The government has again updated its guidance on how furlough will work in practice under the Coronavirus Job Retention Scheme.
On Thursday 23 April 2020, the government issued further updates to its guidance for employers on claiming for employee wages through the new Coronavirus Job Retention Scheme, guidance on how to and separate guidance for employees. (The guidance was originally published on 26 March 2020 and has previously been updated on 4 April, 9 April, 15 April and 17 April.)
This follows the earlier publication, on 17 April, of a step-by-step guide for employers on how to claim through the Coronavirus Job Retention schemeupdated information on claiming back Statutory Sick Pay and a Treasury Direction under the Coronavirus Act 2020 which sets out the legal framework for the scheme.
Below we set out the key points from the most recent guidance and then answer some of the frequently asked questions about the scheme.
Key points from latest guidance
- The updated guidance published on 23 April clarifies that a collective agreement reached between an employer and a trade union is acceptable evidence that a furloughed employee agreed to be furloughed.
- The updated guidance has also clarified the options for re-hiring employees, including those on fixed term contracts (resolving some earlier confusion over the question of whether employees on fixed term contracts could be re-hired).
- The latest update also provides more clarity on the process for making a claim in practice. It says it is up to the employer to decide on the length of each claim period, based on the frequency of payroll.Employers will need to make sure they include all of the employees they want to furlough for each claim period, because they will not be able to make another claim for the same period or one that overlaps with it.It is not currently possible to amend a claim once submitted (although HMRC are looking at this).
- There is no further guidance on any of the other tricky issues, including the position of shielding/sick workers, holidays, what is meant by wages that are “conditional” (which cannot be claimed for) and the ongoing concern about what evidence of employee agreement will be required.
Who can use the scheme?
Can we only use the scheme if redundancy was the alternative?
The government previously indicated that the furlough scheme was an alternative to redundancy, lay-off or unemployment. Although the guidance for employees refers to furlough as applying when the employer is unable to operate or has no work for the employee to do, the guidance for employers says that all employers are eligible to claim under the scheme and that the government recognises that different businesses face different impacts from coronavirus.
However, the guidance makes clear that the scheme is “designed to help employers whose operations have been severely affected by coronavirus” and that employers that cannot maintain their current workforce because of this can make use of the scheme. The Treasury Direction says that the scheme applies to employees who are furloughed, “by reason of circumstances arising as a result of coronavirus or coronavirus disease”.
Ultimately, it seems that employers may be allowed some discretion, but they should not be abusing the scheme. The guidance makes clear that the government will check claims made through the scheme and that claims based on dishonest or inaccurate information or found to be fraudulent will need to be repaid in full to HMRC. An online portal will be made available for employees and the public to report suspected fraud. The Treasury Direction also says that no claim may be made if it is “abusive” or “otherwise contrary to the exceptional purpose” of the scheme.
Which employers is the scheme open to?
The scheme will be available to all UK employers, including businesses, charities, recruitment agencies and public authorities, of any size and in any sector. To be eligible, employers must have created and started a PAYE payroll scheme on or before 19 March 2020, enrolled for PAYE online, and have a UK bank account.
Rotating furlough and other options where there is still work, but less of it
Can we rotate employees on furlough?
We think so, yes. Some employers have work for some staff, but not enough work for all. One of the most pressing questions since the scheme was first announced was whether employees could rotate employees on furlough or if they would have to choose some employees to be furloughed while others stayed at work.
The guidance states that employees can be furloughed multiple times. Each separate instance must be for a minimum period of three consecutive weeks (one period can follow straight after an existing furlough period) and when employees return to work, they must be taken off furlough. This indicates that employers can rotate employees on furlough, so long as each employee spends a minimum of three weeks on furlough.
Can we make some people redundant and furlough others?
Yes. The guidance clearly says that you do not need to place all your employees on furlough.
How should we select which employees should be furloughed?
Workers who cannot work from home and who currently have no work to do will be obvious candidates for furloughing. Otherwise, employers may need to consider a process of calling for volunteers, pooling and selection – as with a redundancy process. There is a risk of claims (including discrimination claims) if the process is not handled correctly.
Can we do a partial furlough to put somebody on reduced hours?
No. An individual cannot work for you at all if they are furloughed.
If you have some work for an individual, but not enough, you can still have a discussion with them about going down to a reduced working week. They will need to agree to this, except in the unlikely event you have reserved the right to put them on reduced pay for reduced work, and they will not be on the furlough scheme.
What can we claim through the scheme?
How much is the subsidy?
