This note explains key considerations for employers dealing with the impact of COVID-19. The law and guidance in this area continues to evolve. We recommend seeking specific advice before taking action. The information in this note is correct as of 17 July 2020.

Coronavirus Job Retention Scheme – “Furlough” and “Flexible Furlough”

The UK Government announced the Coronavirus Job Retention Scheme (CJRS) on 20 March, and has since published a number of iterations of the guidance for employers, most recently on 17 July. The Chancellor has issued three Directions to HMRC, on 15 April (the Direction), 22 May (the Further Direction) and 25 June (the Third Direction); these take precedence legally and should be followed in case of inconsistency. Employers of any size in any sector can claim a subsidy to cover 80% of an employee’s salary up to a limit of £2,500 per month, plus up to 3% to cover employer pension contributions and an amount to cover employer national insurance contributions if the employee is placed on furlough. In August the subsidy will cover 80% of salary only. From 1 September, the subsidy is reduced to 70% in September and 60% in October with proportionate reductions in the cap in each month. This is a gross payment and individuals will have to pay Income Tax and National Insurance contributions on the payments they receive in the usual way. The employer still pays the employee but is able to recover certain sums via HMRC.

The scheme is designed to help employers whose operations have been severely affected by coronavirus (COVID-19) to retain their employees and protect the UK economy. However, all employers are eligible to claim under the scheme and the UK Government recognises different businesses will face different impacts from coronavirus. It is not necessary to be able to establish a legal redundancy situation in order to benefit from the furlough scheme.

On 29 May, the Chancellor announced further details of the “final phase” of the eight-month scheme, which will last until the end of October 2020. Since 1 July, employers have been able to bring furloughed employees back to work on reduced hours, while still claiming under the CJRS for the hours not worked. Flexible furlough is available in relation to both full-time and part-time employees provided they are returning to work for only a portion of their usual hours. For example, an employee who would normally work a five-day week can agree to work three days and to be furloughed for the remaining two. The employer will pay the employee’s usual contractual wage for the hours actually worked. For the time on furlough, the employer will be able to claim 80% of the employee’s salary (up to the daily limit of £80.65 for July, August and October and £83.34 for September (based on the number of days in each month)) from the CJRS to pay the employee. In September the grant will reduce to 70% and in October it will go down to 60%, however, employees on furlough must still be paid a minimum of 80% (up to the relevant cap).

The key elements of the CJRS are:

