The Coronavirus Furlough Scheme – A Guide for Employers

The Furlough Scheme – a Lifeline for the Economy?


Until the Coronavirus pandemic, the word “furlough” was all but unknown in this country (it appears to have come from the United States). Now it is one of the government’s key strategies for preventing catastrophic damage to the economy. Its purpose is to avoid the need for businesses to make mass redundancies by introducing a way in which workers can be kept “on the books” without financial cost to the employer.

Under the scheme, the status of furloughed workers is temporarily changed, so that they remain employed by the business but do no work and can be brought back to work when the employer has work for them to do.

The employer continues to pay its furloughed workers but receives a refund from the government of 80% of the workers’ wages up to a maximum of £2,500 per worker per month. All employers qualify for the scheme but, if they receive public money to run their services, they should not furlough their staff (except where only part of their funding is from the public purse). The scheme applies to workers as well as employees.

The government has created an online portal ( through which employers can make claims.

The scheme now runs for four months and is backdated to 1 March, running to 30 June 2020.

Applicability of the scheme

The scheme is available to all employers who have a PAYE scheme in place on 28 February 2020 – even if the employer has only one worker. Only those workers who were employed on or before 28 February 2020 can be furloughed. There was initially some doubt as to whether a worker could be furloughed if he only joined the employer after 28 February 2020 as a result of his employer acquiring the business where he previously worked. In other words, if a worker was transferred from the employment of business A to the employment of business B as a result of B acquiring A, could that worker still be furloughed? The issue was: if the Transfer of Undertakings (Protection of Employment) Regulations (TUPE) applies to the transfer, is the worker treated for the purposes of the furlough scheme as having been employed since he was first taken on by business A, rather than business B? There was initially some uncertainty over this, but the government has recently clarified that, as long as the provisions of TUPE do apply, TUPEd workers can still be furloughed provided their employment at business A started or on before 28 February 2020.

The amount of furloughed pay

The starting point is that the salary on which the furloughed pay should be calculated is the worker’s actual pre-tax salary on 28 February 2020. “Salary” includes all regular payments, including normal overtime and commission, but not other benefits or discretionary payments.

Where, however, a worker’s wages vary throughout the year, then the employer can use the amount which the worker earned in the same month of the previous year or an average of his monthly earnings from the previous tax year (i.e. 2019/20), whichever is the higher. If the worker has been employed for less than a year, then the employer should claim the worker’s average earnings since he started work.

Tax, National Insurance and pensions

The employer should continue to deduct income tax, National Insurance contributions and auto-enrolment pension contributions from the worker’s wages, even when they are furloughed. The employer can, however, claim back from HMRC the National Insurance and the minimum auto-enrolment pension contributions (i.e. 3% of earnings) as part of the furlough scheme.

“Topping up” furlough pay

Can the employer choose to pay more than the amount paid by the government under the furlough scheme? The answer is it can – the employer can “top up” a worker’s pay beyond the 80%/£2,500 figure but the employer cannot recover the “top-up” from HMRC under the furlough scheme, nor can it recover the National Insurance and pension payments relating to the “top-up”.

Sickness absence

An employer cannot claim under the scheme for workers who are sick and on statutory sick pay – in other words, the furlough scheme is quite separate from the provisions of statutory sick pay. If a furloughed worker becomes sick, the employer can choose whether to keep that worker furloughed (and receiving furloughed pay under the government scheme) or to put that worker down onto statutory sick pay. Equally, if a worker is sick and receiving statutory sick pay, the employer can choose whether to “upgrade” the worker to furloughed status. Where the employee is on statutory sick pay, the employer can claim for up to two weeks SSP rebate.

Consultation with employees

It’s important to bear in mind that an employer cannot force a worker to accept being placed on furlough. If an employer does wish to place a worker on furlough, it should first write to the worker seeking their consent. That letter should point out to the worker that, if he does not consent to being furloughed, the alternative may be redundancy. In practice, therefore, workers are very likely to agree to being furloughed but furloughing cannot be imposed on them without their consent. A copy of such letters should be kept on the worker’s file for five years.

It is particularly important that there is a consultation process if the employer anticipates putting more than 20 workers on furlough, as the consultation requirements on employers when considering making more than 20 workers redundant are onerous. We do not of course yet know how Employment Tribunals are going to interpret the requirements for consultation but the only safe advice at this stage is that employers should always consult with workers by way of one letter at least before placing them on furlough.

There is also the risk of a discrimination claim against an employer if, for example, workers are placed on furlough on account of disability or pregnancy. Again, we do not know yet how Employment Tribunals are going to approach cases like this in the future but it is nonetheless important that employers have a good objective reason for placing workers on furlough and consult with them properly beforehand, to minimise the risk of Equality Act claims in future.

