CORONAVIRUS: FURLOUGH SCHEME EXPLAINED
Coronavirus: furloughed workers
and what it means for business
The Coronavirus Job Retention Scheme is a financial package that has been set up to help employers pay
the wages of workers who would otherwise have been made redundant, due to the pandemic. Here,
Tina Chander, a partner at law firm, Wright Hassall, explains what the scheme means for businesses
The Coronavirus Job Retention
Scheme is designed to help
businesses that would
otherwise be forced to lay off
staff in the face of the unprecedented
disruption caused by coronavirus.
All businesses with a PAYE scheme
in place on February 28, 2020, can benefit
from the scheme, with the government
reimbursing employers up to 80% of
their employees’ wages, to a maximum
of £2,500 per month, plus employer’s
National Insurance Contributions
(NICs) and auto-enrolment pension
Employees on agency contracts and
flexible or zero hours contracts can also
benefit from the scheme. In addition, the
scheme also covers employees who
have been made redundant since
February 28 and who have been
rehired by their employer.
Furloughed: what it means
Businesses have to designate
affected employees as furloughed
workers and notify their employees
of this change. However, employers still
have to pay attention to the employment
law, which means that, having
designated those employees whose jobs
were at risk, they will need to agree
with those employees that they will be
For those workers who do not agree,
they will either have to take unpaid
leave for an indeterminate period, or
employers are likely to have to go down
the redundancy route.
It should be noted that furloughed
workers are designated by the employer
– an employee cannot ‘self-designate’.
Employees hired on or after March
1, are excluded from the scheme,
presumably to stop people ‘gaming’
the system by hiring family members
after the scheme was announced and
then furloughing them. However, those
businesses that have made people
redundant since February 28, can
re-employ them and then furlough them.
To qualify for payment under the
Coronavirus Job Retention Scheme,
an employee must be furloughed for a
minimum of three weeks in order to
prevent employers putting staff on a
‘rota’ i.e., one week on, one week off.
Who can be furloughed?
Normal employment law still applies, so
© Rummy & Rummy-stock.adobe.com
employers must not discriminate
when deciding who to furlough.
Employees returning to work
after a period of sickness absence,
or self-isolation, can be furloughed,
however, they cannot be furloughed
whilst they remain on a period of
sickness absence or self-isolation.
Furlough will only take effect when
this period comes to an end. Employees
who are “shielding” however, will be
eligible to be furloughed.
Employees on maternity leave can
be furloughed if they agree to return to
work early or change to shared parental
leave. Alternatively, they will remain
on Statutory Maternity Pay where this
is applicable and will not be furloughed
until their return.
When agreeing changes and moving
to furlough status, it is important to
remember that normal employment law
processes apply. Employers must be
careful not to discriminate against any
employees when deciding who to offer
Assuming the designated employee
has agreed to be furloughed, they cannot
undertake any work for their employer
at all. If the employee continues to work,
even reduced hours, they are not eligible
for the scheme.
The good news for furloughed staff
is that they can volunteer or undertake
training, providing neither activity
generates income for their employer.
Whether or not people can take
advantage of this while confined to their
house is, of course, another matter.
How it will work?
While furloughed, the government will
pay related employment costs including
pension contributions and NICs (but
not commission or bonuses), in addition
to wages. All furloughed workers will
remain employed by their employer for the
duration of the scheme.
Employers can make up the missing
20% of their employees’ salaries, but that
is their choice (or ability to pay). There is
no legal obligation for the employers to top
up the salary to 100%, but any contractual
clauses regarding withholding pay and
deductions should be taken into account
when this decision is being made.
For those employees who are
furloughed, their employment status will
change, but their employment record will
Employers will need to give HMRC a
list of its furloughed employees. Employers
then pay their workers as usual, via PAYE,
and then apply for funding, every three
weeks to cover 80% of their wages (up to
£2,500 of gross pay).
You will receive a grant from HMRC
to cover the lower of 80% of an employee’s
regular wage or £2,500 per month, plus the
associated employer NICs and minimum
automatic enrolment employer pension
contributions on that subsidised wage.
Fees, commission and bonuses should not
For workers whose pay varies, the 80%
is based on the higher of:
• The earnings in the same pay period in
the previous year; or
• The average earnings in the previous
12 months (or less, if they’ve worked for
If employees paid the minimum wage
are furloughed, the fact that 80% of their
earnings will bring their wages below
the National Minimum Wage (NMW)
does not contravene the legislation, as
people are only entitled to the NMW if
they are working. They can, however,
claim the NMW if undertaking training.
The HMRC system through which
payments can be made has been running
since April 20, and is expected to run
until at least June 30, subject to review.
You can find out more information
about the scheme by visiting https://bit.
10 www.rcimag.co.uk May 2020