  • Employers can only claim the subsidy for employees who were on their payroll on or before 19 March 2020 and who were notified to HMRC on a real time information (RTI) submission on or before 19 March 2020.
  • The start date for the furlough period is the date the employee stopped working. Claims can be backdated to the date furlough started, from 1 March 2020 onwards.
  • Until 30 June, the furlough period must have lasted a minimum of three weeks. Workers could be furloughed multiple times, provided they were on furlough for at least three weeks each time. Since 1 July, workers can now be placed on flexible furlough for any period but only if they have previously been furloughed for at least one minimum three-week period.
  • The last date on which new entrants could come into the CJRS was 30 June 2020. As employees must be furloughed for at least three weeks to be eligible for the subsidy, this means that if the employer intended to use the furlough scheme they must have placed the relevant employee on furlough by Wednesday 10 June 2020. The only exception to this cut-off date is for employees who have returned from statutory parental leave after 10 June where their period of leave started before that date and where employees of their type have been furloughed by the employer.
  • Since 1 July, the number of employees an employer can furlough in any one claim period must not exceed the maximum number of employees furloughed in a period up to 30 June. For example, an employer has 90 employees and until 30 June was alternating their furlough so that 50 would be on furlough leave for one period and then 40 would be on furlough for the next period. Since 1 July, the employer will not have been able to place more than 50 employees on flexible furlough in any single claim period because this was the maximum number they furloughed in any claim period prior to 30 June. Employees returning from parental leave after the 10 June will not be subject to this and can be added to the maximum number of employees on furlough.
  • Employers must confirm in writing to employees that they have been furloughed (and should keep a record of this correspondence for six years). The Direction goes further, and provides that an employer and employee must agree in writing that the employee will cease all work in relation to their employment. This called into question whether deemed acceptance was sufficient. However, apparently to address this concern, the online employer guidance was then updated to state that it was sufficient for the employer to notify employees, and that a written response was not required. The government’s intention seems clear, though the inconsistency between the Directive and the online guidance is unhelpful and may lead some employers to seek express consent to avoid any dubiety. All communications on this point should be retained for six years. Since 1 July, if an employer wishes to put workers onto flexible furlough they will also need to agree a flexible furlough agreement that confirms the new furlough arrangements. This, along with records of the hours worked, should also be retained for six years.
  • Until 31 July, employers can reclaim up to 80% of wage costs up to a cap of £2,500 per month, plus employer National Insurance Contributions (NICs) and the minimum auto-enrolment employer pension contributions (3%) on that wage. From 1 August, the CJRS will continue to cover wages up to 80%, however, employers will have responsibility for paying employer NICs and pension contributions.
  • From 1 September, the CJRS grant will reduce from 80% of wages to 70% of wages and from 1 October 2020, the contribution will reduce further to 60% of wages. Employees, however, will continue to be entitled to receive a minimum of 80% of their salary (subject to the cap) for the period they have been furloughed, meaning employers will be required to top up the difference to meet this minimum payment.
  • Employers must pass on the full grant claimed under the CJRS (less any deductions for employee income tax and NICs, which must be paid to HMRC, and any employee pension contributions, which must be invested in the pension scheme in the usual way).
  • Until 30 June, a furloughed employee must not have carried out any work for their employer while on furlough (however, they could undertake training and do volunteer work). If employees are asked to complete training (e.g. online courses) while on furlough leave, employers must ensure the employee is paid at least the National Minimum Wage (NMW) for the time spent on training. Employers can help furloughed employees find new work or volunteering opportunities while on furlough if this is in line with public health guidance. Since 1 July, employees have been able to return to work for a portion of their usual hours while still being placed on flexible furlough.
  • If their contract allows, employees can continue (or take up) a second job (with a different employer) while on furlough. An employee can be furloughed from more than one job.
  • Employers can choose to top-up the furloughed employee’s salary to 100% but they do not have to do so (it is important to note that reducing salary will be a change to terms and conditions and usual employment law applies).
  • For salaried employees, their gross salary in the last pay period prior to 19 March 2020 should be used to calculate the 80% subsidy (and applying the cap). This is a change from the previous guidance, which referred to pay on 28 February 2020. Employers who have followed previous guidance and based their calculations on 28 February 2020 can still choose to use that figure for the first claim, but thereafter should use the last pay period prior to 19 March 2020. The post salary sacrifice salary should be used for the calculation. Employers can claim any regular payments they are obliged to pay, including for past overtime, fees and compulsory commission payments. Discretionary bonuses, tips, benefits-in-kind and non-compulsory commission payments are not included. Benefits provided through salary sacrifice should not be included in the reference salary.
  • For employees whose pay varies, the employer can claim for the higher of the same month’s earning from the previous year (e.g. earnings from March 2019); or the average monthly earnings in the 2019-20 tax year.
  • Employees who are on unpaid leave, sick leave, shielding or with caring duties can be furloughed. While furlough is not intended to replace short-term sickness absence, there is no prohibition on furloughing those who are off sick (although the three-week minimum furlough period, explained below, will apply).
  • Until 30 June, employers could only claim once every three weeks, i.e. they could not get weekly reimbursement. Since 1 July, the minimum claim period has been seven calendar days, however, employers may choose to claim fortnightly or monthly.
  • Claim periods starting on or after 1 July must start and end within the same calendar month. Until 30 June, a claim period could overlap different months but this is no longer be possible due to the tapering of support, which will change in each calendar month.
  • Company directors and LLP members can be furloughed provided they are paid through PAYE and furlough is formally adopted as a decision of the company/partnership. They can continue to fulfil statutory duties as necessary but must not provide services for or on behalf of the company or generate revenue.
  • If an employee is given notice while on furlough, their notice pay will be based on their entitlement under their contract of employment and their statutory right to notice. The government’s updated guidance confirms that the CJRS grant can be claimed for employees serving notice periods. Where an employer is only required to give statutory notice, the employee will be entitled to receive 100% of their wage rather than any reduced amount that may have been agreed as part of the furlough agreement. This will involve the employer topping up the grant received from the CJRS. Where an employee is contractually entitled to at least one week more than statutory notice, then their notice pay will be based on their contractual pay for the notice period. The CJRS will not cover any Payment In Lieu of Notice (PILONs) or in lieu of holidays.

