We have updated this FAQ in light of the latest HMRC guidance published on 16 September 2020.
On 20 March 2020 the government announced the launch of its Coronavirus Job Retention Scheme (the Scheme), which is intended to pay employees who would otherwise be redundant or subject to a requirement to remain away from work without pay and are instead designated as "furloughed". Under the Scheme, they receive 80% of normal pay. The Scheme initially lasted for three months (from 1 March to 31 May) but was later extended to 30 June. On 12 May the Chancellor announced that it would be extended again until 31 October. Details of the extension of the Scheme, which include a tapering off of support for employers between August and October, were published on 29 May.
A number of guidance documents have been published by HMRC and BEIS to explain the Scheme and how to make a claim. They include:
- Check if you can claim for your employees' wages through the Coronavirus Job Retention Scheme (last updated 28 August)
- Check which employees you can put on furlough to use the Coronavirus Job Retention Scheme (last updated 28 August)
- Claim for wages through the Coronavirus Job Retention Scheme (last updated 16 September)
- Examples of how to calculate your employees' wages, National Insurance contributions and pension contributions (last updated 11 September)
- Claim for your employees' wages through the Coronavirus Job Retention Scheme – a step by step guide for employers (Version 7)
- HM Treasury direction on the Coronavirus Job Retention Scheme (published 15 April)
- Further HM Treasury direction on the Coronavirus Job Retention Scheme (published 22 May)
- Further HM Treasury direction on the Coronavirus Job Retention Scheme (published 26 June)
- Check if your employer can use the Coronavirus Job Retention Scheme (last updated 7 August)
- Holiday entitlement and pay during coronavirus (COVID-19) (published 13 May)
- Changes to the Coronavirus Job Retention Scheme (last updated 1 July)
- Steps to take before calculating your claim using the Coronavirus Job Retention Scheme (last updated 11 September)
- Full examples of how to calculate the amount you should claim for an employee who is flexibly furloughed (last updated 11 September)
- Calculate how much you can claim using the Coronavirus Job Retention Scheme (last updated 11 September)
- Pay Coronavirus Job Retention Scheme grants back (last updated 16 September)
- Penalties for not telling HMRC about Coronavirus Job Retention Scheme grant overpayments (published 28 July)
- Job Retention Bonus (published 31 July)
The portal for making claims opened on 20 April and includes a calculator to help employers work out what to claim.
We are receiving a number of enquiries from clients and have put this document together to answer some of the most frequently asked questions.
Who does the Scheme apply to?
The Scheme applies to all UK employers and includes, for example, companies, partnerships, LLPs, charities and sole traders. Public sector organisations are included but the government expects that not many of them will use the Scheme, as the majority of public sector employees are providing essential public services or contributing to the response to the COVID-19 outbreak.
The Scheme applies to any employee furloughed as a result of COVID-19 and is not limited to employees who would otherwise have been made redundant or laid off.
It covers full-time and part-time employees, employees on agency contracts (if they are not working) and employees on flexible, fixed term or zero hour contracts. It also covers apprentices, company directors, salaried members of LLPs and workers. Contractors with public sector engagements in scope of IR35 off-payroll working rules can be furloughed. Foreign nationals can be included and employees on all categories of visa can be furloughed. It only applies to employees who were employed on 19 March 2020 and were on their employer's payroll on or before that date, meaning that the employer must have submitted real time information payroll data to HMRC before then.
What about employees on sick leave?
The guidance states that the Scheme is not intended for short-term absences from work due to sickness, but an employee who is off sick can be furloughed. They would stop receiving sick pay and would be classified as furloughed. Employees who are being shielded or who are on long-term sick leave can also be furloughed. Furloughed employees who become sick must be paid at least SSP but employers can decide whether to move them on to SSP or keep them on furlough at their furloughed pay. Where an employee returns from sick leave and is furloughed, their pay should be calculated based on their salary before they went on leave rather than their sick pay.
Does it apply where there has been a TUPE transfer?
Where there has been a TUPE transfer after 28 February 2020, the new employer can put the employees who have transferred on furlough and can make a claim under the Scheme. Where a TUPE transfer takes place after 10 June, the new employer can claim for employees who transferred to it if the previous employer claimed for them in relation to at least three weeks between 1 March and 30 June.
