CJRS changes and flexible furlough - how will it work? (last updated 1 July)

Under the Scheme, employers are able to put workers on furlough, which is a form of paid leave of absence. While on furlough, workers must receive at least 80% of their regular wages up to a maximum of £2,500 per month. Currently, the Government funds the 80% up to the £2,500 maximum, plus the employer NICs and the minimum automatic enrolment employer pension contributions on this amount. Until now, workers could do no work for the employer while on furlough (subject to certain limited, but important, exceptions).

From 1 July 2020, workers are now able to do part-time work while on furlough. It is up to the employer and worker to agree what the working arrangements will be, but employers will be required to pay the worker's normal wages while the worker is working. The Government subsidy will only apply to hours when the worker is not working during furlough, and the cap will be pro-rated to reflect any hours worked. It is worth noting at the outset that there is no obligation to use the "flexible furlough" element and employers are free to continue full furlough for employees until the scheme ends on 31 October 2020.

From 1 August 2020, employers will also be required to contribute to the wage subsidy on a phased basis. The Scheme is due to end on 31 October 2020.

It seems likely from surveys we have conducted that there will be a large variation in approaches taken by employers from 1 July 2020 onwards.  We are also seeing many employers look beyond the Scheme to other options, including lay off and redundancy.

To be eligible to claim a grant under the Scheme from 1 July 2020, the worker must have been on furlough for at least three consecutive weeks between 1 March and 30 June 2020 (although there is no requirement to be on furlough on 30 June 2020 itself). The cut-off date for putting workers on furlough for the first time was therefore 10 June 2020, to allow the minimum three-week period to be completed by 30 June 2020. The Scheme is now closed to new entrants as of 30 June 2020.

The only exceptions to this are if the worker had been on maternity, shared parental, paternity or parental bereavement leave, or serving in the armed forces as a reservist, and they are returning after 10 June 2020. In these circumstances, the worker can be placed on furlough for the first time after 10 June 2020 and will still be covered by the Scheme, provided the employer has previously furloughed at least one other worker for three consecutive weeks prior to 30 June 2020. There is currently no such exception for those returning in other situations, such as from long term sickness absence.

Employers will be required to pay the worker's normal wages for any hours worked when not on furlough.  The guidance does not make clear whether a worker's "normal wages" for hours they work are permitted to be reduced by agreement and so we assume ordinary employment law considerations would apply, plus the consequential employee relations implications of such an approach.

Any hours worked will also reduce the maximum Government subsidy available on a pro-rata basis. To calculate the pro-rated subsidy, the employer will have to calculate the worker's usual working hours, then subtract the hours actually worked during the claim period. This will give the number of furlough hours in the claim period. Government funding under the Scheme will only be available in respect of furlough hours (i.e. hours when the worker is not working). The maximum funding under the Scheme will also be reduced proportionately to reflect the number of furlough hours as against the worker's usual hours. This is explained in more detail below.

For a worker who has fixed contractual hours, the worker's usual hours will be their normal contractual hours at the end of the last pay period ending on or before 19 March 2020.

For a worker whose hours vary, the guidance states that the worker's usual hours will be the higher of the average number of hours worked in the 2019/20 tax year or the hours worked in the corresponding period within the 2019/20 tax year.

The employer will then need to calculate the number of usual hours in the relevant claim period. For example, a worker who is contracted to work 40 hours per week will have usual hours of 40 hours per week. If the employer claims for the whole month of July, it will need to calculate the number of usual hours in the month. This is done by dividing 40 (the weekly hours) by seven (the number of days in a calendar week), to give daily hours, and then multiplying this by the number of days in the claim period (in this case, 31 days in July). Where this does not produce a whole number (in this case, 177.14) the hours are rounded to the nearest whole number (i.e. 178). The worker's usual hours for July are 178. 

