Furlough: the basics

Coronavirus Job Retention Scheme (CJRS) was announced by the UK government on 20 March 2020 in response to the COVID-19 pandemic. The Scheme is opened on 20 April 2020.

The scheme applies in respect of employees who have been placed on temporary leave of absence (“furloughed”) during which they are not required to work.

Under the scheme, all UK employers can claim a grant from HMRC to cover:

• the lower of 80% of the wages or £2,500 per calendar month for each employee or PAYE worker, plus
• national insurance contributions and employer auto-enrolment pension contributions.

The scheme is intended to avoid mass redundancies and help employers stay in business. It does not change the employment relationship between employer and employee.

It is anticipated that many employers will seek to amend the contracts of those placed on furlough to match the level of reimbursement that can be obtained.

The scheme is backdated to 1 March 2020 and is open until the end of June 2020.

How to make a claim to HMRC for reimbursement?

The employer will need to be enrolled for PAYE online and submit via the Government gateway:

• The employer’s PAYE reference number.
• The number of employees being furloughed.
• The names, national insurance numbers and (optionally) payroll/employee numbers of the employees being furloughed.
• The employer’s name, Self-Assessment Unique Taxpayer Reference, Corporation Tax Unique Taxpayer Reference or company registration number.
• The claim period (start and end date).
• The full amount claimed (for the minimum length of three consecutive weeks), including employer NICs and employer minimum pension contributions.
• The employer’s UK bank account number and sort code.
• A contact name and phone number.

Claims can be backdated to 1 March 2020 if applicable.

The employer will need to calculate the amount they are claiming themselves.

The claim can only be made at the point at which the employer runs payroll or in advance of an imminent payroll because actual payroll amounts need to be submitted.

If the employer is claiming in respect of fewer than 100 furloughed employees, the employer will be asked to enter details of each employee. If the employer is claiming in respect of 100 or more furloughed employees, the employer will be asked to upload a file (in .xls, .xlsx, .csv or .ods format) containing the following information rather than input it directly into the system:

• Full name.
• National insurance number.
• Payroll number (optional).
• Furlough start date.
• Furlough end date (if known).
• Full amount claimed.

Where the employer has an agent authorised to act for PAYE purposes, the agent will be able to submit the claim on the employer’s behalf. However, where employers use a file-only agent (who only files their RT1 return but does not act on other matters) that agent will not be able to submit the claim on their behalf.

Reimbursement will be paid via BACS payment to the nominated bank account.

What happens after a claim is submitted?

After an employer has submitted their claim they will receive a claim reference number. HMRC will then check that the claim is correct and pay the claim amount via BACS into the employer’s bank account. The employer must:

• Keep a copy of all records, including:
  • the amount claimed and claim period for each employee.
  • the claim reference number for their records.
  • the calculations used in case HMRC need more information about the claim.
• Tell their employees that they have made a claim and that they do not need to take any more action.
• Pay their employees their wages, if they have not already.

How long does it take for HMRC to pay employers after they submit their claims?

HMRC advised the Treasury Committee that it is aiming to pay employers four to six working days after submission of their claim.

Can an employer make multiple claims in respect of the same period?

No. Employers may furlough different groups and numbers of employees at different times but an employer can only make one claim during a claim period for each PAYE scheme it operates.

Each claim must include all furloughed employees on the relevant PAYE scheme because only one claim per scheme is permitted, and HMRC has confirmed that employers cannot make changes to their claim once it has been submitted.

Are public sector, local authority and charity employers covered?

Yes, although it is expected that the scheme will not be used by many public sector organisations, as the majority of public sector employees are continuing to provide essential public services or contribute to the response to the coronavirus outbreak.

Which employees are covered?

The scheme covers the individuals detailed below, whether they are employees or workers, provided that they were on a UK employer’s PAYE payroll and notified to HMRC on an RTI submission on or before 19 March 2020.

The following table explains the position on eligibility:

An employer can claim in respect of the following:

• Full-time employees.
• Part-time employees.
• Employees on fixed term contracts.
• Employees on agency contracts.
• Employees on flexible or zero-hour contracts.
• Apprentices (provided that they are paid at least the applicable apprenticeship national minimum wage rate for all the time they spend training).
• Non-UK nationals can be furloughed by a UK employer. Grants under the scheme are not counted as “access to public funds” and an employer can furlough employees on all categories of visa.

Where an employee has more than one job, their employments are treated separately for the purposes of furlough, and the reimbursement cap applies to each employer individually.

