24 April 2020

Coronavirus Job Retention Scheme

The guidance for employers and employees relating to the Coronavirus Job Retention Scheme (the ‘Scheme’) has now had several iterations. The Chancellor has issued the Treasury Direction (as amended) (the ‘Direction’), which sets out the Scheme’s formal legal framework, and announced an extension to the Scheme until the end of October 2020. The HMRC on-line portal for making claims is now open. With so many moving parts, we thought it would be useful to answer some frequently asked questions in relation to the Scheme.

Who can use the Scheme?

The Scheme is available to all employers (regardless of size or sector industry) who:

  • had a PAYE payroll scheme on or before 19 March 2020 (note this date was originally 28 February 2020);
  • are enrolled for PAYE on-line; and
  • have a UK bank account.

What does the Scheme do?

The Scheme allows those employers whose operations have been severely affected by coronavirus to ‘furlough’ staff (i.e. put them on leave of absence) and apply for a grant that covers:

  • 80% of their usual monthly wage costs (up to £2,500 per month per individual), plus
  • the associated employer national insurance contributions and pension contributions (up to the level of the minimum automatic enrolment employer pension contribution on that subsidised pay).

However, it is expected that the grant which employers shall be able to claim for from August 2020 will vary.

Can furlough pay be topped up by the employer?

Yes, employers can ‘top-up’ furlough pay to 100% but they are not obliged to do so.

Will furlough pay still be subject to tax and national insurance contributions?

Yes, pay to furloughed staff during the furlough period will still be subject to tax and employee national insurance contributions in the usual way (based on the furlough pay amount).

Does the grant need to be repaid?

The subsidy will be a grant, not a loan, so it will not need to be repaid, but payments should be included as income in the calculation of taxable profits for Income Tax and Corporation Tax purposes.

Does an employer have to pay furloughed staff before the grant is received from HMRC?

Yes, employers need to pay staff in the usual way (at the furloughed amount) and claim back the money separately. There are other schemes available for struggling businesses (such as the Coronavirus Business Interruption Loan Scheme), which might be able to provide assistance sooner, but these fall outside the scope of this article.

What work can an employee do while they are furloughed?

Importantly, furloughed workers cannot do any work for their employer whilst on furlough leave. They can, however, carry out training (as long as they do not provide services or generate revenue), volunteering work and/or work for another business (assuming their employment contracts permit this). If alternative work is permitted, we recommend that employers set out any restrictions (for example, working for a competitor) in the furlough leave agreement (see further below).

How long is the Scheme open?

The Chancellor has confirmed that the Scheme will now be in place until the end of October 2020. It was originally open for three months and was due to close at the end of May 2020.

Can the Scheme only be used as an alternative to redundancy?

There was some initial confusion as to whether the Scheme was only available to employers if the alternative would be redundancies and/or lay-offs. The latest guidance suggests a relaxation of this requirement, stating that the government ‘recognises that different businesses face different impacts from coronavirus’. Further, the Direction confirms that the Scheme applies to employees who are furloughed ‘by reason of circumstances as a result of coronavirus’ (i.e. a wider interpretation).

This would seem to give employers more discretion in using the Scheme, but they should not abuse it: the government has said that it retains the right to retrospectively audit claims made under the Scheme.

How do employers calculate the appropriate rate of pay?

For salaried employees, employers should use the individual’s actual salary as at 19 March 2020, unless employees were furloughed before that date, in which case, they should use the actual salary as at 28 February 2020. Where a worker has differing pay (for example because they are paid hourly and work different hours each month), employers should claim for the higher of either the same month’s earnings from 2019 or the average monthly earnings from the 2019-2020 year.

The guidance says that employers can also claim for any regular contractual payments (such as past overtime and/or compulsory commission payments); however discretionary payments (such as discretionary bonuses) are excluded.

What if furlough pay ends up being below the national minimum wage?

The government has confirmed that this will not be an issue, as national minimum wage legislation is concerned with how many hours an employee works and, if furloughed, employees will not be working.

