What is furlough leave?

This article was updated on 04/03/2021.

In his budget on Wednesday 03 March 2021, the Chancellor, Rishi Sunak, announced that the furlough leave scheme would be extended until 30 September 2021. The extended scheme will continue in its current form until 30 June, with employers expected to pay 10% towards the furloughed hours in July, increasing to 20% in August and September.

An overview of the current coronavirus job retention scheme (CJRS), which has been extended until 30 September 2021, is:

• The CJRS is open to new entrants (meaning the employer need not have claimed under the CJRS previously, and the employee need not have previously been furloughed)
• Eligible employees can be placed on furlough leave instead of being dismissed or laid off
• A furloughed employee cannot be required to directly or indirectly perform any work for their employer, an associated employer or a connected entity, during any non-worked hours (for which the CJRS grant is claimed), but they are able to undertake training (subject to some restrictions)
• A furloughed employee can have a mix of non-worked and worked hours:
  • Until 30 June 2021, the government will fund a maximum of 80% of pay for any non-worked hours, subject to a £2500 pcm cap (but the employer must pay for the employer’s national insurance contributions (NICs) and minimum automatic enrolment employer pension contributions on any furloughed hours). The grant will then reduce to 70% (£2187.50) in July, and 60% (£1875) in August and September. These maximum caps assume an individual is furloughed 100% of the time, and they reduce on a sliding scale proportional to the hours worked.
  • Employees will be able to work part of their usual hours, with the employer paying for those worked hours in the usual way (and for the employer’s NICs and minimum automatic enrolment employer pension contributions on those worked hours).

We consider some of the most frequently asked questions we have received on the CJRS below:

Furlough leave FAQs

Furlough leave eligibility

Which employers are covered by the furlough leave scheme?

The furlough leave scheme is currently open to new entrants (meaning the employer need not have claimed under the CJRS previously).

Any UK organisation with employees, can apply provided they have created and started a PAYE payroll scheme, are enrolled for PAYE online and have a UK bank account.

Public sector and quasi-public sector organisations are not expected to use the scheme in most circumstances. HMRC guidance states: ‘Where employers receive public funding for staff costs, and that funding is continuing, we expect employers to use that money to continue to pay staff in the usual fashion – and correspondingly not furlough them. This also applies to non-public sector employers who receive public funding for staff costs.’ However, this does also acknowledge 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.’ There is also Cabinet Office guidance on how payments to suppliers of contingent workers impacted by coronavirus should be dealt with where the party receiving the contingent worker’s services is a central government department, an executive agency of a central government department or a non-departmental public body.

Which staff can be furloughed?

The furlough leave scheme is currently open to new entrants (meaning the employee need not have previously been furloughed).

For claim periods on or before 30 April 2021, the furloughed employee must have been employed on 30 October 2020, and a real time information (RTI) submission must have been made to HMRC for that employee between the 20 March 2020 and 30 October 2020.

For claim periods starting on or after 1 May 2021, the furloughed employee must have been employed on 2 March 2021, and an RTI must have been made to HMRC for that employee between 20 March 2020 and 2 March 2021.

Special rules apply in TUPE transfer situations and where an individual has been re-employed.

Furloughing staff

Can we furlough staff who are shielding or who have caring responsibilities?

Some clinically extremely vulnerable individuals have been asked to shield. Affected individuals will receive new shielding letters instructing them not to attend work if they are unable to work from home. Updated guidance on shielding will also be provided in due course.

CJRS guidance confirms that employees can be placed on furloughed because they are:

• unable to work because they are clinically extremely vulnerable, or at the highest risk of severe illness from coronavirus and following public health guidance; or
• because they have caring responsibilities resulting from coronavirus, including employees that need to look after children.

An employer does not need to be facing a wider reduction in demand, or be closed, to be eligible to claim for these employees.

Can we furlough staff who are off sick?

No, you should not use the CJRS simply because an employee is unwell. The CJRS is not intended to deal with short-term sick absences. Non-furloughed staff who become ill should be dealt with under your usual sickness procedures and their entitlement to sick pay will depend on their contract, earnings and reason for their illness.

However, if a member of staff is currently furloughed for business reasons, and they become unwell or incapacitated, they can remain furloughed. Whether they are entitled to be paid at their furlough rate of pay, or statutory sick pay, will depend on their contract of employment (as varied by the furlough agreement).

