Update: Today the Government launched the replacement to the Job Retention Scheme. Details can be found here


The Government has announced its plans for financial assistance to help employers retain employees for an extended period of time, although offering no work, and avoid lay offs. It is called the Job Retention Scheme and, whilst little information has been published as to how it will work, we have set out below what we do know and our insight into the practical implications. It is subject to continual review dependent on Government guidance and as soon as we know more, you will know more. As always, please speak to Liz on all payroll, PAYE and pension processing queries.


The scheme creates the concept of ‘furlough‘  (pronounced furlow) – a word which means “give a leave of absence to.” This is not a term which has previously had any specific meaning in UK employment law.

What Is The Job Retention Scheme?

It involves employers placing their employees on ‘furlough’. This isn’t a term we use in UK employment law, and it seems to originate in the USA. It essentially means putting employees on temporary leave of absence where they do no work and receive no pay, but they are retained on your books to be brought back in when you need them. Employers who do this will be able to obtain a grant from the Government to cover 80% of furloughed employees’ wages, to a maximum of £2,500 per employee per month.


  • Employers can claim for the lower of 80% of their employees regular gross wages or £2,500 per month. Commission, bonuses and fees are not to be included in this claim.
  • For full time and part time employees the 80% gross wage eligible for the claim is the base salary as at 28th February.
  • For employees who’s pay varies and have been employed for 12 months, you can claim 80% (up to the maximum allowed) of the higher of the average of 2019-2020 tax year or the same months earnings from the previous year, i.e calculated using March 2019 earnings for those furloughed for March 2020.
  • For employees who have been employed for less than 12 months, an average of the months worked can be used in the 80% claim.
  • For employees who started during February 2020 a pro-rata of their earnings so far can be used to claim.
  • Any top up salary paid in addition to this grant is at the employers discretion and all associated NI and Pension costs are not covered by the scheme.
  • All wages paid during the furlough are subject to all usual deductions including, Tax, NI and Pension.
  • Employers pension contribution claim in this scheme is to be capped at 3% of gross auto enrolment earnings which is gross less £512 for March and £520 from April, any additional pension contributions are not covered within this scheme


Update: This webinar gives guidance on the Job Retention Scheme which will help support businesses and employers.


How Do I Get The Government Grant?

Guidance sets out that you will need to designate which of your workforce will be furloughed employees and then submit that information to HMRC, along with each employee’s earnings. You will then receive a grant to cover the 80% wages. More information is awaited from the Government on the online portal to be used to submit the information and what other information may be needed.

The Chancellor has stated he hopes the first grants will be paid by the end of April 2020, and they will be backdated to 1 March 2020. The scheme is initially intended to run for 3 months but may be extended.


Eligibility for the Employee retention scheme as below:


  • The government has extended the cut-off date for the Coronavirus Job Retention Scheme. You can now furlough anyone who was employed by you on or before the 19 March 2020 – (Under the old rules, you could only furlough those employed on or before the 28 February 2020).
  • This means those who joined your business between the 28 February and 19 March 2020 now fall into the scheme.
  • Companies with fewer than 250 employees at 28th Feb 2020
  • Companies with an operational PAYE scheme on or both 28th Feb 2020
  • Full time, part time, agency and Zero hours contracts all eligible.

The extension is good news for employers and employees alike. But with the rules around furlough changing rapidly, it can sometimes be hard to keep up…


The government has extended the Coronavirus Job Retention Scheme to 31 October 2020 with an expectation that employers will ‘start sharing’ the costs from August 2020.


Update: Here are the major updates you need to know about:


  • As of August, you must contribute to furloughed employees’ wage costs. The level of contribution will increase each month until the scheme closes in October.
  • The current furlough scheme will close to new entrants on the 30th of June.
  • Employees will need to be on the “old” furlough scheme for 3 weeks before being able to be included in the “new flexible furlough” scheme. Therefore, if you want to put any new employees on furlough, you must do so by the 10th of June.
  • A new flexible furlough scheme will launch from the 1st of July. You can bring furloughed employees back on part-time hours and claim for the time your employees are not at work, to a set limit.
  • Claims spanning the end of a calendar month will need to be made in two parts, only one claim per month is allowed.
  • The maximum amount allowed to be claimed will remain unchanged for July, this being £2,500 plus NI and pension employers contributions.

During August the government will pay 80% of wages up to a cap of £2,500. Employers will have to pay NI and pension contributions. For the average claim, that’s 5% of the gross employment costs the employer would have incurred had the employee had not been furloughed.


In September, the government will cut its grants to 70% of wages up to a cap of £2,190. Employers will pay NI and pension contributions and 10% of wages to make up the 80% total up to a cap of £2,500. That works out at 14% of the average gross employment costs the employer would have incurred.


In October the government grant will be cut to 60% of wages up to a cap of £1,875. Employers will pay NI and pension contributions and 20% of wages to make up the 80% total up to a cap of £2,500. That’s 23% of the gross employment costs the employer would have incurred had the employee not been furloughed.


Which Employees Can Be Furloughed?

Theoretically any employee can be furloughed. They need to be on PAYE in order for you to be able to claim the grant for their wages. Guidance states that your ability to furlough an employee depends on their contract. It is not likely that employee contracts will include a specific right to use furlough. However, contracts which contain a right to lay off employees on no pay already give you the right to send employees home and not pay them for a temporary period and so can likely be used to furlough employees. The difference is that employees on lay off will get, subject to service criteria, statutory guarantee pay (SGP) whereas furloughed employees will get 80% of their wages. SGP is £29 per day for a maximum of 5 days in a rolling 13 week period so furlough offers the employee a much more favourable option in terms of pay.