Who is eligible to be furloughed?

The guidance recently changed to confirm that employee and workers who were on the payroll as at 19 March 2020 (no longer the earlier date of 28 February 2020) can be furloughed. However, it is important to note that real time information (‘RTI’) about employees and workers must have been submitted to HMRC by 19 March 2020. This will allow those hired after 28 February 2020 (the original ‘cut-off’ date) to be eligible, provided RTI has submitted. Although, if an employer pays staff at the end of the month, it is possible that a new starter’s RTI would not have been submitted in time, and therefore they may remain ineligible.

In addition to employees, it is also possible for employers to furlough other ‘workers’ on their PAYE system, such as casual or zero-hours workers. Employers can also furlough office holders, directors and salaried LLP members (see further below).

Employees who are ‘sponsored’ by employers under the UK’s point-based immigration scheme are also eligible.

Employers can also rehire an employee who has recently been made redundant but was on the employer’s payroll as at 28 February 2020 (provided RTI information was provided by this date) and immediately furlough them under the Scheme.

How does an employer put staff on furlough leave?

Employers should discuss furlough leave with each staff member and obtain their consent. In practice, we have found that most are willing to go on furlough leave, especially where the alternative is a potential redundancy.

Such agreement should be confirmed in writing and kept on file for five years. There is a slight contradiction between the guidance and the Direction as to whether employees and workers should agree in writing (i.e. be asked to sign something) or whether the employer can simply write to them to confirm. Whilst the latest guidance is clear that an employer can simply confirm in writing, our advice is that employees and workers should be required to provide their agreement in writing (i.e. sign something) wherever possible and that such document sets out the key terms of the furlough leave, including the fact that they cannot work during the period. We can assist clients prepare such furlough leave agreements.

Can employers furlough a company director?

Directors on PAYE can be furloughed and still be allowed to perform their statutory duties. However, they cannot generate commercial revenue or provide services to or on behalf of their company while they are furloughed. In addition, the Direction further limits a director’s role, stating that they can only do work to fulfil a duty or obligation arising from an Act of Parliament (e.g. relating to the filing of company's accounts). In practice, we suspect that this will be a hard path for directors to follow, especially in smaller businesses.

Any furlough arrangements should be adopted formally as a decision of any relevant company.

Please note that on 8 April 2020, HMRC advised the Treasury Committee that directors' dividends cannot be taken into account when calculating furlough pay as it is not possible for HMRC to identify which dividends have been received in lieu of wages.

Can an LLP furlough its members?

Members of LLPs who are designated as employees for tax purposes (i.e. salaried members) under the Income Tax (Trading and Other Income Act 2005) can be furloughed. Any furlough arrangements should be adopted formally as a decision of the LLP, and the LLP agreement may need to be amended to reflect the fact that the member will not perform work for the LLP for the furlough period, and the effect of this on their remuneration from the LLP.

How about individual employers – e.g. can I furlough my nanny?

Yes, the Scheme applies to individuals who employ others, provided the individual employer satisfies the requirements of eligible employers as set out above.

How long should furlough leave last?

Employees and workers must be furloughed for a minimum of three weeks. However, we would advise employers to retain the ability to cancel furlough leave and ask employees to return to work – for example, to cover a sudden upturn in work. See above for further information about agreeing furlough leave with staff.

Do I need to furlough all staff and can I rotate those on furlough leave?

No and yes.

Employers can elect to furlough only some staff. In terms of selecting staff, workers who cannot work from home and those who currently have no work to do will be clear candidates for being furloughed. Otherwise, we recommend that employers ask for volunteers and/or consider pooling and scoring staff (like in a redundancy situation) to help avoid potential discrimination claims. In practice, clear communication with staff to explain the pressures that the business is under and how and why it is considering the furlough scheme will be important.

The current guidance suggests that it is possible for employers to rotate those on furlough leave, provided each worker is furloughed for at least the requisite three-week period.