HM Revenue & Customs (HMRC) will reimburse 80% of furloughed workers’ regular wages, up to a cap of £2,500 (gross) per worker per month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer contributions on that wage.
There is an argument that this amount is reduced if a furloughed employee falls sick and becomes entitled to SSP (even if they are not moved from furlough onto SSP) but the Treasury Direction and HMRC guidance conflict on this point. This is explained in more detail in the section on sick workers below.
How do we calculate regular wages?
For salaried employees, you must use the actual salary before tax, as of 19 March 2020. If you have already placed employees on furlough based on their salary as of 28 February 2020, and this differs from their salary on 19 March, you can use the 28 February date instead for the first claim you make. For employees whose pay varies (for example because they work different hours each month), you can claim for the higher of either:
- the same month’s earnings from the previous year
- average monthly earnings from the 2019-20 year
If an employee with variable pay 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 has worked for less than a month, you should use a pro-rata approach.
An online calculator is now available (from Monday 20 April) to help employers work out how much can be claimed as wages, national insurance contributions and pension contributions. The guidance provides a number of worked calculations based on a variety of scenarios reflecting the different ways employees could be paid.
The guidance makes clear that no grant will be declined or repayment sought based solely on the choice of pay calculation used by the employer – provided a reasonable choice of approach is taken.
Is the wage calculation based on pre- or post-salary sacrifice wages?
Post-salary sacrifice wages as of 19 March 2020 should be used. Benefits provided through salary sacrifice schemes (including pension contributions) that reduce taxable pay should not be included.
HMRC has confirmed that coronavirus can count as a life event that could warrant changes to salary sacrifice arrangements, provided this is reflected as a change in the employment contract.
What about payments which we don’t describe as salary or wages?
The guidance says you can claim for any regular contractual payments, including wages, non-discretionary overtime, fees, commission payments, and piece-rate payments. However, any discretionary (non-contractual) payments cannot be included, such as tips (including those distributed through troncs), discretionary bonuses and discretionary commission payments. Non-cash payments, benefits in kind and salary sacrifice schemes are also excluded.
The Treasury Direction adds that “conditional payments” are also excluded and it is unclear exactly what this means, and which sorts of payments it might apply to. Many payments are arguably “conditional”. The Treasury Direction also says that payments based on performance (of the business or individual) cannot be claimed for unless they arise from a legally enforceable agreement, understanding, scheme or transaction.
What about payments to LLP members?
Only payments which are not affected by the overall amount of the LLP’s profits or losses, payments which are fixed, and payments which are variable (but are varied without reference to the overall amount of the profits or losses of the LLP) can be claimed.
What about pension payments?
You can reclaim the minimum mandatory employer pension contribution. This claim can be made on top of the £2,500 cap. The latest guidance confirms that this is based on the subsidised furlough pay.
The minimum contribution under the auto-enrolment regulations is 3% of an employee’s income above £520 per month (from 6 April 2020). Pension contributions over and above this cannot be claimed through the scheme but you will need to maintain them, unless you agree something else with employees (and proposing a reduction in pension contributions could trigger pension consultation obligations).
What about benefits such as health insurance, gym membership etc?
The scheme does not include the cost of non-monetary benefits provided to employees, including taxable benefits in kind. Benefits will need to be maintained, however, unless you agree something different with furloughed employees. The guidance confirms that no part of the furlough grant should be used to pay for the provision of benefits or a salary sacrifice scheme.
Employers that offer permanent health insurance or death-in-service benefits should check with their scheme provider about what salary would be used in the event of a claim – would it be normal annual salary or pay during furlough?
Can we keep some of the grant?
The guidance makes clear that the entirety of the grant received to cover an employee’s subsidised furlough pay must be paid to them in the form of money and that no part of the grant should be netted off to pay for the provision of benefits or a salary sacrifice scheme. The government will require all employers to agree to return any grants back to HMRC immediately should they become unable or unwilling to use it to pay the employee’s salary and employer national insurance contributions and pension contributions.
Which employees can we furlough?
Does someone need to have been on the payroll on 28 February or 19 March 2020 to be put on furlough?
Employees must have been employed on 19 March 2020 and individually notified to HMRC on a Real Time Information (RTI) submission on or before 19 March 2020. (RTI is the PAYE notification to HMRC.) Employees hired after 19 March 2020 cannot be furloughed or claimed for, unless they were on the payroll on 28 February and are being rehired in order to be put on furlough.
What if we’ve already made redundancies?
If your employees were on your payroll and notified to HMRC on an RTI submission on or before 28 February, and they have been made redundant since then, it is possible to give those former employees the option of being rehired and then put straight on the scheme. This applies even if they were not rehired until after 19 March.