How long will it last?
The Scheme commenced with effect from 1 March 2020 and on 12 May 2020 the Chancellor announced an extension to the Scheme advising that it will last for eight months in total (i.e. to the end of October 2020).
From 1 July 2020 there have been changes to the Scheme to allow additional flexibility, whereby furloughed employees can work part-time (see further below). Employers will pay a contribution towards the cost of the Scheme from 1 August onwards (see below for details).
How does it work?
Until the end of July 2020 HMRC will reimburse employers for 80% of furloughed employees' usual monthly gross wages up to £2,500 per employee per month, plus the associated employer National Insurance contributions and minimum automatic enrolment employer pension contributions on the subsidised furlough pay. Employees will stay on the payroll while they are furloughed. The payment will operate as a grant, not a loan, and there is no limit on the amount of funding that can be given to an employer.
As noted above, from 1 July 2020 there have been changes to the Scheme to allow part time working, and employers have to pay employer National Insurance contributions and minimum automatic enrolment pension contributions on furloughed employees' wages from 1 August. From 1 September, the Government contribution to wages will decrease to 70% of pay (with a cap of £2,187.50 per month) and employers will pay 10% (with a cap of £312.50 per month); from 1 October the Government will pay 60% (capped at £1,875 per month) and employers 20% (capped at £625 per month) From 1 November onwards, employers will be liable for all of the payroll costs as normal.
Employers have to submit information to HMRC (via an online portal that opened on 20 April) regarding employees and their earnings and have to calculate the amount they are claiming. Before making a claim, an employer will need to have a Government Gateway ID and password and be enrolled for PAYE online. If more than 100 employees have been furloughed, details of the employees will have to be uploaded in a separate file rather than being inputted directly into the system and employers can download a template for this. According to HMRC, employers will receive payment six working days after making a claim. An employer can save a claim and come back to it, as long as the claim is completed within seven days of starting it. An employer can delete a claim within 72 hours of submitting it.
All of the grant received to cover an employee's pay must be paid to them in the form of money and HMRC will check claims. Payments will be withheld or will have to be repaid in full if a claim is fraudulent, dishonest or inaccurate. HMRC have set up an online portal for employees and members of the public to report suspected fraud. Employers must retain all records and calculations in respect of their claims for six years.
How do we furlough an employee?
According to the HMRC guidance, employers have to designate employees as "furloughed workers" and notify them. This is stated to be subject to normal employment law and may require negotiation, which means that their consent will be required unless there is a lay-off clause in their contract of employment. Very few contracts include such a clause. However, the Treasury Direction provides that the employer and employee must agree in writing (which can be in electronic form such as email) that the employee will cease all work in relation to their employment, which goes further than the guidance. This means that employers cannot rely on implied agreement and will have to obtain written agreement from all furloughed employees. The HMRC guidance now contradicts the Treasury Direction and states that the employee does not have to provide a written response. Unfortunately, the effect of this is not clear and for the time being it would be sensible to obtain written agreement from furloughed employees that they will cease all work in relation to their employment. The HMRC guidance also states that collective agreement reached between an employer and a trade union is acceptable for the purpose of a claim. The second Treasury direction states that the agreement to cease work does not have to be in writing and can be made by collective agreement. It must specify the main terms and conditions on which the employee will cease all work, be incorporated expressly or impliedly into the employee's contract and be made in writing or confirmed in writing by the employer (including by email).
Generally employers will need to consult with employees and seek their agreement to be furloughed. It is likely to be necessary to advise employees as part of those discussions that an alternative would be for the employer to consider redundancies, otherwise there may be no incentive for them to accept the reduction in pay. There is debate over whether or not commencing such discussions may require collective consultation in circumstances where at least 20 employees may be furloughed at one geographical establishment. It would be advisable to take specialist advice in such situations as, depending on the circumstances, there may be options an employer can use to implement furlough quickly.
Such consultations should be followed up with a letter explaining how the Scheme will apply to the employees, and asking them to sign and return a copy of the letter indicating their agreement. The employer must keep a record of this until at least 30 June 2025.
Can employees make a request to be furloughed?