Are the self-employed covered?

The scheme is being set up to provide the self-employed with similar rights.

What does the reimbursement cover?

Only regular salary or wages are taken into account. This includes wages, past overtime, fees and compulsory commission payments. However, discretionary bonus (including tips) and commission payments and non-cash payments should be excluded.

How does the cap work where the employee has more than one job?

The cap on reimbursement applies to each employer individually.

What can an employee do if their employer doesn’t pass on the reimbursement to them?

Where the employer does not pass it the reimbursement on to the employee, the employee can:

• make a claim for unlawful deduction of wages or breach of contract against the employer.
• If the employer is insolvent, the employee needs to submit RP1 and RP2 forms to claim money from the National Insurance Fund.
• to report the employer through HMRC’s Report fraud to HMRC service.

Do you have to be at risk of redundancy to be covered by furlough?

A redundancy situation is not a pre-condition for access to the scheme. It suggests that if there is a connection between putting employees on furlough and the consequences of COVID-19, the purpose of the scheme will be met.

Can an employer move employees who are already on reduced hours onto furlough?

If the employer’s financial circumstances change, it can move employees from reduced hours onto furlough. The employer will not be able to seek reimbursement in respect of wages costs for employees who are still working on reduced hours.

Can you be re-engaged by your previous employer and furloughed if your employment was terminated before or after the scheme was announced?

Yes, the employees who were made redundant or stopped working after 28 February 2020 can qualify if they meet the eligibility requirement and are re-engaged by their former employer. They will qualify from the date they are put on furlough.

Can you qualify for furlough if you had already been given notice of redundancy before furlough was announced?

It is possible for an employer to propose to employees who have been given notice of redundancy but are still employed, that they be put on furlough instead. The employer would also need to consider the employee’s entitlement to statutory notice pay and the rate at which it is paid.

Can you be furloughed during your notice period if you were given notice of redundancy after the introduction of the scheme?

There is no guidance on this issue. However, similar considerations apply where an employee is given notice of termination prior to the introduction of furlough.

Can you be furloughed if you resigned before the furlough scheme was introduced and are working your notice?

The guidance does not specifically deal with this issue but it seems possible, provided that the employee meets the usual eligibility criteria in terms of start date and timing of RTI submission.

Can you be furloughed if you are on unpaid leave?

Employers can furlough employees whether or not their unpaid leave started before or after 28 February 2020. This includes those who went on unpaid leave to care for children at home due to school and childcare facilities closing and to care for vulnerable individuals in their household.

Employees returning from statutory leave, including maternity, paternity, shared parental leave, adoption leave, sick leave and parental bereavement leave, can be furloughed.

The guidance states that the furlough pay for those employees who are fixed rate employees should be calculated in accordance with their normal salary, not the pay they received while on statutory leave.

For non-fixed rate employees, the guidance suggests that their furlough pay should be calculated based on the same month’s earnings from the previous year, or the average monthly earnings for the 2019-20 tax year.

Can you be put on furlough instead of taking unpaid leave to be able to look after your children at home?

Employees who were unable to work because of caring responsibilities arising from COVID-19 can be furloughed.

Can you be put on furlough if you are on long-term sick leave?

Furlough cannot start until the SSP entitlement period has ended.

Where an employer is selecting which employees to designate as furloughed, they must be mindful of the risk of discrimination if selection is linked to a protected characteristic such as disability.

Can you be put on furlough if you are on compassionate leave?

If the compassionate leave is unpaid and it began before 28 February 2020 then the employee could not be put on furlough until the date on which it was agreed they would return from the compassionate leave.

If the compassionate leave is paid, the employee could be furloughed while still on compassionate leave. If the employee is contractually entitled to their full salary while on compassionate leave, the employer would either need to top this up or reach an agreement with the employee to receive only the furlough pay covered under the CJRS.

What steps must employers take to put employees on furlough?

Employers will need to:

• Decide which employees to furlough.
  • ask for volunteers;
  • a limited selection procedure carried out on an urgent basis is likely to be acceptable if there is a substantial financial downturn;
  • if not, draw up a matrix of objective criteria in a similar way to redundancy scoring.

Employers should ensure their decisions on who to furlough are not based on discriminatory criteria, except where such discrimination is likely to be justified.

