Guide to furlough leave - what it is and how it works

7 July 2021

Some businesses are unable to operate (either partially or fully) during the pandemic. The Coronavirus Job Retention Scheme (CJRS), which is also referred to as the furlough scheme, provides that HM Revenue & Customs (HMRC) will cover a portion of an employee’s usual monthly wages, if an employer records them as being on furlough. An employee cannot do any work for their current or associated employer whilst they are furloughed.

The furlough scheme has now been extended until 30 September 2021.

How does the coronavirus job retention scheme work?

The Chancellor announced the implementation of the CJRS on 20 March 2020. The aim of this scheme is to provide financial support to businesses during the coronavirus pandemic.

All UK businesses are eligible to apply for it and to do so, employers need to make an online application through the government portal.

To claim for periods from 1 May 2021 onwards, employers can claim for employees that were employed and on payroll on 2 March 2021, as long as they have made a PAYE Real Time Information (RTI) submission to HMRC between 20 March 2020 and 2 March 2021.

For periods ending on or before 30 June 2021, HMRC will pay the employer 80% of the employee's wages, up to £2,500 a month.

From 1 July 2021 the level of grant will now be reduced each month, and the employer will need to contribute towards the cost of the furloughed employees wages.

From 1 July 2021, HMRC will pay employers 70% of the employee’s wages, up to £2,187.50 per month. The employer will need to top up 10% of the employee’s wages, up to £312.50 to ensure that the employee still receives 80% of their wages, up to £2,500 per month.

From 1 August 2021, HMRC will pay the employer 60% of the employee’s wages, up to £1,875 per month. The employer will then need to top up 20% of the employee’s wages, up to £625 per month to ensure that the employee still receives 80% of their wages, up to £2,500 per month. This will remain the case until the scheme is due to end on 30 September 2021.

Employers will also continue to pay national insurance and pension contributions. Employers also have the option to flexibly furlough employees as well as fully furloughing employees. There is now no maximum number of employees an employer can claim for.

The scheme does not change any pre-existing employment law rights or obligations between the employer and employee. The employer must confirm in writing to the employee that they have been furloughed and keep this written record for at least 5 years. Both employee and employer must agree to the furlough arrangement as this is a variation to existing terms and conditions. When the employer is making decisions in relation to the process, including deciding who to offer furlough to, equality and discrimination laws will apply in the usual way.

Employers can also choose to top up their employees’ wages above the 80% total and £2,500 cap at their own expense. However, if an employer does not wish to top up pay, they will need to reach agreement with the employee that their salary will be reduced. It is likely that employees will agree to this, bearing in mind the alternative options include the risk of redundancy. In the event an employer is seeking an agreement with employees to pay them up to 20% less, then they should ask the affected employees to sign a written agreement.

Key features of the coronavirus job retention scheme

The key features of the scheme are:

  • If an employer cannot maintain their workforce because their operations have been affected by coronavirus, they can place employees on furlough and apply for a grant to cover a portion of their employee’s usual monthly wages.
  • The Scheme can apply to any employees who are furloughed because they are: o clinically extremely vulnerable and are at high risk of severe illness from coronavirus o a carer for a child in need of home schooling, or for a vulnerable person in their household.
  • Salary or wages must be regular and anything that is conditional or discretionary will not be included in the calculation e.g. discretionary bonuses or tips
  • The Scheme applies to people who have been asked to stop working (either on a full time or flexible basis) but are being kept on the payroll. An employee cannot do any work for their current or associated employer whilst they are designated as furloughed
  • Unless employees have a "lay-off" clause in their contracts of employment, employers will need to agree to furlough employees, as this will be a variation to their existing employment terms. It seems unlikely that employees will object in the circumstances
  • An employer must designate a worker as furloughed in order to be able to claim from the CJRS. There must be an agreement in writing of their furlough status setting out how many hours the employee is working and the number of hours they are furloughed. The employer should keep the document for at least 5 years. This can be in electronic form, such as an email
  • Flexible furlough agreements can last for any amount of time, though all claim periods must be at least 7 days. Employees can enter into flexible furlough agreements multiple times
  • Workers can do volunteer work or training whilst they are furloughed, providing it does not provide a service to or generate revenue for their employer
  • Whilst a worker is on furlough leave, they will remain employed and continuity of service should be preserved (although Government guidance is silent on this point)
  • If an employee has more than one job, they can be furloughed in one job but continue to work in the other job and receive normal wages.

Can I work for another employer while on furlough?

The government guidance for employees says that workers are able to work for another employer whilst they are on furlough and this will not affect their existing employer's ability to claim under the CJRS. However, they will need to comply with their existing contractual terms and obligations and are advised to discuss this with their current employer.

How does an employer decide which employees to furlough?

The employer may implement a matrix system but should ensure that decisions are not made based on any potential protected characteristics, unless this can be justified.