Employees have no right to ask to be furloughed. However, one way of employers potentially avoiding cumbersome consultation requirements would be to go out to employees and seek volunteers to be furloughed prior to entering into formal consultation.
What is included in the £2,500?
The £2,500 is gross pay and covers regular salary or wages. It includes wages, non-discretionary overtime, contractual commission and piece-rate payments. The employee's actual gross salary before tax in their last pay period prior to 19 March 2020 should be used to calculate the 80%. Employers will also be able to claim the associated employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that wage until 31 July. Employees will be taxed as normal on the pay they receive.
Does the Scheme cover employees on maternity leave?
The HMRC guidance suggests that employees on maternity leave can be furloughed and that if employers offer enhanced contractual pay to women on maternity leave, this can be included as wage costs that can be claimed through the Scheme. It is not clear whether an employee would have to return from maternity leave in order to be furloughed. If an employee gets Maternity Allowance, the guidance provides that they should not get furlough pay at the same time. If they have agreed to be put on furlough, they should contact Jobcentre Plus to stop their Maternity Allowance payments. If the employee agrees to be put on furlough and end their maternity leave early, they will need to give their employer at least eight weeks' notice.
The HMRC guidance states that the same principles apply to contractual adoption, paternity or shared parental pay. Where an employee returns from statutory family leave and is furloughed, their pay should be calculated on the basis of their salary before they went on leave. As a result of a change in the law, where a furloughed employee goes on paid family-related leave on or after 25 April 2020, they will be entitled to pay based on their usual earnings rather than their furloughed pay. This will apply to maternity, paternity, adoption, shared parental and parental bereavement leave.
What happens if there is a salary sacrifice scheme in place?
When calculating 80% of a furloughed worker's salary or wage, the reference salary or wage to use is the amount after the salary has been sacrificed. Any changes made to the salary sacrifice arrangement from 19 March 2020 will not affect the calculation of the reference wage for the purpose of the Scheme if the employee is on a salary, as the calculation is done on the basis of the worker's last pay period prior to 19 March.
Do we have to top up wages to 100%?
Employers can top up wages if they want to but there is no requirement to do this.
How does the Scheme affect employees' entitlement to the national minimum wage?
Since an employee will not be working, they will not be entitled to the national minimum wage while they are furloughed.
Can employees work while they are furloughed?
Until 1 July 2020, employees were not be able to do any work for their employer, or any linked or associated organisation, while furloughed. However, employees could volunteer for another employer or organisation as long as they were not volunteering for their employer in a different role. They could also complete training but had to be paid at least the national minimum wage for the time spent training. They could seek work with another employer if their contract allowed this. After 1 July, employees can continue to take part in volunteer work or training, or work for another employer, during the hours recorded as being on furlough.
Can furloughing be backdated in relation to employees who have already been made redundant?
The Scheme covers employees who were employed as of 28 February 2020 and were made redundant by or stopped working for their employer before 19 March 2020, if they were re-employed by their employer and put on furlough, even if they were not re-employed until after 19 March. It also covers employees who were made redundant or stopped working after 19 March if they were re-employed, as long as they were employed on 19 March and were on the PAYE payroll (i.e. an RTI submission was made in respect of them) on or before 19 March. However, in both cases the employer must have re-employed the employee and put them on furlough by 10 June.
What's the situation in relation to employees on fixed term contracts?
The guidance states that an employee on a fixed term contract can be re-employed, furloughed and claimed for if either:
- Their contract expired after 28 February and an RTI payment submission for them was notified to HMRC on or before 28 February; or
- Their contract expired after 19 March and an RTI payment submission for them was notified to HMRC on or before 19 March.
If the contract has not already expired, it can be renewed or extended. The employer can claim for them under the Scheme if an RTI payment submission for the employee was notified to HMRC on or before 19 March. However, in both cases the employer must have re-employed the employee and put them on furlough by 10 June.
Can employees move on and off furlough leave?
Not all employees have to be furloughed, and employees can move on and off furlough leave as the workload changes. However, the minimum period on furlough leave was three weeks until 30 June; as from 1 July there is no minimum furlough period, although if a new furlough period started before 1 July it had to last for at least three consecutive weeks. A furlough period can be extended by any amount of time while the employee is on furlough.
What happens when the scheme closes?