If contracts do not contain a right to unpaid lay off, you can ask the employee to agree to furlough. Although 80% of wages may not be an initially attractive option next to full pay, it is likely to be more attractive than redundancy which may be the end result if alternative options cannot be found. It may also be useful for employees who are struggling to find childcare.


If you have already taken the step to utilise lay off, you can get in touch with those employees and agree to change their current status from lay off to furlough. This would simply involve changing their pay arrangements from nothing (if not entitled to SGP), or SGP, to 80% wages, as they are already not working.


You need to designate employees as furloughed, which means it is your choice. However, if you are not placing everyone on furlough, you should consider carefully who it should be. Think about whose skills will continue to be in demand through this difficult period. Whilst you may assume that the best thing to do is furlough those employees labelled as high risk by the Government, forcing them on to furlough without their input (and therefore forcing them on to 80% wages) may result in discrimination claims from those who allege they were made to do it because of their age, disability or pregnancy. Where you need to select employees for furlough, it may be best to ask for volunteers across the workforce and if any high risk employees, who had previously been risk assessed as fine to still be in work, put themselves forward, it may well be appropriate to choose them first. There does not appear to be a maximum or minimum number of employees who can be furloughed.


One of the issues we can see from the scheme is that it appears to be ‘all or nothing’ – if an employee has some work to do (e.g. a 50% reduction), then they will not qualify for furlough. The Government have specified in its guidance to employees that “To qualify for this scheme, you should not undertake work for [your employer] while you are furloughed.”


Employees rights during the furlough are unaffected this includes, maternity, sick and unfair dismissal rights.

Can directors be furloughed?

If a director is paid through PAYE prior to 28th February 2020, can evidence that they are not able to work and do not generate income during this time, then there is justification to apply the same furlough rules to directors salaries.
The 80% maximum claim still applies and dividends are not covered under the furlough scheme. If a director undertakes work to prepare for recommencement of work then the period of furlough ceases under the rules of this scheme.  There is still so much unknown and we await clarification, we will of course keep you updated as and when we have more information for you.

Can I furlough employees who are on short time working?

Furlough requires the employee to do no work, so short time working could not continue during furlough. However, consider whether you could re-organise work patterns that have been reduced to allow for some of those on short time working to go back to full hours and the others to be furloughed. You should discuss this with employees first.

If I put employees on furlough and i get a grant to cover 80% of their wages, do i have to make up the other 20%?

No, there is no requirement to do this but of course you can if you wish.

What about zero hours employees who have no standard wages – how will the 80% be calculated?

Full time, part time, Zero hour contracts and agency contracts are eligible.

What if the employee is on SMP already?

Maternity/Adoption/Paternity for employees in unaffected and must still be paid as per usual rules, if you offer an enhancement to the statutory payments these can form part of your claim under this retention scheme.

What information will be needed to make the claim?

  • PAYE reference number
  • Number of employees being furloughed
  • Claim period (start and end date)
  • Amount claimed (for period)
  • Your bank account and sort code (UK accounts only)
  • Contact name
  • Your phone number

Employers will need to calculate the amount of the claim and HMRC will retain the right to audit your calculations and records.

If HMRC agree your claim you will be paid by BACS into your account in the details provided in the claim.

When the government ends the scheme employers are then are then able to decide if the employee is to return to their duties or redundancy is considered.


Furloughed workers planning to take paid parental or adoption leave will be entitled to pay based on their usual earnings rather than a furloughed pay rate. Entitlement to Statutory Maternity Pay, as well as the other forms of Parental or Adoption Pay, are currently calculated through someone’s average earnings over an 8-week assessment period. For Maternity Allowance, entitlement and the rate payable is also determined by looking at average earnings over a 13 week period.

What if the employee is on SSP already?

The Government has announced support for employers in relation to the cost of  paying employees who are off sick with symptoms of Coronavirus or are self isolating. A new online service will allow employers to claim up to 2 weeks of current rate of SSP per employee. An employer can pay more than the current rate of SSP but the top up will not be claimable.


SSP is payable from day one of the sickness relating to Coronavirus starting on or after 13th March, the usual 3 waiting days does not apply to these sicknesses.


Eligibility is similar to the Employee retention scheme.


Records of these sickness payments and claims must be kept for at least 3 years.


Update: The portal is now live and employers can use the portal to claim towards the cost of SSP for each employee up to a maximum of £191.70 per person if they are unable to work due to having symptoms of Coronavirus.


Annual leave regulations changes due to Coronavirus


Update: A temporary arrangement has been announced allowing statutory annual leave entitlement of up to 4 weeks can be carried over for up to 2 years, 1,6 weeks of holiday entitlement usually designated for bank holidays can be carried over for 1 leave year but no further. if annual leave is enhanced by employers this is not included in these regulations and is with the employer to agree policies on this with their employees.


Average earnings legislation changes


Update: With effect from April 2020 – Employers who are required to calculate average earnings for holiday pay and adjustments, must now take an average of the last 52 weeks, if an employee has not worked for 52 weeks you must average over the full weeks worked since the start date.  If there are periods of no income for an employee you must go back up to 104 weeks until an average pay over 52 weeks is found.


If you are concerned or have questions regarding how to practically apply the guidance in your payroll please do contact Liz, we can work with you to ensure your claims are made as soon as the portal is available.