• Notify furloughed employees.
• Consider whether it needs to consult with employee representatives or trade unions.
• Agree the change with the furloughed employees.
• Confirm the employees’ new status and obtain their consent in writing. This is an eligibility requirement for accessing the subsidy, and a record must be kept for 5 years.
• Submit information to HMRC through the online portal. Employers must keep records and calculations in respect of their claims, records of the amount claimed for each furloughed employee and the period for which they are furloughed.
• Ensure that the employees do not carry out any further work for that employer or any associated employer or business while they are furloughed.

What can be relied on as an employee’s consent to be furloughed?

For the purposes of the CJRS, an employee is furloughed if they:

• Have been instructed and agreed in writing to cease all work.
• Cease that work for at least 21 days.

Can an employer rotate furlough between its employees?

Yes.

Employees must be furloughed for a minimum of three consecutive weeks or 21 calendar days.

Employees can be furloughed multiple times, subject to the minimum three consecutive week period.

Is there a specific amount of time an employee has to work before going back on furlough?

Currently, there is no specific guidance.

However, if an employer is rotating furloughed employees those returning to work are likely to be back at work for at least three consecutive weeks.

Will employers need to collectively consult if they intend to put 20 or more employees on furlough?

It may be necessary to engage in collective consultation to procure agreement to change the employees’ terms.

If the employer already has the contractual right to suspend and does not intend to reduce pay to the level that can be reimbursed, then it is less likely that collective consultation would be required. However, if the suspension was in the context of the employer proposing to make redundancies further down the line, the obligation to consult could be triggered.

Can an employer use the special circumstances defence?

Employers could rely on the special circumstances defence if they do not consult. The employer would need to show that compliance was not reasonably practicable, and that the circumstances were “special”.

However, it is arguable that the employer can conduct the collective consultation remotely.

Can you request your employer to place you on furlough?

Yes, an employee can request this, but the employer does not have to agree. It is the employer’s decision which employees to place on furlough or make redundant.

Is it unfair not to furlough those employees who have childcare responsibilities?

It is possible for an employer to lawfully choose to furlough only part of the workforce, provided it has used appropriate, non-discriminatory criteria to choose who is to place on furlough. It’s best to seek volunteers for furlough to identify the preferences of individual employees and avoid a feeling of unfairness among the workforce.

Are employers obliged to top up the remaining 20%?

Employers are not obliged to do so. If they do top up, they can only claim back employer national insurance contributions and minimum auto-enrolment payments up to the cap. Withholding 20% will, however, amount to a breach of contract and unlawful deduction of wages unless the employee gives their consent.

Can you work for another employer during furlough?

Yes.

If a furloughed employee starts work for another employer, they should confirm their furloughed status in Statement C of the PAYE starter checklist it completes for the new employer. The furloughed employee will need to be able to return to work for the employer that has furloughed them, and undertake any training that employer requires of them during furlough.

Can you be furloughed with more than one employer?

Yes.

The scheme will reimburse each employer for 80% of the employee’s salary, up to the £2,500 cap for each job.

Can you do volunteer work on furlough?

Yes, as long as volunteering is not for the employee’s employer.

Can you undertake training while on furlough?

Yes, training is expressly provided if it is not used by the employer to generate revenue or for the provision of services.

Can trade union representatives continue with their duties while on furlough?

Yes, as it’s akin to volunteering.

What happens if you become sick on furlough?

It’s up to employers to decide whether to move employees who become sick during furlough onto SSP or whether to keep them on furlough, at their furloughed rate.

If the employee is entitled to contractual sick pay which equates to 100% of their earnings, they may remain entitled to pay at that level if they become sick during furlough unless the employer has specifically provided for contractual sick pay to be reduced to reflect furlough pay in the furlough agreement.

How should an employer keep in touch with you on furlough?

It is best to agree with an employee how best they can be contacted during furlough. Employers should refrain from excessive communication with a furloughed employee which may suggest that the employee is, in fact, working. However, a weekly email is unlikely to be problematic.

If a furloughed employee is particularly vulnerable because they have a disability, the employer should consider what arrangements may be particularly helpful for that employee having regard to their condition and what facilities they have available at home.

Do disciplinary proceedings have to be paused if you are on furlough?

No, although it is only likely to be possible where those involved in the investigation and disciplinary hearing are not furloughed.

Practical difficulties associated with conducting a fair process while an employee is not in the office need to be considered:

• Is there access to the documents to complete their investigation?
• Does the employee have access to the technology to attend meetings remotely?
• Will it be possible for the employee to be accompanied at any disciplinary hearing?
• Can the timing of the meeting be adjusted to reflect the employee’s childcare or other commitments and ability to have a quiet space to participate in the disciplinary?