The mechanics

The UK Government started accepting claims from employers on 20 April 2020, and approximately 9.1 million jobs had been furloughed as of 14 June 2020. The scheme was set to run until the end of June, however, the government announced that it will be extended until the end of October, with flexible furlough having been introduced on 1 July.

Employers must be enrolled for PAYE Online in order to access the scheme, and must have been operating PAYE on or before 19 March 2020.

As noted above, to access the scheme employers must designate affected employees as ‘furloughed workers’ and notify the employees of this change. Employers should send a ‘furlough letter’, confirming this in writing. This letter must be retained for six years. 

Changing the status of employees and reducing their pay remains subject to existing employment law and may be subject to negotiation and agreement. With the alternative often being redundancy, or continuing to work potentially on reduced pay/hours, most employees are likely to accept furlough. Employers can choose which employees to furlough but should be mindful of discrimination law.

Employers must submit information to HMRC about the employees who have been furloughed and their earnings through the online portal confirming: the ePAYE reference number; the number of employees being furloughed; the claim period; the amount claimed; the bank account number and sort code; and contact details for the employer. To make a claim for employees on flexible furlough, employers will also have to calculate the difference between a worker’s wages for usual hours worked in the period and the wage for actual hours worked.

Once a claim is accepted, HMRC will make payment to employers via BACS. Employers must pay the employee the full grant received from HMRC (i.e. no fees can be charged), less usual PAYE deductions. Until 1 August, employers can also claim for Employer NICs on the subsidised furlough pay (which should then be accounted for to HMRC in the usual way) and for minimum required pension contributions (which must then be paid into the appropriate pension scheme). Employers cannot claim for additional NICs or pension contributions made because an employer chose to top up salary beyond 80%; or any pension contributions that are above the mandatory employer contribution. HMRC will be able to retrospectively audit all aspects of a claim.

Public sector employers

Furlough in the public sector is likely to be rare. The guidance states that where employers receive public funding for staff costs, and that funding is continuing, employers are expected to use that money to continue to pay staff in the usual fashion, and not furlough them. This also applies to non-public sector employers who receive public funding for staff costs. The guidance goes on to say that in a small number of cases, for example where organisations are not primarily funded by the government and whose staff cannot be redeployed to assist with the coronavirus response, the scheme may be appropriate for some staff. This demonstrates that the preference is for workers in, or funded by, the public sector to be reallocated to assist in the response to COVID-19 where possible, albeit the mechanisms for doing so and contractual implications are less clear. Organisations that rely on public sector funding should seek specific advice on whether furlough is appropriate for them, and should also discuss the matter with their public sector funder.

Taking holidays

Workers who are not on sick leave or furloughed can be instructed to take statutory annual leave (up to 28 days for a full-time worker) by their employer, provided they are given the required level of notice. The notice must be at least twice the length of the period of leave that the worker is being ordered to take (e.g. two weeks’ notice of requirement to take one week’s annual leave). 5.6 weeks' leave under the Working Time Regulations (WTR) 1998 will continue to accrue during furlough leave.

