Furlough extension - how does it work?

Under the Scheme, employers are able to put workers on furlough, which is a form of paid leave. Furlough can either be full-time (in which case the worker does no work at all for the employer) or part-time (in which case the worker works reduced hours). While on furlough, workers must receive at least 80% of their regular wages up to a maximum of £2,500 per month for any hours not worked. The maximum subsidy is prorated for any hours worked during furlough. 

Under current arrangements, the Government contributes the full 80% of wages up to the cap of £2,500 for any hours not worked. The Employer is responsible for employer NICs and pension contributions on this amount. The Employer does not have to contribute anything towards wages for unworked hours but for partial furlough, employers have to pay full pay for any hours worked. These arrangements will continue until 30 June 2021 but the Government subsidy will change from 1 July 2021.

The Government will continue to fund the 80% of wages required under the Scheme up to the monthly cap until 30 June 2021. The Government subsidy will then taper from July to September as the Scheme winds down. For the month of July, the Government will contribute 70% of wages up to a maximum of £2,187.50 per month for unworked hours, with the employer having to contribute 10% of wages so that the employee receives 80% of their usual wages for any hours not worked.

For August and September, the Government subsidy will drop to 60% up to a cap of £1,875 per month, with the employer having to top up the additional 20% so that the employee receives 80% of their wages (up to the cap). Employers will continue to have to pay the employer NICs and pension contributions on the Government subsidy plus normal pay for any hours worked during furlough. This is summarised in the table below.

All employers (of all sizes and in all sectors) in the UK are eligible for the Scheme, provided they have a UK bank account and started a UK PAYE payroll scheme on or before 30 October 2020.

For periods ending on or before 30 April 2021, employers can claim for anyone who was an employee for tax purposes as at 30 October 2020, so long as they were notified to HMRC on a PAYE Real Time Information (RTI) submission between 20 March 2020 and 30 October 2020. Employees made redundant after 23 September 2020 can be rehired and placed on furlough under the Scheme up until 30 April 2021, as long as they were employed as at 23 September 2020 and they were notified to HMRC on an RTI submission between 20 March 2020 and 30 October 2020. 

For periods starting on or after 1 May 2021, employers can claim for anyone who was an employee for tax purposes as at 2 March 2021, so long as they were notified to HMRC on a PAYE Real Time Information (RTI) submission between 20 March 2020 and 2 March 2021.

The Scheme covers not only salaried employees but also casual and zero-hours employees (so long as they were employed as at the relevant cut-off date of either 30 October 2020 or 2 March 2021, depending on the claim period). The Scheme also covers workers, office holders, salaried LLP members, directors and apprentices who are paid via PAYE.

There is no requirement for the employer to have used the Scheme previously or for the employee to have been on furlough at any point previously.

Employers are required to pay the worker's normal wages for any hours worked during 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 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 must 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.

This depends on when the worker was first on the employer's payroll.

• For a worker who was on the payroll as at 19 March 2020 or who was on furlough at any point prior to 1 November 2020, 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 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 calendar period in the year before the furlough claim period (e.g. for furlough in January 2021, the corresponding calendar period is January 2020). However, where the furlough falls during the period March to September 2021, the corresponding calendar period is the corresponding calendar period in 2019, not 2020 – in this case, the employer must look back two years rather than one as some employees will have been on furlough in the period March to September 2020.
• For a worker who was not on the payroll as at 19 March 2020, but was on the payroll between 20 March 2020 and 30 October 2020, the worker's usual hours will be their normal contractual hours at the end of the last pay period ending on or before 30 October 2020. For such workers whose hours vary, the worker's usual hours will be the average of their hours from 6 April 2020 up to (and including) the day before the employee's first day spent on furlough.
• For a worker who was not on the payroll as at 30 October 2020, but was on the payroll between 31 October 2020 and 2 March 2021, the worker's usual hours will be their normal contractual hours at the end of the last pay period ending on or before 2 March 2021. For such workers whose hours vary, the worker's usual hours will be the average of their hours from 6 April 2020 up to (and including) the day before the employee's first day spent on furlough.

Once the employer has the employee's usual hours, 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 November, 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, 30 days in November). Where this does not produce a whole number (in this case, 171.43) the hours are rounded up to the nearest whole number (i.e. 172). The worker's usual hours for November are 172.

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 November, the number of furlough hours in November is 80 (172 minus 92). The fraction of furlough hours as against usual hours (80/172) is then applied to the £2,500 to give the maximum that can be claimed under the Scheme (£1,162.79). This same fraction is applied to 80% of the worker's wages up to £1,162.79 to give the amount the employer must pay for the furlough hours for that period.

