Last reviewed 2 August 2021

In March 2020, the Government announced its plans for financial assistance to help employers retain employees for an extended period of time through the Job Retention Scheme (furlough). This guide explores what employers need to know for furloughing employees from November 2020 onwards.

Understanding furlough and the Job Retention Scheme

Up until 2020, the concept of “furlough” had not existed in UK employment law. However, with the coronavirus outbreak causing issues for businesses across the UK, the Government implemented the Job Retention Scheme. This means that employers are able to place their employees on “furlough” — a temporary leave of absence where they are not required to work but are retained on the books to be brought back in when needed. Employers who do this can obtain a grant from the Government to cover the furloughed employees’ wages.

The word furlough generally means temporary leave of absence from work. In short, a furloughed employee is someone who, rather than being dismissed for redundancy by you, or being put on lay off, is kept on the payroll during a period where you do not have any work, or reduced work, for them. For example, if your business has experienced business downturn, or has had to temporarily close, you can furlough employees as a way of retaining them until business can return to normal.

Under the Job Retention Scheme, staff placed on furlough by following the correct procedure have a portion of their wages covered by the Government, up to a monthly maximum per employee. This means that you can continue to pay them while they are furloughed, and some of the cost is covered through a government grant.

Employees who are furloughed should always be paid at least 80% of their usual wages. Up until the end of June 2021, the Government provided this 80% through the furlough grant, with employers asked to cover National Insurance and employer pension contributions. From July 2021, the Government covered 70% of this, meaning employers needed to contribute 10%. On 1 August, the Government funding dropped to 60% (to a maximum of £1875 per month), meaning employers need to contribute 20% (to a maximum of £625 per month) to the wages of furloughed employees. This level of funding will remain in place until the end of the Scheme on 30 September 2021.

If you wish to benefit from this scheme, it is essential that you are familiar with the proper procedure as set by government guidance. It should be noted that this guidance is being updated continually by the Government, and the “how to” guide will be changed to reflect this where necessary.

Applications for the Government grant under the scheme opened on 20 April 2020. The scheme will close on 30 September 2021.

A brief history of the Job Retention Scheme

The scheme was originally launched in March 2020, with the Government providing 80% of employee wages alongside National Insurance and employer pension contributions. All staff who were furloughed were permitted to undertake no work for the organisation they worked for. However, the Government was adamant it did not want it to last indefinitely, and soon announced intentions to wind it down during the summer months.

In July 2020, a number of changes were made to the scheme, with the intention of winding it down until it was to be ended, and replaced by a new scheme on 31 October 2020. From July 2020, only employees who had previously been furloughed could be furloughed again, aside from limited exceptions. Perhaps more significantly, flexible furlough was introduced, meaning that furloughed staff could still undertake work, but no government grant could be claimed for the time in which they worked, and they needed to be paid in full. Please see Understanding full and flexible furlough below for more information.

From August 2020, organisations were asked to pay National Insurance and employer pension contributions for all furloughed employees, although the Government would continue to provide 80% of their wages. In September 2020, this dropped down to 70% and, in October 2020, to 60%. From 1 November 2020, a new scheme, the Job Retention Scheme, was set to replace the furlough scheme, with a focus on assisting organisations that could remain open as lockdown restrictions were relaxed.

However, on 31 October 2020 it was announced that the furlough scheme was to be extended once again due to the introduction of a new period of lockdown in England. The Government was to again provide 80% of employee wages, while organisations were asked to pay National Insurance and employer pension contributions. The Job Support Scheme was indefinitely postponed.

In March 2021, as part of the Spring Budget, it was announced that the scheme would be extended again until the end of September 2021.

Understanding full and flexible furlough

A furloughed employee is someone who, rather than being dismissed for redundancy by their employer or being put on lay off, is kept on the payroll during a period where the employer does not have any work for them, or does not have work for their full normal working hours.

An employee on full furlough will do no work for their employer during the claim period.

An employee on flexible furlough will work for some of their usual hours (ie part time) and will be recorded as being on furlough for the remainder of their usual hours during the claim period. For example, an employee who would normally work for 35 hours a week may agree to work for 15 hours a week and will be recorded as furloughed for the other 20 hours.

Guidance confirms that any part-time arrangement, including any amount of time or shift pattern, can be agreed; you have utmost flexibility to assess what will work for you.

When companies can use the Job Retention Scheme

Government guidance outlines that the scheme has been introduced to help businesses severely affected by the coronavirus. If your business has not seen a downturn due to the pandemic, you should not seek to use the scheme. From February, HMRC started to post a list of all companies who have used the scheme from 1 December 2020.

All employers with a UK bank account and UK PAYE schemes can use the scheme to claim the grant, whether their business is open or closed. There is no limit on size or sector and, importantly, you do not need to have used furlough before in order to use the scheme from November onwards.