Working/training during the furlough period

Once a worker has been placed on furlough, he cannot work for his employer, as the basis of the scheme is that a furloughed employee is paid for doing no work. The position over training is not, however, straightforward.

If the worker chooses to carry out training, he can do so without affecting his pay under furlough. Where, however, the employer requires the worker to carry out training while on a furlough period, the employer must ensure that the furlough pay is at least the level of the national living wage or national minimum wage (depending upon the age of the worker) because the training is treated as work for the employer. This is particularly the case in relation to apprentices, where training is part of their normal work. As a result, if there is any shortfall between the amount of furlough pay which the worker is receiving and the national minimum wage/national living wage, the employer must “top up the difference” to avoid underpaying the worker.

A worker can however work for another employer during periods of furlough and be paid. For example, the government is organising, through a number of agency bodies, furloughed workers to work on farms to pick fruit and vegetables – as a result of the pandemic, there are of course few foreign workers entering the UK with the result there is a serious risk of fruit and vegetables being left to rot. Considerable numbers of furloughed employees are now signing up to help with the harvest.

Period of furlough

To qualify for the scheme, a worker must be furloughed for at least three weeks. There was initially some doubt as to how long he had to work for the employer if brought back off the furlough scheme. It has now been clarified that the worker can be brought back off the furlough scheme for any period of time, no matter how short, before being put back onto furlough. It is also the case that the employer can rotate members of staff on the furlough scheme – i.e. an employer could put one worker on furlough for three weeks, then bring him back and put another worker (doing e.g. the same work as the first worker) on the furlough scheme and continue with that rotation indefinitely.

Maternity leave

An employee due to go on maternity leave will of course go on maternity leave in the usual way but the furlough scheme may impact on her pay. If an employee is put onto the furlough scheme before going onto maternity leave, her statutory maternity pay may be reduced because statutory maternity pay is based upon average weekly earnings (or the statutory flat rate of about £150 per week) and so the reduction in pay which the furlough scheme is likely to produce could reduce her statutory maternity pay.

Annual leave and statutory holidays

There continues to be considerable doubt as to how annual leave and statutory holidays will interact with the furlough scheme. As a starting point, there is no doubt that holiday entitlement will continue to accrue during the furlough period. The government has, however, recently indicated that a worker cannot be on holiday and on furlough at the same time. This appears to make it clear that an employer cannot reclaim holiday pay from the government via the furlough scheme and therefore the employer will be solely responsible for paying holiday pay to workers.

The regulations do, however, allow statutory holiday (that is, four weeks holiday or what used to be called “EU” holiday) to be deferred by two years. In addition, non-statutory holiday (i.e. the additional 1.6 weeks) can in any case be deferred by one year. It is therefore thought that the best and simplest approach for employers to take is to try to reach agreement with their workers that all holiday for furloughed workers be cancelled for the time being, on the basis that the workers will be able to take that holiday once they are able to. As workers are obviously not able to go anywhere on holiday at the moment, one would have thought that all workers would readily agree to this. This does nonetheless create some unresolved anomalies. We have just had the long Easter weekend and the May Day Bank Holiday is approaching. If an employer was to simply ignore these public Holidays and continue to pay furlough pay to its furloughed workers (which on the face of it seems sensible), there is a risk that the employer could be in breach of contract by failing to pay holiday pay over the public Holidays (assuming that holiday pay was higher than the furlough pay). There are no answers to this at present but it is at least strongly arguable that the pay of workers on furlough should be “topped up” by the employer so that the worker is receiving normal holiday pay in relation to statutory holidays.

Personal service companies

Some public sector bodies engage individuals through that individual’s personal service company. That arrangement has of course come under attack from HMRC, which prefers to treat such individuals as employees for tax purposes. Where under the “IR35” tax avoidance rules, that “off-pay roll” individual would be treated by HMRC as an employee for tax purposes, that individual can be furloughed.

Tax treatment of furloughed pay receipts

Money received by employers from HMRC under the furlough scheme should be treated as the business’ income for the purposes of calculating the business’ taxable profits.

With the government’s furlough portal now live, employers should now prepare themselves to submit details of furloughed workers, so that they can receive their payments as soon as possible and certainly as part of the April payroll.

Although the current furlough scheme is due to expire on 30 June 2020, it may have to be extended again. The Office for Budget Responsibility has warned the government that as things presently stand the economy is likely to be reduced in size by a third – an unprecedented collapse. The furlough scheme is foremost in the government’s armoury to ensure that, when things do return to something like normal, mass unemployment is avoided and workers can be brought back to work, enabling the economy to bounce back as soon as possible.

For further information or advice on any of these issues, please contact us on 01732 770660 or email [email protected].

This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.

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