It has been confirmed that holiday can be taken without ‘breaking’ furlough and, in more recent guidance, that employees can require employees on furlough to use their holidays during furlough, provided statutory notice periods are adhered to. While that may initially appear unfair, it could create balance between those employees who are not furloughed but are being required to use annual leave during lockdown and those who are furloughed and may otherwise have been perceived to benefit from paid time off on furlough and a build-up of paid holidays to be taken on their return to work. Where an employee is flexibly furloughed, any hours taken as holiday during the claim period should be counted as furloughed hours rather than working hours. This means that the employer will be able to claim for those hours through the CJRS. However, the guidance makes clear that employees should not be placed on flexible furlough simply because they are on holiday within that claim period.

Employees must be paid at 100% of their normal pay for any holidays they are entitled to that form part of the 5.6 weeks of holiday they are due under the WTR (although 80% can still be claimed under the scheme in the usual way). Employees can agree what should happen in respect of holidays in excess of their WTR entitlement.

Sick pay

Where an employee is sick with COVID-19 or is self-isolating in accordance with government guidance, they are entitled to Statutory Sick Pay (SSP) from day one (rather than day four as is usually the case). If they would normally receive enhanced employer sick pay, then the expectation is that this would also be payable. Employees can self-certify for seven days and thereafter would need certification for their absence. The UK Government has made this easier to do for people with COVID-19: an employee can call 111 or go online to receive an isolation certificate, which is then issued by email.

For employers with fewer than 250 employees, the first two weeks of SSP can be reclaimed from the government.

Essential workers

The UK Government has issued guidance to employers on work during lockdown: Guidance for employers and businesses on coronavirus (COVID-19).

Key to this guidance is that employers should make every possible effort to enable working from home as a first option. Where working from home is not possible, workplaces should ensure that they comply with the social distancing guidelines set out by the government. In each individual business the necessity for work to be done on site should be carefully considered taking into account health and safety and reputational risk. Employees who are vulnerable or, who live with vulnerable individuals, should be supported to follow the recommendations set out in guidance on social distancing and shielding respectively. Where the social distancing guidelines cannot be followed in full in relation to a particular activity, businesses should consider whether that activity needs to continue for the business to operate, and, if so, take all the mitigating actions possible to reduce the risk of transmission between their staff.

Where employees object to attending work during lockdown or raise individual concerns, employers should be considerate and seek to support staff by understanding concerns and find a solution wherever possible. Knee-jerk reactions to discipline or dismiss should be avoided. Legal advice should be taken if specific problems arise.

There will come a point where lockdown is eased and businesses need to look at ways to re-open their work premises. Care should be taken at all times to follow government guidance and to ensure the health and safety of staff and others accessing premises.

Emergency Volunteer Leave

The UK Government has introduced Emergency Volunteer Leave to help tackle the spread of COVID-19 and to support the health service. Workers can temporarily leave their job and volunteer for a set period in the NHS or social care sector during the COVID-19 pandemic. The key terms of the scheme are:

  • The worker will need to be certified by an appropriate authority, such as the Department of Health, an NHS Commissioning Board or a local authority;
  • The certified worker will be required to give their employer at least three working days’ notice of their intention to take emergency volunteer leave.
  • Leave must be taken in a block of two, three or four consecutive weeks and is unpaid.
  • A UK-wide compensation fund is being established to compensate volunteers for loss of earnings and any travel or subsistence expenses.
  • Employers with more than ten employees will be unable to refuse emergency volunteer leave where an employee has been certified.
  • During volunteer leave, an employee will remain entitled to all the terms and conditions of their employment that would normally apply (other than remuneration) and will have the right to return to their usual job at the end of their leave on no less favourable terms and conditions.

It will be unlawful to subject employees to any detriment because of emergency volunteering, and dismissals connected to emergency volunteer leave will be automatically unfair.


How do I apply for the scheme?

The portal for applications went live on 20 April 2020, and can be accessed here. A step-by-step guide has been produced, setting out all of the information that employers need to make a claim. 

Will I need to pay the furlough subsidy back at some point?