What evidence will HMRC require us to provide for furloughed staff?

To be eligible for the furlough leave grant, employers should write to their employee confirming that they have been furloughed and keep a record of this communication. In many cases, this will require an agreed change of contract (see the next question for guidance on this). A record of the letter placing the worker on furlough leave should be retained for five years. Further, collective agreement reached between an employer and a trade union is also acceptable evidence of agreement when making a claim. Employers should also retain records of the working and furloughed hours of staff, so that they can demonstrate to HMRC that workers have not been required to perform any work during furloughed hours.

Can we force employees to accept a period of furlough leave?

This will depend on whether you intend to pay them in full or not.

With some limited exceptions, there is no general implied term requiring an employer to provide work, provided it continues to pay the employee’s salary in full. Therefore, it is unlikely to be a breach of contract to place an employee on furlough leave (without their express agreement) provided you pay them their full pay, and deal with the matter appropriately, proportionately and sensitively.

If you intend to pay less than full pay during furlough leave (typically 80%), then express agreement will almost certainly be required. Most UK employment contracts are unlikely to have provisions allowing the employer to force the employee to take a period of furlough leave (unless they were amended during 2020 to grant the employer the power to do so).  

Therefore, placing an employee on furlough leave will involve a temporary change of contract. Employers should make sure any process followed is fair and involves consultation with employees; furlough leave should not be unilaterally imposed without consent.

In seeking to agree a temporary variation to the contract to place an employee on furlough leave, the following key points are relevant:

• Generally, where a variation of contract is expressly agreed by the employer and the employee, it will be enforceable if the employee’s consent was not obtained by duress.
• In workplaces where a trade union is recognised for collective bargaining purposes, the trade union should be consulted with about the proposed furlough leave and contractual variation.
• In these extreme circumstances, employees (and any trade unions) are likely to agree to a period of furlough leave, because the alternative is likely redundancies.
• If more than 20 employees are involved, and a dismissal and re-engagement process might be followed if voluntary consent to the change is not forthcoming (to force the change through without agreement), then the employer will have a duty to inform and consult appropriate representatives (which may require an election to select representatives). Please note that shorter consultation than the usual 30 or 45 days may be permissible. We advise you to take legal advice in respect of this.
• To minimise the risk of potential claims, the employer should act in a manner that would be expected of a reasonable employer. This could include having a business reason for making the change, following a fair procedure (including one-to-one meetings with employees) and acting reasonably in treating the employee’s refusal to sign as a reason for dismissal. Given the unusual circumstances we are dealing with, we again suggest you take legal advice in respect of this process.

How long can workers be furloughed for?

Seven days is the minimum length of any CJRS claim period to be eligible for HMRC reimbursement. The furlough leave scheme has been extended to 30 September 2021. Therefore, employers may want to retain some flexibility to allow them to extend the period of furlough leave if necessary and/or to recall employees on furlough leave back to work to cover staff absences etc (to the extent that tier or lockdown restrictions may permit the business to return to work).

Will the furlough leave scheme pay the wages of my staff who are still working?

No, while it is permissible to work part-time and be furloughed part-time, the CJRS guidance makes it clear that the CJRS grant cannot be claimed in respect of any hour in which the employee is working. The employer must meet the full costs of any hours when work is performed (including paying employer’s NICs and minimum pension contributions).

During any non-working hours for which the CJRS grant is claimed, the employee must not, directly or indirectly, work for the employer, or any associated or connected entity.

However, during any non-working hours for which the CJRS grant is claimed, a furloughed employee can:

• Take part in volunteer work for another organisation, as long as they do not provide services to, or generate revenue for or on behalf of, their employer (or an associated employer or connected entity).
• Be encouraged to undertake training (eg to complete online training courses relevant to their work) while they are furloughed, provided they are paid at least the national minimum or national living wage for those hours.
• Find work for another employer, if the contract permits this or you allow it.
• Undertake duties and activities, as a trade union or non-union employee representative, for the purpose of individual or collective representation of employees/workers (eg in a collective redundancy consultation exercise).

Can we ask an employee to go on ‘partial’ furlough leave?