The guidance now confirms that employees who were made redundant on or after 19 March 2020 can also be rehired and put straight onto the scheme - so long as they were employed on 19 March and notified to HMRC on an RTI submission on or before 19 March.
What if someone has resigned since 28 February or since 19 March – can we re-hire them?
Yes. The guidance confirms that this will be possible. This applies if they were on your payroll and notified to HMRC on an RTI submission on or before 28 February, and they have left since then. You can give those former employees the option of being rehired and then put straight on the scheme, and this applies even if they were not rehired until after 19 March. This is also possible for employees who resigned on or after 19 March, so long as they were employed on 19 March and notified to HMRC on an RTI submission on or before 19 March.
However, you are under no legal obligation to take anyone back. If you are considering re-hiring some workers but not others, there is a risk of claims, including discrimination claims. If you decide to re-hire any workers in order to put them onto the furlough scheme, we recommend that you take advice about the best way of doing this in order to reduce your exposure to risk.
If someone has resigned, but has not left yet, then it seems that you could allow them to rescind their notice (and this will be administratively easier than a re-hire) but you do not need to do so.
The guidance also confirms that if an employee has had multiple employers over the past year, has only worked for one of them at any one time, and is being furloughed by their current employer, their former employers should not re-employ them and put them on furlough.
What if we have inherited employees following a TUPE transfer after 28 February or after 19 March?
These employees can be furloughed, but it appears from the way in which the guidance and the Treasury Direction are drafted that the scheme only applies where there is a “business transfer” under TUPE and not where there is a “service provision change”.
The guidance says that a new employer is eligible to claim under the scheme for employees of a previous business who have transferred to them after 19 March, if either the TUPE or PAYE business succession rules apply to the change in ownership. The scheme can also be used if there has been a payroll consolidation after 19 March 2020.
What about casual workers and workers on zero-hours contracts?
The scheme will cover workers on the PAYE system, including any casual or zero-hours worker who are paid in that way.
What about workers on fixed-term contracts?
The updated guidance confirms that workers on fixed-term contracts can be furloughed. If the fixed term contract has not already expired, it can be extended or renewed and the worker can be furloughed – so long as an RTI payment was notified to HMRC on or before 19 March.
Workers on fixed term contracts which expired after 28 February or 19 March can also be re-employed and then put on furlough, if either:
- their contract expired after 28 February 2020 and an RTI payment was notified to HMRC on or before 28 February, or
- their contract expired after 19 March 2020 and an RTI payment was notified to HMRC on or before 19 March.
However, workers that started and ended the same contract between 28 February 2020 and 19 March 2020 do not qualify for the furlough scheme.
What about other types of workers?
The grant can be claimed for the following types of workers, provided they are paid via PAYE and are not doing any work: office holders (including company directors); salaried members of limited liability partnerships (LLPs); “limb b” workers; and agency workers (including those employed by umbrella companies).
For directors and LLP members, furlough arrangements should be adopted formally as a decision of any relevant company or LLP.
What about sick workers?
The guidance says that employees who are currently off sick can be furloughed for business reasons. This applies to both short-term and long-term sick leave. The employee would then no longer receive sick pay and should be paid the same as other furloughed employees. However, the guidance also says that furlough is not intended for short-term absences from work due to sickness, and short-term illness or self-isolation should not be a consideration in deciding whether to furlough an employee.
The Treasury Direction is inconsistent with this. It says that an instruction which puts an employee who is receiving (or entitled to) SSP on furlough does not take effect until this SSP period is ended. This means that it remains unclear whether an employee who is eligible for SSP can be put on furlough.
If an employee becomes sick while on furlough, it is up to the employer to decide whether to move them onto SSP or to keep them on furlough. If the employee remains on furlough, the employer can continue to claim their salary through the furlough scheme. If the employee is moved onto SSP, the employer will have to pay this and can no longer claim their salary through the furlough scheme. However, employers with fewer than 250 employees can use the new Coronavirus Statutory Sick Pay Rebate Scheme which will repay up to two weeks’ SSP starting on or after 13 March 2020 for employees who are unable to work because they have coronavirus, cannot work because they are self-isolating at home or are shielding in line with public health guidance.
The guidance does not say anything further about the amount the employer can claim through the furlough scheme if it chooses to keep an employee on furlough rather than moving them onto SSP. But the Treasury Direction seems to add an additional complication. Paragraph 8.6 of the Treasury Direction says that no furlough claim may include “amounts of specified benefits payable or liable to be payable in respect of an employee (whether or not a claim to the relevant specified benefit is actually made) during the employee’s period of furlough and the gross amount of earnings falling for reimbursement … must be correspondingly reduced”. SSP is a “specified benefit”.