No. Employers are receiving a grant, not a loan. You will not need to repay any subsidy sums received under the Job Retention Scheme.

How do I calculate the salary for an employee who uses the salary sacrifice scheme?

A very important limitation to be aware of is that the figure post-salary sacrifice should be used to calculate the reference salary. This means employers get less of the ‘headline salary’ by way of grant in relation to employees who use salary sacrifice. While HMRC have stated that COVID-19 is a ‘life event’ which permits changes to salary sacrifice arrangements, making changes now will have no impact on the grant an employer can claim under the CJRS because it is calculated based on the reference salary which is pre-19 March 2020

How do I calculate the salary for an employee on flexible furlough?

To make a claim under the flexible furlough, an employer will need to first calculate the employee’s pay for their usual hours in that period and their pay for the actual hours worked. Records of both should be retained for six years. Employees should receive their full contractual wage for the actual hours worked. HMRC has provided detailed guidance and examples to assist with calculating what can be claimed from CJRS. In summary, there are two different calculations that can be used to work out employees’ usual hours depending on whether they work fixed or variable hours. The variable hours calculation should be used if an employee is not contracted to a fixed number of hours or their pay depends on the number of hours they work. If neither of these apply the fixed hours calculation should be used.

Can remaining work be reallocated to other employees so that an employee can be furloughed?

Yes. If there is less work overall for a team, the employer could furlough some workers and reallocate their work to the team members who are still working. Alternatively, employers could rotate employees on furlough to spread the workload (the minimum period of three weeks applied to each instance of furlough up until 30 June). Since 1 July, employers have had greater flexibility to alternate furlough between team members because there has been no minimum period.

Is the subsidy cap £2,500 or 80% of £2,500?

The monthly cap until 31 August is £2,500. This is a gross payment and individuals will have to pay Income Tax and National Insurance contributions on any payments received. In September and October the subsidy cap will reduce proportionately as the CJRS tapers the support to 70% and then 60%.

If paying 80% means the employee receives less than the National Minimum Wage (NMW) do I need to top up to the NMW?

No. If no work is being done there is no need to pay the NMW. If an employee on furlough undertakes training, then you will need to ensure they have received at least the NMW for hours worked in that pay period. If they only undertake a few hours training, then in most cases the furlough subsidy will more than meet the NMW. During flexible furlough employers must pay employees their normal pay for hours worked so this will need to be at least the NMW.

Do benefits continue for furloughed employees?

This would be a matter for agreement between employers and employees but the starting point is that all contractual terms remain in full force and effect. Any suspension of employee benefits should be agreed with employees where possible, albeit the UK Government has stated that employers are not required to top-up to 100%. Employers will be able to claim the 3% employer minimum auto enrolment contributions and employer National Insurance contributions. Any changes to pension may require additional consultation.

What is meant by training and volunteering?

The UK Government has specified that those on furlough should not work. However, they are permitted to participate in training or to volunteer, as long as this does not fall outwith the definition of work, defined below.

Employers can help furloughed employees find volunteering opportunities while on furlough if this is in line with public health guidance. In relation to training, the guidance states that furloughed employees can engage in this as long as in undertaking the training the employee does not provide services to, or generate revenue for, or on behalf of the employer.

Further guidance on this will be of great benefit. For example, an employee completing online training courses (such as diversity training) while on furlough will be permissible. It is less clear that employees who carry out training as a substantial part of their role will be permitted to continue because this could be classed as work.

What work can employees do while on furlough leave? For example, can they check emails on a daily basis and pass work to colleagues who are not furloughed?

As explained above, UK Government guidance states that employees on furlough until 30 June should not work. Work is defined as providing services to or generating revenue for, or on behalf of the employer or a linked or associated organisation. The Direction goes further, stating: “An employee has not ceased all work for an employer if the employee works for a person connected with the employer or otherwise works indirectly for the employer.” There is no de minimis level of work permitted for the period up to 30 June. Employees can keep in touch with work for HR matters connected to their own employment and to undertake training, but it appears that they cannot continue to do any work: even maintaining a watching brief on projects or forwarding emails could count as work. Out of offices/re-directs should be set up on email accounts and phones.

