basis, they cannot continue to do any work: even maintaining a watching brief on projects or forwarding emails could count as work. Out of offices/re-directs should be set up on email accounts and phones.

If an employer cannot 'do without' an employee then furlough may not be appropriate. Instead, it may be possible to agree reduced working hours and/or reduced pay for a period of time.

If an employer decides during a period of furlough that they want to bring the employee back to work, the employer could bring the furlough to an end. If they do so within the first three weeks of any furlough period this would prevent the employer recovering the employee's wages under the CJRS for this period, as furlough cannot be shorter than three weeks.

Further guidance on the new flexibility under the scheme for individuals to mix time working and time on furlough is due to be released in mid-June.

Can a vulnerable employee who is shielding at home for 12 weeks in line with government advice be on sick leave or furloughed?

Yes. Employees who are 'shielding', because they or a member of their household are in a particularly high risk category as identified by the NHS, can be furloughed. If the individual is able to work from home, they can be required do so and continue to receive normal pay. Those who are on sick leave can also be furloughed (although the guidance is clear that furlough is not intended to replace short-term sickness absence) as can those with caring responsibilities.

What should an employer do where an employee is refusing to come to work or is unable to travel to work safely?

Where an employee cannot work from home; is not on sick leave, self-isolating or shielding; and has not been furloughed, they should continue to work as set out in their contract. Normally, failure to come to work could be treated as a disciplinary matter, though in the current circumstances employers are recommended to discuss the individual situation with employees and work to find a solution to any concerns. Employers should be mindful of government advice and ensure that social distancing and hygiene rules are followed in the workplace. Failure to do so could breach health and safety rules and expose the employer to claims.

Employers should also consider whether employees who cannot work from home are carrying out essential work which is necessary for the business to operate. If the work is not essential, then it is likely to be unreasonable (and potentially unlawful) for an employer to insist on the employee coming to work.

It is important to understand why the employee does not want to come to work. For example, some employees may car share and have no other means of travelling to work safely while following social distancing rules. Others may be concerned about conditions at work or have family members at higher risk of serious illness from COVID-19 infection. Employers should consider cases on their own facts and ensure that they are not discriminating against the employee under the Equality Act, as in some cases insisting on the employee's attendance and/or subjecting the employee to a detriment if the employee refuses to come to work could amount to discrimination/victimisation. Employees who are vulnerable or who live with vulnerable individuals, should be supported to follow the guidance on social distancing and shielding.

In most cases, we anticipate employers will take a flexible and supportive approach and rely on workers who are willing and able to come to work rather than forcing concerned employees to do so. If an employee refuses to come to work and is not entitled to sick pay and has not been furloughed, their absence would be unpaid unless otherwise agreed with their employer.

Is collective consultation required to furlough 20 or more employees?

This depends on the individual circumstances, but in most cases we do not expect this will be required. Collective consultation is required when an employer proposes to dismiss 20 or more employees within a 90-day period at the same establishment. If furlough is being used as an alternative to lay-off (and redundancy is not an inevitable consequence of a failure to agree furlough), then there will be no proposal to dismiss employees at this stage, so collective consultation will not be required. If the employer cannot achieve sufficient agreement to furlough so that the employer has to consider making redundancies, then the rules on collective consultation would apply if 20 or more employees are affected. In some cases, it may be appropriate for employers to consult with a trade union before changing contractual terms. This is a complicated and fact-sensitive area of the law and legal advice should be sought if you have any concerns.

Originally published by Shepherd and Wedderburn, on June 2020

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.