This seems to suggest that, even if the employee is not moved onto SSP, the furlough claim must be reduced by a notional amount to reflect the SSP that would have been paid. But there’s no obvious reason why the furlough grant should be reduced in this way and the guidance makes no mention of it.
It’s therefore quite possible that this is just a mistake in the drafting of the Treasury Direction and the government merely intended to stop an employer claiming both furlough grant and SSP for the same employee in the same period. In the circumstances, employers may be best advised to claim for the full furlough grant rather than reduce their claim by the notional amount of SSP. However, until the wording is clarified there is some risk that the SSP amount may not be recoverable and may need to be paid back in the future.
If an employer has not agreed with their furloughed employees that they will receive a lower amount if they fall sick whilst furloughed, employers would have to continue to pay them whatever they agreed (even if this amount is not fully recoverable under the scheme).
The guidance clarifies the position on calculating furlough pay if an employee returns from sick leave after 19 March. This should be calculated against their normal salary, not the pay they received while on sick leave. If the employee is on variable pay, this should be calculated using either the same month’s earning from the previous year or average monthly earnings for the 2019-2020 tax year.
What about workers who are shielding or have caring responsibilities?
The guidance clearly says that employees who are unable to work because they have caring responsibilities or are shielding in line with public health guidance, or who need to stay home with someone who is shielding, can be furloughed. However, the position in relation furloughing employees who are shielding is less clear than the guidance suggests.
On 16 April 2020, new regulations extended the right to SSP to those who are shielding and who cannot work from home. Despite the position set out in the guidance, the Treasury Direction indicates that someone’s entitlement to SSP must have ended before they are put on furlough. Pending further clarification, the practical upshot seems to be as follows:
- For employees who are shielding and had already been put on furlough before 16 April 2020, their furlough can continue (even though they are now potentially entitled to SSP).
- Employees who are shielding but had not yet been put on furlough on 16 April are now entitled to SSP, so the Treasury Direction’s ban on starting furlough until entitlement to SSP has ended appears to apply to them.
- Shielders who can work from home can, however, be put on furlough because they are not technically entitled to SSP.
What about employees on maternity or other family leave?
The guidance says that employers can claim for enhanced maternity pay through the furlough scheme. This suggests that employers can furlough employees on maternity leave.
If an employee on maternity leave agrees to be furloughed, then you will be able to reclaim their SMP in the normal way. You will then be able to claim for any enhanced contractual pay on top through the furlough scheme.
Currently, employers can reclaim 92% of SMP (or 103% if they qualify for Small Employers’ Relief). Employers cannot claim the 8% balance of SMP through the furlough scheme, because the Treasury Direction expressly excludes SMP (and other statutory payments for family related leave).
The same principles apply to other types of family leave.
From 25 April onwards, statutory pay for family leave (maternity leave, paternity leave, adoption leave, shared parental leave and parental bereavement leave) should be calculated based on the pay the employee would have received had they not been on furlough. This means that employees do not lose out if they are on a lower rate of furlough pay during the period for calculating statutory pay.
The guidance clarifies the position on calculating furlough pay if an employee returns from family leave. This should be calculated against their normal salary, not the pay they received while on leave. If the employee is on variable pay, this should be calculated using either the same month’s earning from the previous year or average monthly earnings for the 2019-2020 tax year.
What about employees on unpaid leave?
The position on this under the Treasury Direction and guidance is uncertain. It appears that if an employee started an unpaid sabbatical or other period of unpaid leave after 28 February 2020, they can be put on furlough instead and paid in accordance with the furlough scheme based on their regular wage. Employees who went on unpaid leave on or before 28 February cannot be put on furlough until the date on which it was agreed they would return from unpaid leave.
Another provision in the Treasury Direction is extremely unclear but may be intended to mean that no claim can be made under the scheme in respect of an employee’s period of unpaid leave beginning on or after 19 March 2020.
The updated guidance clarifies the position on calculating furlough pay if an employee returns from unpaid leave. This should be calculated using the amount the employee would have been paid if they were on paid leave.
Are foreign nationals with visas eligible for the furlough scheme?
Yes, the guidance says foreign nationals are eligible. They would presumably have to be working in the UK and paying UK PAYE. There are potential sponsor compliance issues to consider for Tier 2 workers, and while foreign nationals with limited leave are in most cases not entitled to receive public funds, accessing funds through the furlough scheme is not currently prohibited. The guidance confirms that grants under the scheme are not counted as “access to public funds”, and you can furlough employees on all categories of visa.