If an employer cannot ‘do without’ an employee then furlough may not be appropriate. Instead, it may be possible to agree reduced working hours and/or reduced pay for a period of time.

If an employer decided during a period of furlough that they wanted to bring the employee back to work before 30 June, the employer could bring the furlough to an end. If they did so within the first three weeks of any furlough period this would prevent the employer recovering the employee’s wages under the CJRS for this period, as furlough cannot be shorter than three weeks.

Since 1 July, employees have been able to return to work on reduced hours while on flexible furlough. This has allowed employers and employees greater flexibility. There is no restriction on the activities that can be undertaken or the proportion of normal hours an employee can work, however, CJRS will only cover the proportion of an employee’s usual hours which are not worked.

Can a vulnerable employee who is shielding at home for 12 weeks in line with government advice be on sick leave or furloughed?

Yes. Employees who are ‘shielding’, because they or a member of their household are in a particularly high risk category as identified by the NHS, can be furloughed. If the individual is able to work from home, they can be required do so and continue to receive normal pay. Those who are on sick leave can also be furloughed (although the guidance is clear that furlough is not intended to replace short-term sickness absence), as can those with caring responsibilities.

What should an employer do where an employee is refusing to come to work or is unable to travel to work safely?    

Where an employee cannot work from home; is not on sick leave, self-isolating or shielding; and has not been furloughed, they should continue to work as set out in their contract. Normally, failure to come to work could be treated as a disciplinary matter, though in the current circumstances employers are recommended to discuss the individual situation with employees and work to find a solution to any concerns. Employers should be mindful of government advice and ensure that social distancing and hygiene rules are followed in the workplace. Failure to do so could breach health and safety rules and expose the employer to claims.

Employers should also consider whether employees who cannot work from home are carrying out essential work that is necessary for the business to operate. If the work is not essential, then it is likely to be unreasonable (and potentially unlawful) for an employer to insist on the employee coming to work.

It is important to understand why the employee does not want to come to work. For example, some employees may car share and have no other means of travelling to work safely while following social distancing rules. Others may be concerned about conditions at work or have family members at higher risk of serious illness from COVID-19 infection. Employers should consider cases on their own facts and ensure that they are not discriminating against the employee under the Equality Act, as in some cases insisting on the employee’s attendance and/or subjecting the employee to a detriment if the employee refuses to come to work could amount to discrimination/victimisation. Employees who are vulnerable or who live with vulnerable individuals, should be supported to follow the guidance on social distancing and shielding.

In most cases, we anticipate employers will take a flexible and supportive approach and rely on workers who are willing and able to come to work rather than forcing concerned employees to do so. If an employee refuses to come to work and is not entitled to sick pay and has not been furloughed, their absence would be unpaid unless otherwise agreed with their employer.

Is collective consultation required to furlough 20 or more employees?

This depends on the individual circumstances, but in most cases we do not expect this will be required. Collective consultation is required when an employer proposes to dismiss 20 or more employees within a 90-day period at the same establishment. If furlough is being used as an alternative to lay-off (and redundancy is not an inevitable consequence of a failure to agree furlough), then there will be no proposal to dismiss employees at this stage, so collective consultation will not be required. If the employer cannot achieve sufficient agreement to furlough so that the employer has to consider making redundancies, then the rules on collective consultation would apply if 20 or more employees are affected. In some cases, it may be appropriate for employers to consult a trade union before changing contractual terms. This is a complicated and fact-sensitive area of the law and legal advice should be sought if you have any concerns.

For more information, contact one of the following members of Shepherd and Wedderburn’s employment team: Elouisa Crichton (0141-566 7249 or, Gillian Moore (0141-566 7217 or or Neil Maclean, Head of Employment (0131-473 5181 or

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