Where a claim period does not match the pay period (for example, the employer pays weekly but submits monthly claims under the Scheme), the employer can calculate the worker's usual hours in each pay period, instead of the claim period. If this method is used and the result is not a whole number, the hours are rounded up or down to the nearest whole number.

Workers who are on full-time furlough must receive 80% of their regular wages up to the cap of £2,500 per month. Workers on flexible furlough must receive a proportionate amount based on the number of furlough hours. The number of furlough hours is calculated by taking the worker's usual hours in the claim period and subtracting the number of hours actually worked in that period. The fraction of furlough hours against usual hours is then applied to the 80% of wages up to the £2,500 cap.

In the example above, if the worker works 92 hours in July, the number of furlough hours in July is 86 (178 minus 92).  The fraction of furlough hours as against usual hours (86/178) is then applied to the £2,500 to give the maximum that can be claimed under the Scheme (£1,207.87). This same fraction is applied to 80% of the worker's wages up to £1,207.87 to give the amount the employer must pay for the furlough hours for that period.

An employee on flexible furlough can take holiday during their periods of furlough (as is the case for fully furloughed employees). The guidance states that the employer is required to top up the employee's pay to their normal contracted rate, which aligns with the position to date for any holiday taken during furlough.

Employers must agree with the worker any new flexible furlough working arrangements and confirm that agreement in writing. The Government guidance talks about having a "new" written agreement. It is not entirely clear whether a completely new furlough agreement is required for flexible furlough or whether an amendment to any existing furlough agreement would suffice. While it is likely that an amendment would suffice, the safest approach (until further clarification is provided) would be to issue a fresh furlough letter when placing workers on flexible furlough for the first time, which sets out all of the terms of the furlough.  The Treasury Direction makes clear that the furlough agreement can subsequently be varied to reflect any variation agreed between the employer and worker during the period to which the claim relates. The employer therefore does not need a new furlough agreement each time the worker's hours change and can instead issue an amendment if there is a change in working pattern.

One challenge will be how to document the flexibility and the employee relations issues arising from the lack of clarity on working patterns and pay (where the employer is not topping up furlough hours and is seeking to give itself maximum flexibility).

Many employers may also wish to use this as an opportunity to tidy-up historic arrangements, including seeking express consent where practicable.

Yes. Employers can enter into a flexible furlough agreement with the worker more than once. Any furlough period which began prior to 30 June 2020 must be for a minimum of three weeks. If a period of furlough commences in June and continues into July, it will still need to meet the minimum requirement of three consecutive weeks. However, from 1 July 2020, for any new periods of furlough, there is no minimum furlough period.   While there is no minimum furlough period, there will be a minimum claim period of one week – see below.  Whilst administratively unappealing, this would allow changing shift patterns to be documented under new furlough agreements, resolving the employee relations issue mentioned above.

The employer must keep a written record of the agreed flexible furlough working arrangements. This must be kept for at least five years. In addition, employers must keep records of how many hours the worker works and the number of hours they are furloughed (i.e. not working). Records of all claims and calculations must be kept for at least six years and should include:

• amounts claimed and the claim periods for each employee;
• claim reference number;
• calculations used when preparing the claims;
• usual hours worked by flexibly furloughed employees (including the calculations used to reach those figures);
• actual hours worked by flexibly furloughed employees.

Given the risk of future HMRC audit, employers should consider what other records it would be useful to create or retain. For example, we have been working with clients to create file notes explaining decisions taken around furloughing people and how pay calculations were made.

Yes. Any claims for furlough ending on or before 30 June 2020 must be submitted by 31 July 2020. The Government has not specified a deadline for the submission of claims for furlough periods that start on or after 1 July 2020.

Where the furlough spans June and July, any days of furlough in June must be claimed separately to any days of furlough in July, and the June days must be claimed by 31 July 2020.  The same approach also applies to periods of furlough which span two subsequent months (i.e. they should be claimed separately).