If you have publicly-funded staff costs (even if you are not in the public sector), you should not use the scheme. However, you can use it if you are not fully funded by public grants.

Where a company is being taken under the management of an administrator, the administrator can furlough and claim for employees.

Furloughing staff eligibility

Before making any decisions to furlough staff, it is important you are aware of which staff can legally be furloughed under the Job Retention Scheme. To be eligible for furlough from 1 May 2021, the individual must be PAYE, meaning that you deduct their tax and National Insurance contributions before you pay them and are told how much to deduct through their tax code. Individuals must also have been on your PAYE payroll by 23:59 on 2 March 2021. This means a Real Time Information (RTI) submission notifying payment for that employee to HMRC must have been made between 20 March 2020 and 2 March 2021.

Full-time, part-time, temporary, zero hours and fixed-term staff can all be included as long as they are PAYE, as can apprentices. Office holders, (including directors), salaried members of LLPs, agency workers and those who fall into the employment status category of “worker” can be included.

From 1 May 2021

For periods starting on or after 1 May 2021, you can claim for employees who were employed on 2 March 2021, as long as you have made a PAYE Real Time Information (RTI) submission to HMRC between 20 March 2020 and 2 March 2021, notifying a payment of earnings for that employee. You do not need to have previously claimed for an employee before the 2 March 2021 to claim for periods starting on or after 1 May 2021.

Furloughing foreign nationals

Foreign nationals are eligible to be furloughed. You can furlough employees on all categories of visa.

Furloughing staff on a fixed-term contract

An employee on a fixed-term contract that has not expired can be kept on through the extension of their contract as long as they were employed by you on or before 30 October 2020. You must have made a PAYE Real Time Information (RTI) submission to HMRC between 20 March 2020 and 2 March 2021, notifying a payment of earnings for that employee.

Furloughing staff recently made redundant

For claim periods from 1 May 2021, it is not permissible to take back an employee who had previously been made redundant.

Prior to this date, it was possible to re-employee an employee who had recently been made redundant, in order to place them on furlough if certain criteria were met.

Furloughing employees due to shielding and childcare

Employees can be furloughed, if they are unable to work, including from home or working reduced hours because they:

  • are clinically extremely vulnerable, or at the highest risk of severe illness from coronavirus and following public health guidance. This category of individual was under advice to “shield” during certain periods of lockdown. Those who were shielding were eligible for furlough, and they remain eligible even though shielding has been paused, by virtue of their clinically extremely vulnerable status. The Government has made clear that furlough is an option in these circumstances even where the organisation is not experiencing a wider downturn in demand.

  • have caring responsibilities resulting from coronavirus, such as caring for children who are at home as a result of school and childcare facilities closing, or caring for a vulnerable individual in their household.

Furloughing employees with more than one employer

If your employee has more than one employer, they can be furloughed for each job. Each job is separate.

Employees can be furloughed in one job and receive a furloughed payment but continue working for another employer and receive their normal wages.

If an employee has had multiple employers over the past year, has only worked for one of them at any one time, and is being furloughed by their current employer, their former employer/s should not re-employ them, put them on furlough and claim for their wages through the scheme.

Furloughing employees transferred under TUPE

If you’re claiming for a period beginning on or after 1 May 2021 and you employ someone who was transferred from another business, you can claim under the normal rules if they were included on a PAYE Real Time Information (RTI) submission to HMRC on or before 2 March 2021.

Otherwise, you may still be eligible to claim in respect of the employees if the TUPE or PAYE business succession rules apply to the change in ownership.

The new employer can claim for employees transferred on or after 1 January 2021. The transferred employees must have been:

  • employed by the old employer on or before 2 March 2021

  • transferred from their old employer to their new employer on or after 1 January 2021

  • included on a PAYE Real Time Information (RTI) submission to HMRC, by their old employer, between 20 March 2020 and 2 March 2021.

Furloughing agency workers

Where agency workers are paid through PAYE, they are eligible to be furloughed and receive support through the scheme, including where they are employed by umbrella companies.

Furlough should be agreed between the agency, as the deemed employer, and the worker, though it would be advised to discuss the need to furlough with any end clients involved.

Where an agency supplies clients with workers who are employed by an umbrella company that operates the PAYE, it will be for the umbrella company and the worker to agree whether to furlough the worker or not.

Furloughing staff returning from family leave

If your employee returns from maternity, shared parental, adoption, paternity or parental bereavement leave and you are claiming in respect of a period that starts on or after 1 November 2020, the normal scheme rules apply.

If your employee decides to end their maternity leave early to enable them to be furloughed (with your agreement), they will need to give you at least eight weeks’ notice of their return to work and you will not be able to furlough them until the end of the eight weeks.