What should an employer do where your annual bonus is due for payment during furlough?

Furlough will not cancel any contractual right to bonus because their terms and conditions of employment will remain in force during any period of furlough (unless a furlough agreement contains a waiver).

Possible options for employers include:

• seeking a waiver or deferral of bonus payment.
• rely on its discretion to avoid paying an annual bonus (assuming that custom and practice has not created an implied right to payment of some bonus amount).

However, an employer must have regard to its implied duty not to act irrationally, arbitrarily or capriciously in exercising its discretion. In addition, an employer should avoid treating employees inconsistently as this may expose it to discrimination claims as well as breach of contract claims.

Can you be made redundant while on furlough?

Yes. An employee can be made redundant while on furlough or afterwards. The employer cannot claim reimbursement of redundancy payments under the scheme. Where the business is continuing, there is a potential for the dismissal to be unfair.

Can you be served with notice while on furlough?

A furloughed employee can be served with notice of termination of employment and the rate of pay depends on your entitlements.

How should employers approach a pool for redundancy where some employees are furloughed and others are not?

The fact that some employees are furloughed and some are not should not affect the employer’s identification of selection pools.

Are employees who transferred under TUPE on or before 19 March 2020 eligible for furlough?

A transferee will be in the same position as any other employee in terms of eligibility. However, if the transferred employees’ pay is processed in the March payroll towards the end of the month, the cut-off date for an RTI submission of 19 March 2020 may not be met.

If employees transferred under TUPE after 19 March 2020, can the new employer put them on furlough?

Yes, but arguably not where there has been a service provision change (SPC).

What is the position if employees are transferred under TUPE to a new company that did not have its payroll set up on 19 March 2020?

The 9 April 2020 update to the guidance states that where a group of companies have multiple PAYE schemes and there is a transfer of all employees from these schemes into a new consolidated PAYE scheme after 19 March (amended from 28 February 2020 by the guidance update published on 15 April 2020), the new scheme will be eligible to furlough those employees and claim the grants available under the CJRS.

Annual leave

Will employees continue to accrue holiday during furlough?

On 17 April 2020 it was confirmed that employees will continue to accrue annual leave during furlough.

An employer could attempt to negotiate a change in contractual terms such that any annual leave over and above statutory leave does not accrue during furlough, but this may make it less attractive to employees.

Employers can agree to vary holiday pay entitlement as part of the furlough agreement, however almost all workers are entitled to 5.6 weeks of statutory paid annual leave each year which they cannot go below.

Where a worker does not take annual leave in the relevant leave year because they were on furlough, can they carry it forward to the next leave year?

Yes, for the next two years.

However, the employer has the right to require the employee to not take their annual leave during furlough which they may do for financial reasons.

Further, on return to work, the employer may decide to suspend annual leave in order to have the full workforce available to focus on rebuilding the business following the pandemic.

Can annual leave be taken during furlough?

Workers can take annual leave during furlough if they give the required notice.

Although workers can take annual leave during furlough, employers may require them to defer taking annual leave because they will be entitled to their usual holiday pay during annual leave and employers will be obliged to pay 100% of their salary.

Can an employer require a worker to take holiday during furlough?

Yes, and some employers may take a view that it would be cost effective to compel workers to take annual leave during furlough.

If a worker has pre-arranged annual leave which falls during furlough, is the worker entitled to take that leave?

Yes, although the employer may wish to cancel any annual leave which has already been booked, if there is enough time before the leave for the employer to give the required notice.

If a worker has pre-arranged annual leave which falls during furlough, is the worker entitled to cancel that leave?

Yes, although the employer may compel them to take annual leave.

Employers would need to ensure that they do not breach the implied term of trust and confidence in refusing to accept a worker’s withdrawal of notice to take annual leave, or by issuing notice that the worker must still take annual leave on the days in question.

Is statutory redundancy pay calculated on the basis of furlough pay or normal pay where normal working hours and remuneration does not vary with the amount of work done?

As the normal working hours of a worker who is on furlough have not changed, there is a good argument that a week’s pay for statutory redundancy pay purposes is payable at the rate of a normal week’s pay, and not at the rate they are receiving for the temporary period that they are not working.

How is SMP calculated for an employee who has been on furlough prior to maternity leave?

When a woman is on furlough during part or all of the relevant period and her pay is reduced as a result, her normal weekly earnings for the purposes of eligibility and the rate payable for statutory maternity pay will be calculated based on the pay she would have received if she were not furloughed.