Yes, the extended furlough leave scheme permits part-time working. The employer must meet the full costs of any hours when work is performed (including paying employer’s NICs and minimum pension contributions).

How do we choose which employees are placed on furlough leave and which are required to carry on working?

You do not need to place all of your employees on furlough. Many employers will be unable to place their entire workforce on furlough leave. Critical business functions may need to carry on (eg board or management oversight, IT support teams, finance teams etc). Choosing who needs to be placed on furlough leave, and who must continue to work, may prove a challenging task for some employers. This is especially difficult if you intend to pay staff on furlough leave their full pay, while other staff are being asked to work as normal for their pay.

The starting point is to consider business needs – which roles are critical to the business functioning during the next few months? Care must be taken to avoid direct or indirect discrimination in the selection process and, if you must select between staff doing identical business critical roles, you may wish to consider either asking for volunteers to work, having a selection matrix (akin to in a redundancy selection exercise), or using a method of randomised selection.

You may also wish to factor into your assessment of who should be furloughed:

• What will happen if a member of staff who is required to carry on working later falls ill or has to self-isolate? Have you allowed yourself sufficient staff to cover their absence?
• Do you have staff who are clinically extremely vulnerable and unable to work from home?
• Are any of the staff you could furlough classed as clinically vulnerable (and therefore could placing them on furlough leave offer a way to minimise their risk)?
• Do any staff with caring responsibilities (including caring for an individual who is shielding) want to be furloughed?
• Should staff rotate between periods of work and periods of furlough leave? The furlough leave scheme allows people to alternate periods of work, with periods of furlough leave (although the minimum CJRS claim period is seven days).
• Do you have employees who cannot be furloughed under the scheme rules eg because they entered your payroll too late?

Can an employee on furlough leave work elsewhere?

The answer to this depends on the circumstances:

• If the employee already has more than one employer, they can be furloughed for each job (the furlough leave reimbursement applies to each employer individually). This could lead to a situation where an employee with two employers is furloughed from neither, one, or both of their jobs.
• A furloughed employee can undertake voluntary work (eg delivering food parcels to vulnerable individuals).
• If contractually allowed, or with the express agreement of their employer, a furloughed employee is permitted to work for another employer during furlough leave. However, this work must not be for an associated or connected entity.

Claiming the furlough grant

How much pay can we recover under the furlough leave scheme?

Employers will receive a maximum grant from HMRC for any non-working furloughed hours of the lower of 80% of an employee’s regular wage or £2,500 per month until 30 June. This then reduces to 70% (£1750) in July, and 60% (£1500) in August and September.

An employer cannot claim the CJRS grant for:

• Employers NICs on worked or non-worked hours
• Minimum pension contributions on worked or non-worked hours
• Any pension contributions that are above the mandatory employer contribution
• Additional employer’s NICs or minimum pension contributions made because the worker’s pay is topped-up above 80%
• The cost of non-monetary benefits provided to employees (eg taxable benefits in kind such as life cover)
• Benefits provided through salary sacrifice schemes (including pension contributions) – although it may be possible for the worker to opt out of salary sacrifice and HMRC agrees that coronavirus and being furloughed is a ‘life event’ for the purposes of any opt-out of salary sacrifice.

Where the employer provides benefits to furloughed employees, these should be additional to the minimum wages that must be paid under the terms of the scheme. The employee will also continue to accrue annual leave. Employees can take annual leave during furlough leave, but the employer must ‘top up’ their wage during any leave and meet the cost of doing so.

Do we have to top up the pay of a worker on furlough leave to 100%?

It is the employer’s choice whether to top up pay to 100%; it is not compulsory. The decision may depend on the financial circumstances in the particular business (or in the part of the business in which the employee works). It may also be possible to justify doing so for only part of your workforce eg critical workers, but care should be taken to ensure selective top-ups are not discriminatory. Specific advice should be sought.

Terms and conditions during furlough leave

Will an employee on furlough leave accrue annual leave?

Yes, furloughed employees continue to accrue leave as per their employment contract. Employees can take annual leave during furlough leave, but the employer must top up their wage during any leave and meet the cost of doing so. 