Furloughing staff on unpaid leave

The Scheme cannot be used in respect of employees on unpaid leave or unpaid sabbatical.

Choosing staff to furlough

It is up to you who you place on furlough. Decisions should be taken in line with business need and account for any particular challenges that it may be facing. You do not have to furlough all of your staff. Where selection does need to take place, it may be appropriate to implement a similar selection period as would be used in a redundancy situation so that the most effective employees remain in work.

Normal rules on discrimination still apply. You should take care not to make any decisions which could be seen to be discriminatory, and be able to justify why certain staff have been placed on furlough over others. For more information on discrimination, please refer to our detailed employment law pages.

Staff can volunteer themselves to be furloughed if they choose to. However, the final decision will rest with you. There is no automatic right to be furloughed.

Putting flexible furlough into practice

You need to assess whether flexible furlough will work for you. Demand for work will also dictate how much of the workforce needs to return, and for how many hours. The availability of employees will also be a factor; some may be unable to work for part of their hours due to childcare issues, shielding status or sickness absence, for example.

Other employees may have valid reservations about working, even on a part-time basis, based on their circumstances although there is no authorised medical reason, or practical issues such as childcare. This may be the case with employees who fall into the vulnerable category which includes pregnant employees, those who are over 70. If it is not possible for such employees to work from home, they may prefer to remain on full furlough.

Once you have determined you want to use flexible furlough, you need to assess how many employees wish to return and the specifics of the part-time arrangement. The affected employees should then be notified of the intention to implement flexible furlough.

Agreeing both full and flexible furlough with employees

You will need to get agreement from employees to designate them as furloughed and reduce their pay (if that is what you want to do — you may decide to furlough and keep on 100% pay by topping up the Government grant). To be eligible for the grant, employers must have confirmed to their employee (or reached collective agreement with a trade union) in writing that they have been furloughed.

Employers need to agree the pay reduction with employees as part of the agreement to furlough because normal employment law principles apply.

There is no requirement to carry out collective consultation, or notify the Secretary of State on the HR1 form when furloughing staff if you are not contemplating dismissing the employees for not accepting the variation of terms. Collective consultation will still be needed if you do contemplate dismissing 20+ employees as a result of not accepting the change in terms.

A Treasury direction provides that for an employee to be furloughed:

  • The employer and employee must have agreed (a collective agreement between the employer and a trade union will be sufficient) that the employee:

    • will do no work in relation to their employment; or

    • will not work for the full amount of the employee's usual hours in relation to their employment.

  • The agreement (including any collective agreement) must:

    • specify the main terms and conditions on which the employee will do no work in relation to their employment; or will not work for the full amount of the employee's usual hours in relation to their employment

    • be made before the beginning of the period to which the claim relates

    • be incorporated (expressly or impliedly) in the employee's contract

    • be made in writing, or confirmed in writing by the employer (which can be by electronic means such as email)

    • be retained by the employer until at least 30 June 2025.

  • The agreement may subsequently be varied to reflect any change to the part-time arrangement agreed during the period to which the claim relates.

A flexible furlough agreement should detail the part-time arrangement that the employee will undertake.

Agreement can either be agreed in writing, or confirmed in writing by the employer. The former would require a signature by the employee; the latter does not but will confirm a prior discussion with the employee where they have their agreement.

It may be helpful to discuss with employees in advance what arrangements may work well for them so that a suitable solution for both employer and employee is found.

Dealing with employees who refuse to be flexibly furloughed

If you attempt to place an employee on flexible furlough and they refuse, the first step would be to explore the reasons for refusal. As mentioned above, the refusal may be based on concerns about coming back to work at all, rather than specifically because of the part-time element. Employees who have been shielding or who have childcare issues may be reluctant to come back to work. (Shielding was paused in England and Wales from 1 April 2021 and from 26 April 2021 in Scotland.)

Requiring an employee to return to work, even on a part-time basis, who cannot due to childcare reasons, may run the risk of an indirect sex discrimination claim on the basis that women are traditionally the primary care givers and so such a requirement would disproportionately affect them. Childcare issues are likely to be temporary so employers should attempt to find a resolution until such a time as the issue no longer exists, for example, extending homeworking; implementing homeworking; flexible hours to work around childcare issues, etc.

Those who refuse simply because they wish to return full time instead of part time may give rise to consideration for dismissal, where you do not have enough work to offer full-time hours, on the basis of a refusal to accept a change to terms and conditions. However, a proper procedure would be required to ensure a fair dismissal.

Minimum period of furlough

There is no minimum period of furlough. This makes furlough much more flexible, with employers able to meet unexpected periods of increased or decreased demand a lot quicker whilst still being covered by the Scheme.