For example, the employer may decide that elderly or vulnerable employees should be furloughed. In light of the guidance to businesses that the over 70's are more vulnerable, making the decision to furlough over 70's is likely to be justified, but employers should do this is consultation with employees. Ultimately, a worker must agree to be furloughed because this is a variation to their existing terms and conditions.

Employers can furlough employees whose health has been affected by coronavirus and any other conditions, which includes if they are unable to work from home, or are working reduced hours due to:

  • Being clinically and extremely vulnerable or at the highest risk from coronavirus according to Government guidance
  • Having caring responsibilities caused by the pandemic e.g caring for children who are at home due to schools closing or caring for a vulnerable person in their household

This doesn't mean employers must furlough people in these categories, but that they can as an option, and should consult with those employees to seek their agreement to be furloughed.

So, if you are a parent who must stay at home as a result of your child having to self-isolate, you are eligible for furlough, but this is at the discretion of your employer.

Can workers demand to be furloughed?

No. The decision to furlough a worker rests with an employer. Workers who wish to be furloughed due, for example, to having caring responsibilities at home do not have the explicit right to place themselves on furlough. However, based on the guidance they can ask their employers if this is an option in their circumstances.

Can vulnerable workers be furloughed?

HMRC has now clarified that employers can furlough employees who are clinically extremely vulnerable and at high risk of severe illness from coronavirus. The employer will need to consider whether furloughing the worker amounts to a reasonable adjustment.

How are 80% of the employees’ usual wages calculated if employees don't have regular weekly earnings?

For salaried employees, this will be based on their regular salary. If an employee has variable pay, how usual wages will be calculated will depend on their reference date.

For employees with a reference date of 19 March 2020, usual wages are calculated as 80% of the higher of the:

  • wages earned in the corresponding calendar period in a previous year
  • average wages payable in the 2019 to 2020 tax year

For employees with a reference date of 30 October 2020, calculate 80% of the average wages payable between 6 April 2020 (or, if later, the date the employment started) and the day before they were first furloughed (on or after 1 November 2020).

For employees with a reference date of 2 March 2021, calculate 80% of the average wages payable between 6 April 2020 (or, if later, the date the employment started) and the date before they were first furloughed on or after 1 May 2021.

For flexibly furloughed employees their pay will depend on their working and furloughed hours.

Does holiday continue to accrue during furlough?

Yes it does. Also, employers can require employees to take holidays during furlough leave providing they give them the requisite notice under the Working Time Regulations. However, the Employer should consider whether the employee would be prevented from resting, relaxing and enjoying leisure time.

Where an employee takes annual leave during furlough, the rate of pay should be in line with their normal rate of pay rather than the furlough rate of pay (if higher). Taking annual leave will not affect the furlough period and as such the employer will only need to top up the difference in pay (if any).

Can an employer carry out redundancy warning and consultation during furlough?

Yes. If the employer believes that they will need to make redundancies (notwithstanding the furlough scheme) it is likely they can begin the warning and consultation process during the furlough period.

If an employer contemplates making 20 or more redundancies within 90 days, then they have an obligation to start the collective consultation process as soon as is reasonably practicable. If there are more than 20 and up to 99 roles being made redundant at the same place, then consultations will need to start at least 30 days before the first redundancy is made. If there are 100 roles or more being made redundant, then the consultation will need to start at least 45 days before the first redundancy is made.

However, for claim periods starting on or after 1 December 2020 the Government has confirmed that employers will not be able to claim for any days where the employee is serving a contractual or statutory notice period. This will apply to all situations where employment has been terminated with notice, and not just for redundancies.

What is my employer’s deadline for submitting furlough pay claims to HMRC?

The employer must submit a claim for furlough pay within 2 weeks of the end of the previous calendar month:

Claim for furlough days in Claim must be submitted by
November 2020 14 December 2020
December 2020 14 January 2021
January 2021 15 February 2021
February 2021 15 March 2021
March 2021 14 April 2021
April 2021 14 May 2021
May 2021 14 June 2021
June 2021 14 July 2021
July 2021 16 August 2021
August 2021 14 September 2021
September 2021 14 October 2021

If I'm made redundant when the furlough scheme is available, is this unfair dismissal?

This is a new area of employment law and it is likely to depend on the individual circumstances. Employees with 2 years' continuous service continue to be protected from unfair dismissal.

If there is a reduction in the need for employees to do work of a particular kind because a business or workplace has closed, then this is likely to be a redundancy. However, an employer has the obligation to act reasonably and a Tribunal must have regard to the resources available to the employer at the time of the dismissal.

If an employer refuses to consider furloughing staff as a way of avoiding redundancy, this could potentially render a dismissal unfair.

The difficulty is that we are unlikely to see any Tribunal decisions on this for over a year because there are substantial delays in the Tribunal system.