The guidance states that when the scheme closes at the end of October, employers will need to decide if employees should return to normal hours, work on reduced hours or be made redundant. In reality, employers will need to make this decision long before the end of October, particularly if 20+ redundancies are proposed. This is because they will have to carry out collective consultation for a minimum period of 30 or 45 days depending on the numbers affected.
Can furloughed employees take holiday?
The BEIS guidance states that an employee will continue to accrue leave as per their employment contract while furloughed and can take holiday, which should be paid at the normal rate of holiday pay, calculated in the usual way. Employers can restrict when leave can be taken if there is a business need and employers can require employees to take holiday while furloughed, provided that the appropriate notice period is given to the affected employees and the employees can rest, relax and enjoy their leisure time (which the guidance notes may not be the case if they are social distancing or self-isolating). Taking holiday does not break the furlough period.
If an employee is flexibly furloughed then any hours taken as holiday during the claim period should be counted as furloughed hours rather than working hours. Employees should not be placed on furlough for a period simply because they are on holiday for that same period.
If an employee usually works bank holidays then the employer can agree that this is included in the grant payment. If the employee usually takes the bank holiday as leave then the employer would either have to top up their usual holiday pay, or give the employee a day of holiday in lieu.
Can a furloughed employee act as a trade union or employee rep?
The guidance states that a furloughed employee may still undertake union or non-union representative duties and activities for the purpose of individual or collective representation of employees or workers, which means that they can attend grievance and disciplinary hearings and be involved in redundancy consultations while on furlough.
Will employees retain their continuous employment?
We expect that they will have continuous employment throughout the period when they are not working since the period of furlough will be treated as a temporary cessation of work.
How does part-time furloughing work?
Furloughed employees can work part-time for their employer from 1 July and can work for any amount of time and on any work pattern. The employer will pay for the hours worked (plus employer National Insurance contributions and pension contributions) and can claim for the normal hours not worked from the Scheme. The employer must agree the new flexible furloughing arrangements with the employee, record the agreement in writing and keep it until at least 30 June 2025. Alternatively, the employer can reach a collective agreement with a trade union.
The relevant Treasury Direction confirms the requirement to reach agreement on flexible furlough arrangements before the beginning of the claim period to which it relates. However, this does not have to be confirmed in writing at the same time – that can follow. A retrospective agreement will not be sufficient, however, any agreement may subsequently be varied during the period to which the claim relates.
When making a claim, employers will have to submit data on the usual hours the employee would be expected to work in a claim period and the actual hours worked. The cap on the furlough grant set out above will be proportional to the hours not worked from 1 July onwards. (For example, if the employee is on furlough for 60% of their usual hours, the cap will be 60% of £2,500.)
The employer will need to calculate the employee's usual hours before claiming. Where the employee works fixed hours, this will be the hours they were contracted to work in the last pay period before 19 March 2020. Where the employee's hours are variable, usual hours will be the higher of the average hours worked in the tax year 2019/20 and hours worked in the corresponding period in the tax year 2019/20.
What other changes have been made to the Scheme?
The Scheme closed to new entrants from 30 June. From 1 July, the Scheme is only available to employers that have already used it. Employers will only be able to furlough employees that they have already furloughed for a three week period prior to 30 June. This means that an employee must have been placed on furlough for the first time on or before 10 June, to allow for the three week minimum furlough period to be completed by 30 June. All employers planning to claim a grant from 1 July must have completed their first claim (for the period ending 30 June) by 31 July. After 1 July, an employer cannot claim for more employees than it has in a previous claim period, although see below in relation to returners from family leave and reservists.
Does the grant cover notice pay?
The third Treasury Direction published on 26 June states at paragraph 2.2: "Integral to the purpose… is that the amounts paid to an employer… are used by the employer to continue the employment of employees." This has given rise to speculation as to whether employers can use the Scheme in respect of employees they are likely to make redundant or employees who are on notice. HMRC and BEIS have confirmed informally that a grant can be claimed to cover the notice pay of a furloughed employee. A written Parliamentary question was asked on this issue on 3 July and was answered by the Financial Secretary to the Treasury on 8 July. He confirmed that employers can continue to claim under the Scheme for a furloughed employee who is serving a statutory notice period. This was then reflected in the guidance, which stated that an employer could claim for a furloughed employee who was serving a statutory notice period. As a result, it was not clear whether employers could claim a grant for contractual notice periods, although HMRC confirmed verbally that they could. On 17 July, HMRC updated the guidance to state explicitly that notice periods being served by furloughed employees include contractual notice periods, which means that employers can claim a grant for both statutory and contractual notice periods.