Employers can claim under the Scheme through an HMRC portal. When claiming for flexible furlough, employers will need to report hours worked along with the worker's usual hours in a claim period. We understand this administrative burden is likely to disincentivise many employers from utilising the scheme.

From 1 July 2020, the minimum claim period is one week and claim periods must start and end within the same calendar month. It will only be possible to claim for a period of less than a week if the period claimed for includes the first or last day of the month and a claim has already been made for the immediately preceding period. It will not be possible for a claim period to span two calendar months because the level of the Government subsidy will change each month. Employers can only make one claim per claim period and must therefore claim for all workers furloughed during the claim period.

Employers can make claims before, during or after the payroll is run. Employers can make claims up to 14 days before the end of the claim period. However, for flexible furlough, it is best to wait until as close to the end of the claim period as possible, so that the employer is certain of the actual hours worked by the worker during the claim period.

Yes. From 1 July 2020, the number of workers an employer can claim for in any claim period cannot exceed the maximum number of workers the employer claimed for in any claim period prior to 30 June, plus any employees being furloughed for the first time following their return from parental leave or serving as reservists in the armed forces. Employers should therefore check the maximum number of workers claimed for in any period prior to 30 June 2020 before placing workers on furlough. This may be an issue where the employer previously split the workforce and rotated staff on and off furlough but, going forward, wishes to have all workers work part-time.

For any period of furlough between 1 March and 30 June 2020, employers can claim 80% of the furloughed worker's regular wages, up to £2,500 a month, plus the associated employer national insurance contributions and minimum automatic enrolment employer pension contributions on that wage.

For any period of furlough in July 2020, employers will continue to be able to claim up to 80% of the furloughed worker's regular wages but only for hours the worker is on furlough and not working. The employer will be required to pay the worker's normal pay for any hours worked. In addition, the £2,500 per month cap will be prorated to reflect the proportion of hours the worker is on furlough as against their usual hours. The Government will continue to fund employer national insurance contributions and minimum automatic enrolment employer pension contributions on the amount of the wage subsidy. 

From 1 August 2020, employers will be required to make a contribution to the subsidy under the Scheme. Through the combined efforts of Government and employers, workers must continue to receive at least 80% of their regular monthly wages, up to £2,500 a month while on full-time furlough, prorated to reflect any part-time work done during furlough. In terms of how the funding will work:

• For August 2020, the Government will cover 80% of wages up to the £2,500 per month cap but employers will have to pay the associated employer NICs and pension contributions on those wages themselves. For flexible furlough, the wage subsidy will be prorated to reflect the proportion of hours the worker is on furlough as against their usual hours.
  
  
• For September 2020, the Government will cover 70% of wages up to a cap of £2,187.50 per month. Employers will have to pay the additional 10% of wages to make up a total of 80% up to the cap of £2,500 (plus employer NICs and pension contributions on the total wages). For flexible furlough, the wage subsidy and employer contribution will be prorated to reflect the proportion of hours the worker is on furlough as against their usual hours.
  
  
• For October 2020, the Government will cover 60% of wages up to a cap of £1,875 per month. Employers will have to pay the additional 20% of wages to make up a total of 80% up to the cap of £2,500 per month (plus employer NICs and pension contributions on the total wages). For flexible furlough, the wage subsidy and employer contribution will be prorated to reflect the proportion of hours the worker is on furlough as against their usual hours.

We understand that HMRC may take a different approach to what it is prepared to pay to the employer in certain situations, including where there is a "Time to Pay" arrangement in place with the employer.  HMRC policy is evolving on this point and we would be happy to discuss it further.

The interaction between flexible furlough and the wage subsidy, and the appropriate calculations, are complex. If you have any queries about how flexible furlough will work, or the Scheme generally, please get in touch with your usual Employment department contact.

For further advice on the impact of COVID-19 on employers, please see the COVID-19 resources hub on our website, which includes details of the Government assistance available to businesses and advice on the employment and safety issues for businesses to consider on reopening the workplace.