How about annual leave?

Annual leave is always a tricky area. As we understand it, employees will continue to accrue annual leave whilst on furlough leave and can, technically, take leave during the furlough leave period. Generally, any holiday which is taken should be paid at the usual holiday pay rate, although employers will not be able to claim the additional extra holiday pay through the Scheme. That said, the guidance also allows employers to restrict when leave can be taken where there is a business need. Please note that there is a difference between statutory minimum annual leave entitlements and any additional leave offered by employers, so it is worth taking advice on this area.

Separately, the government has changed the law on holiday carry over, allowing four weeks annual leave to be carried forward into the next two holiday years.

What about statutory sick pay – how does that interplay with furlough?

Unfortunately, this is another area where clarity would be welcomed.

The guidance is clear that the Scheme should not be used for short-term absences or where people are self-isolating (such as where a member of their household is displaying coronavirus symptoms). In such situations, employees are entitled to statutory sick pay (or perhaps contractual sick pay, if applicable and depending on the circumstances). However, the guidance continues to say that employers are entitled to furlough employees who are on sick leave, provided that they otherwise qualify and their sick pay ceases. This suggests that employers can choose whether to keep an employee on sick leave or place them on furlough if they are sick at the point when furlough is being considered. For longer absences, the guidance states that employers can furlough employees who are currently off sick, in the same way as they can furlough other employees.

To confuse matters, the guidance given above is at odds with the Direction, which suggests that employers need to wait until an employee is no longer eligible for SSP before furloughing them. This accords with the original guidance which said that employees on sick leave or who are self-isolating could only be furloughed once they are no longer entitled to SSP.
Our view, for the moment at least, is that employers follow the position in the Direction and only furlough sick employees once their SSP ceases. We hope for some further clarity on this point.
Can workers who are shielding in line with government guidance be furloughed?

Whilst the guidance says yes, following a recent change which states that those shielding in line with government guidance are eligible to SSP, the position is unclear for the reasons mentioned above.

What happens if market conditions continue to be poor and at the end of the Scheme?

The key aim of the Scheme is to prevent people losing their jobs. The hope is that at the end of the furlough period market conditions will have improved, allowing everyone to return to work in the usual way. However, if employers need to make cost saving measures once the Scheme is closed, employers will be permitted to consider other options such as short-time working and/or redundancies, subject to the usual employment law rules.

The guidance also says that employees can be made redundant whilst on furlough, but that the furlough grant cannot be used to pay for redundancy pay.
How do I claim?

Claims for the Scheme subsidy can be made on-line (which is now open). The link to the portal can be accessed here. Employers can make claims up to 14 days in advance and to claim they will need the following information:

  • to be registered for PAYE online
  • UK bank account number and sort code
  • employer PAYE scheme reference number
  • the number of employees being furloughed
  • each employee’s National Insurance number
  • each employee’s payroll or employee number (optional)
  • the start date and end date of the claim
  • the full amount they are claiming for, including employer national insurance contributions and employer minimum pension contributions
  • details of the employer’s name, phone number and contact name


It is fair to say that the Scheme is not the easiest to interpret and implement. However, given its unprecedented nature and the speed at which it was introduced, one does have sympathy. The Scheme throws up many questions and this article seeks to address some of the key ones. Should you require further advice, please contact Joe Beeston, Senior Employment Associate in our Employment team.

The Government has extended the Coronavirus Job Retention Scheme to 31 October 2020, further details to follow.


The current global crisis is evolving rapidly, and the rules and guidance for individuals, companies and other entities to manage its implications are similarly fast moving. Notes such as this may be out of date almost as soon as they are published. If you have any questions prompted by this article or on any other matter relevant to you, please get in touch with your usual contact at Forsters.

COVID-19 Information Hub - helping you and your business through this unprecedented time

"First-class agriculture and estates team that deals with queries promptly and efficiently.”
Legal 500 UK, 2019