Following a change in the law that came into force on 31 July, an employer must use normal pay (i.e. not furlough pay) to calculate a statutory redundancy payment and statutory notice pay. Normal pay must also be paid where an employee who is being made redundant takes time off to look for alternative work or training, and normal pay will apply to the calculation of a basic and compensatory award for unfair dismissal.
How have the rules on submitting claims changed from 1 July?
The deadline for submitting claims for periods ending on or before 30 June was 31 July and the first time an employer can make a claim for days in July is 1 July. Claims must include details of the number of usual hours the employee would work in the claim period and the number of hours the employee has worked or will work in the claim period if they are flexibly furloughed (i.e. if they work part-time and are furloughed part-time). The employer must keep a record of the number of usual hours, the number of hours worked and the number of furloughed hours for six years, together with any calculations.
After 1 July, the minimum claim period is seven calendar days and claims cannot cross calendar months. For example, if the pay period is 20 July to 16 August the employer will have to make two claims: one for 20 to 31 July and one for 1 to 16 August. Claims can be made before, during or after the payroll is run. Final claims under the Scheme must be submitted by 30 November.
What if an employer makes a mistake when submitting a claim?
If an employer makes an error and overclaims, they need to tell HMRC in their next claim and their grant will be reduced. If an employer overclaims and does not plan to submit further claims or the employer makes an underclaim, they need to contact HMRC to report this. If an employer has claimed too much, they will have to pay the overpayment back to HMRC. If an employer has overclaimed and not repaid the grant, they need to tell HMRC within 90 days of receipt of the grant, within 90 days of a change in circumstances that means they are not entitled to the grant claimed (e.g. an employee leaves their employment) or by 20 October 2020, whichever is the latest. Employers who do not do this may have to pay a penalty of up to 100% of the amount overclaimed.
Who can employers claim for from 1 July?
An employer can claim for anyone who has been furloughed for at least three consecutive weeks between 1 March and 30 June. However, an employer can furlough an employee returning from statutory parental leave (i.e. maternity, adoption, paternity, shared parental or parental bereavement leave) after 10 June for the first time if they started parental leave before 10 June and were included in an RTI submission on/before 19 March, provided the employer has already claimed for another employee. The same applies to military reservists returning from mobilisation.
The number of employees an employer can claim for in a single claim period starting from 1 July cannot exceed the maximum number of employees claimed for in any claim ending by 30 June (although returners from parental leave and military reservists returning from mobilisation can be added to this number). For example, an employer submitted three claims between 1 March and 30 June in which the total number of furloughed employees was 30, 20 and 50. The maximum number of employees that the employer could furlough in a claim starting on or after 1 July will be 50 plus any employees being furloughed for the first time due to them returning from parental leave or from mobilisation as a military reservist.
How will the job retention bonus work?
The Chancellor announced his Plan for Jobs on 8 July. Employers who bring employees back from furlough will be paid a job retention bonus of £1,000 per employee for whom they have previously claimed under the Scheme. This is a one-off payment and will be taxable. There appears to be no limit on the amount an employer can claim. The employees must be employed continuously until 31 January and must be paid at least £520 per month on average from 1 November until 31 January. Employers can claim after they have filed their PAYE return for January and payments will be made from February 2021. Full guidance is due to be published by the end of September.
What do employers need to do now?
The guidance states that employers need to decide now which employees to keep on full-time furlough and which employees should come back to work on a part-time or full-time basis. Flexible furlough arrangements need to be agreed with the employees or the trade union. Employers also need to start thinking about what they will do when the Scheme comes to an end and start planning accordingly. They should also consider whether they will apply for a job retention bonus.
Employers understandably have many questions about how the Scheme will work in practice. We will continue to update this document when additional or updated guidance is published.
In the meantime, if you have any queries please get in touch with your usual Womble Bond Dickinson contact.