Are self-employed individuals eligible for the furlough scheme?
No. The government has announced a separate package of support for self-employed individuals affected by Coronavirus.
How do we put someone on furlough?
Do employees have to agree to being furloughed?
Yes – you need to agree this with each employee. The guidance says that employers should discuss this with their employees and make any changes to the employment contract by agreement. This does not necessarily require a protracted procedure. In our experience so far, most employees will be willing to accept furlough on basis that the other options are worse, and to ensure they still have a job to return to when the crisis is over.
Assuming the employee agrees be put on furlough, you will need to designate them as furloughed. The guidance says that, to be eligible for the grant, employers must confirm in writing to their employee that they have been furloughed. A record of this communication must be kept for five years.
The Treasury Direction says that the furlough needs to have been agreed in writing between employer and employee, although this includes by electronic means such as email. This goes further than the earlier guidance by requiring written agreement rather than just written confirmation and created concerns for employers who had not required furloughed employees to sign any kind of agreement or provide a written response. The guidance states that provided consent is obtained in a way that is consistent with employment law, it will be valid for the purposes of claiming under the scheme. This indicates that implied agreement will be sufficient - there needs to be a written record, but the employee does not need to provide a written response.
The latest guidance also confirms that a collective agreement reached between an employer and a trade union is acceptable for the purpose of a claim under the scheme.
Can employees put themselves on furlough?
No. You, as the employer, need to designate them as furloughed.
Pay during furlough
Will payments to employees on furlough be taxable?
Yes, payments you make to furloughed employees will be subject to PAYE and National Insurance contributions.
Will employees continue to accrue continuous service during furlough?
Yes, the underlying relationship will continue if a worker is furloughed, so their period of continuous employment will continue to accrue and will be recognised in full once the furlough comes to an end.
Do we have to top up the subsidy?
No. You can top up the subsidy if you wish, but you do not have to do so. It is open to you to agree with your employees that they will only receive the amount of the grant during furlough.
For employers that are topping up, a key question is how to maintain a fair differential between furloughed employees and any employees who are still working.
What if the subsidy is less than the minimum wage? Do we have to top it up then?
No. Workers are only entitled to the National Minimum Wage/National Living Wage for the hours they are working. You do not need to ensure that they are receiving NMW/NLW rates while on furlough.
The position is different if you are asking workers to complete training – see below.
Holidays and furlough
Will workers continue to accrue holiday allowance while they are furloughed?
Yes, because they remain employed. You could agree to reduce any enhanced contractual holiday (beyond the statutory minimum of 5.6 weeks per year) to reflect the fact that an employee has been on furlough, but employees will retain their right to annual leave under the Working Time Regulations (WTR).
Can people ask or be required to take their holiday allowance while furloughed?
Yes. The guidance has finally confirmed our view that furloughed employees can be on holiday during furlough. This means that, if employees have pre-booked holidays then they will be able to take them, and you do not need to allow rescheduling unless they would ordinarily have a right to reschedule. If you would like to require employees to take holiday during furlough, you would need to give twice as much notice as the length of the holiday you want them to take (e.g. ten days’ notice for five days’ holiday) unless the contract says something else.
Can we restrict employees taking holiday?
The guidance states that employers can restrict leave being taken provided there is a business need. In fact, employers can generally prevent employees from taking holiday if they give the required amount of notice under the WTR (by giving notice of the same number of days as the holiday the employee wanted to take, e.g. five days’ notice to prevent or cancel five days of holiday). The new right to carry over holiday of up to four weeks into the next two holiday years may assist disgruntled employees who have not been permitted to take holiday during furlough due to the extra cost to the employer, although this only applies if the employee has not been able to take their statutory annual leave entitlement due to coronavirus.
What about bank holidays during furlough?
There are four bank holidays during the furlough scheme period (10 April, 13 April, 8 May and 25 May). If employees have the right to take bank holidays off as holidays, then this will apply during furlough unless you agree something else. If employees normally work on bank holidays, they will simply be on furlough leave (not holiday) on the bank holiday unless you require them to take a holiday.
What should we pay staff who take holiday during furlough?
The guidance says that staff need to be paid their usual holiday pay rate for statutory minimum holiday (5.6 weeks’). Employers will not be able to claim any additional top-up to full holiday pay through the furlough grant.
However, employers are still free to agree a different rate of pay for contractual holiday over and above the statutory minimum holiday entitlement of 5.6 weeks. In addition, many employers have a