To the extent that an employee’s contractual annual leave entitlement exceeds the minimum statutory entitlement of 5.6 weeks, it may be possible to expressly agree that the employee will waive their enhanced entitlement in exchange for their pay being topped up (beyond 80%) during the period of furlough leave. For example, if an employee’s contract provides for 25 days’ holiday plus 8 days’ bank holidays (making 33 days in total), then agreement could be sought to waive 5 days of this entitlement and convert that holiday entitlement into cash which can be then used to top up their furlough leave pay. 

Can an employee on furlough leave be required to take their annual leave during furlough leave?

In many situations, it is possible for an employer to require an employee to take some of their annual leave at a time chosen by the employer (including during a period of furlough leave).

Requiring furloughed employees to take some of their annual leave could have the effect of: (a) topping up the monthly pay of employees; and (b) meaning there is not a glut of accrued holiday to be taken later in the year (although, in some circumstances, the employee may be able to carry leave into the next two leave years – see When can a worker rely on coronavirus-related reasons to carry over their holiday entitlement?).

The starting point is to check the employment contract for any contractual provisions that may allow the employer to designate a specific period of annual leave (such provisions are very common). Secondly, check if there is any ‘relevant agreement’ under the Working Time Regulations that permits the employer to force an employee to take annual leave. If the contract or relevant agreement contains such provisions, the employer should comply with those terms, which may include giving a minimum amount of notice of a period of leave.

In the absence of such express provisions, an employer requiring an employee to take leave at specified times must give notice equivalent to at least twice the period of leave to be taken. For example, the employer must give two days’ notice to take one day’s leave, or two weeks’ notice to take one week’s leave.

Can an employee unable to take holiday due to coronavirus carry over their annual leave?

Anyone who is incapacitated due to coronavirus, and therefore unable to take all of their annual leave before the current leave year ends, will be entitled to carry it over in the usual way.

In addition, new regulations are now in force, which allow a worker to carry over up to four weeks of their annual leave into the next two leave years, if it was not reasonably practicable for them to take that leave because of the effects of coronavirus (including on the worker, the employer or the wider economy or society). For further details, see When can a worker rely on coronavirus-related reasons to carry over their holiday entitlement?

However, employers with furloughed employees should seriously consider requiring them to use at least part of their holiday entitlement during the furlough period. If it is not managed, in the return to normality, employees may return to work with significant accrued but untaken holiday, which may add pressure to an employer’s financial situation and also to staff resourcing (see above).

Will a furloughed employee be entitled to their contractual benefits and to accrue annual leave?

The furloughed employee will be entitled to continue to receive all of the non-discretionary benefits of their contract, including the right to accrue annual leave, unless they expressly agree to waive these. Statutory benefits, eg 5.6 weeks holiday per annum and minimum pension contributions under the pension’s auto-enrolment scheme, cannot be waived and must therefore continue. It may be possible to agree with staff the waiver of other contractual benefits. However, this will involve a change of contractual terms, so we recommend you take advice on this.

Staff can choose to voluntarily (and temporarily) opt out of pensions auto-enrolment, thus reducing the deductions from their pay. The money advice service has a free leaflet for staff considering opting out. However, employers should take care not to do anything to encourage staff to opt out, because it is unlawful to do so.

Rules applying during furlough leave

Can we undertake collective consultation during furlough leave?

Yes, you can. Taking part in a collective consultation process (eg for collective redundancies, or in connection with a proposed contractual variation) is unlikely to amount to ‘work’, because it does not provide services to, or generate revenue for their employer. By analogy, consultation of this nature can be undertaken during maternity leave without the employee having to terminate their maternity leave early.

Will we need to bring trade union or employee representatives off furlough leave during any collective consultation process?

No. The guidance has been amended to confirm: ‘while on furlough, employees who are union or non-union representatives may undertake duties and activities for the purpose of individual or collective representation of employees or other workers’. Therefore, provided the activities undertaken do not provide services to the employer, or generate an income for the employer, they can be undertaken while the trade union or elected employee representative remains on furlough leave.

Can we give notice of dismissal while employees remain on furlough leave?

Yes, an employee on furlough leave has no additional protection from dismissal not enjoyed by an employee who is not furloughed. However, an employer cannot make a CJRS claim in respect of any day upon which their employee is serving notice of termination so the costs associated with any period of notice falling after 1 December 2020 must be fully funded by the employer.