For July, the fraction of furlough hours as against usual hours should be applied to £2,187.50 to give the maximum that can be claimed under the Scheme. This is because the Government subsidy will drop to 70% for July. However, the employer must still ensure the worker receives 80% of their wages for any unworked hours on furlough up to £2,500 (so the employer will have to top up the difference between the subsidy and the 80%).

For August and September, the fraction of furlough hours as against usual hours should be applied to £1,875 to give the maximum that can be claimed under the Scheme. This is because the Government subsidy will drop to 60% for August and September. However, as above, the employer must still ensure the worker receives 80% of their wages for any unworked hours on furlough during these months up to £2,500 (so the employer will have to top up the difference between the subsidy and the 80%).

Furloughed employees continue to accrue holiday and can take holiday whilst on furlough. However, such holiday would need to be paid at the employee's normal full pay as it was prior to furlough. It is up to the employer whether to allow employees to take holiday during furlough or not. For bank holidays falling during furlough, the employer would either have to top up the employee's pay to their normal full pay or give the employee a day of holiday in lieu. For employees on flexible furlough, holiday can be taken during working or non-working hours.

Employers must agree with the worker any furlough arrangements and confirm that agreement in writing. The Government guidance makes it clear that whilst any furlough arrangements must be agreed with employees and recorded in writing, employees do not have to provide a written response confirming their agreement. This leaves open the possibility for employers to rely on implied consent in appropriate circumstances.

If there is any reduction in pay or benefits during the furlough, this would constitute a change to terms and conditions and the normal rules about changing terms and conditions would apply (i.e. the employer must seek the employee's consent and an employer looking to impose the change unilaterally could well trigger a duty to consult collectively with recognised trade union or elected employee representatives).

For employees who are moving from full-time furlough to flexible furlough or vice versa, the Government guidance talks about having a "new" written agreement. It is not entirely clear whether a completely new furlough agreement is required or whether an amendment to any existing furlough agreement would suffice. While it is likely that an amendment would suffice, the safest approach would be to issue a fresh furlough letter when moving between full-time and flexible furlough. If an employee is already on a flexible furlough agreement, this can be varied to reflect any variation in working pattern agreed between the parties. 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.

Yes. Employers can enter into a furlough agreement with the worker more than once. There is currently no minimum furlough period.  However, there is a minimum claim period of one week – see below. 

During time designated as non-working hours, the employee must not undertake any work for the employer. The employee can undertake training or volunteer work for another organisation so long as they are not making money for the employer or providing services to the employer. The employer must ensure the employee is paid at or above the national minimum wage for any training undertaken during furlough. Employees can also take a second job during non-working hours, provided the employer agrees and the employee does no work for the original employer or an associated entity. Directors who are placed on furlough can also continue to fulfil their statutory duties to file company accounts or provide other information in relation to the administration of the company, provided they do no other work for the employer during non-working hours.

The employer must keep a written record of the agreed furlough arrangements. This must be kept for at least five years. In addition, where flexible furlough is used, 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 31 October 2020 had to be submitted by 30 November 2020. Claims for furlough from November 2020 onwards must be submitted by day 14 of the month following the month to which the claim relates (unless this falls on a weekend, in which case the deadline is the next business day). For example, claims for May 2021 must be submitted by 14 June 2021.

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.

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 month to 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.

HMRC now publishes the names of employers who make claims under the Scheme along with an indication of the amount the claim was for within a banded range.

No. The employer may make employees redundant during the furlough period or afterwards if there is a genuine redundancy situation. The employer would have to follow the normal rules on redundancy and employees with at least two years' service would be entitled to redundancy pay. Until 30 November 2020, Scheme funds could be used to fund notice pay for those remaining in employment during notice. However, from 1 December 2020, employers cannot claim for any statutory or contractual notice period (or part of it) which falls on or after 1 December 2020. In addition, Scheme funds cannot be used to fund redundancy pay or payments in lieu of notice. 

The Government had originally said that a new Job Support Scheme (JSS) would go live when the Coronavirus Job Retention Scheme ends (see our JSS Q&A guide). However, given the extension of the Scheme until 30 September 2021, the JSS is unlikely to come into force.

The Government had also announced a Job Retention Bonus – a one off bonus payable to employers of £1,000 for each furloughed employee who remained continuously employed until 31 January 2021. However, the bonus has been shelved, given the extension of the Job Retention Scheme. It is unlikely that any further Government subsidy or job retention incentive will be in place when the Job Retention Scheme closes. 

For further advice on the impact of COVID-19 on employers, please see the COVID-19 resources hub on our website.