Rotating employees on and off furlough

You may choose to implement a rotation system of furlough where by employees are alternately furloughed and then required to work. For example, the employee will work full time for a period, followed by a period of part-time work, followed again by a period of full-time work and so on.

Managing staff on furlough

Staff are prohibited from doing any work for you during the hours they are recorded as furloughed. They can also undertake no work for organisations linked or associated with yours.

Employees on furlough can undertake training during the hours they are recorded as being on furlough. This will not count as work for the purposes of calculating working hours. National Minimum Wage rates will apply for any training done during furlough.

There is also nothing to stop the employee working for another employer during their furloughed hours, except for any contractual restrictions that apply.

Managing annual leave during furlough

During a period of furlough, statutory annual leave of 5.6 weeks per leave year continues to accrue. Annual leave can be taken by staff while on furlough, including bank holidays, however they must be paid in full for the time they take.

Government guidance states that if an employee is flexibly furloughed and takes annual leave, the hours of annual leave should be counted as furloughed hours and not working hours. This means that the employer may include these hours in their claim to the Scheme, but must top up pay to 100% because annual leave during furlough must be paid at normal pay.

Guidance also states that employees should not be placed on furlough for a period simply because they are on holiday for that period. If this rule were not in place, employers may arbitrarily place an employee who is about to go on annual leave on furlough in order to be able to recoup the permitted percentage of their wage costs through the scheme.

Calculating furloughed staff wages

You will need to calculate an employee’s reference salary in order to determine what 60% of it is (80% for claim periods up to the end of June 2021 and 70% during July 2021). When employees are on flexible furlough it will also be necessary to calculate what their usual hours are so you can record both working and furloughed hours.

Reference salary is taken from a specific period according to the rules and is not adjusted because someone gets a pay rise, eg because of NMW. A pay rise in April does not affect the salary you got in the last pay period before 19 March 2020 which is when the reference salary was taken from for furlough between March and October 2020, and also for furlough from November onwards when the employee was eligible the first time round.

Claims cannot be made for statutory payments, such as statutory maternity pay, and the gross amount of earnings falling for reimbursement must be correspondingly reduced.

Identifying your reference period for salary

For employees that meet the eligibility criteria, and were previously furloughed, you must use the same calculations for calculating reference pay and usual hours as the original JRS ie for those who either:

  • were on your payroll on 19 March 2020, that is you made a payment of earnings to them in the tax year 2019 to 2020 which was reported to HMRC on a Real Time Information (RTI) Full Payment Submission (FPS) on or before 19 March 2020

  • you made a valid JRS claim for in a claim period ending any time on or before 31 October 2020

In other words, the original calculation method is used for employees who:

  • qualified for the JRS back under the rules in place from March 2020 and were furloughed, as well as those who

  • qualified for it but were not furloughed.

The original method states the reference pay for those with fixed salary is that which they earned in their last pay period before 19 March 2020.

For those with variable/irregular pay and were employed from 6 April 2019, a different calculation must be done. If the employee has been employed (or engaged by an employment business) for a full 12 months prior to the claim, the employer can claim for the higher of either:

  • The same month’s earning from the previous year.

  • Average monthly earnings from the 2019–20 tax year.

If the employee has been employed for less than a year, the employer can claim for an average of their monthly earnings since they started work.

Where figures from May or June 2020 fall to be used in the determination, employers must substitute these with figures from the corresponding month in 2019. This modification has been made to account for the fact that employees furloughed in May or June 2021 could potentially have been furloughed during those months in 2020.

For an employee who does not fall into the categories above, the reference period is different.

For employees on a fixed salary, it is 60% (80% for claim periods up to the end of June 2021 and 70% during July 2021) of the wages payable in the last pay period ending on or before 30 October 2020.

If your fixed pay employee has worked enough overtime to have a significant effect on the amount you need to claim, you should calculate 60% (80% for claim periods up to the end of June 2021 and 70% during July 2021) of their usual wages using the method for employees whose pay varies. Examples of situations where overtime could have a significant effect on the claim amount include where the employee worked overtime:

  • in the reference period

  • in the corresponding calendar period to the pay period you are claiming for

  • a lot, or often, in the tax year up to the reference period.

You do not need to amend any previous claims, however if these circumstances apply you should use the calculation for employees whose pay varies for any future claims. For employees whose pay varies, it is 60% (80% for claim periods up to the end of June 2021 and 70% during July 2021) of the average payable between the start date of their employment or 6 April 2020 (whichever is later) and the day before their JRS extension furlough periods begins.

Where employees are flexibly furloughed, their usual hours need to be calculated.

Where employees were eligible for the JRS between March and October 2020, the original method of calculation should be used with one modification: where figures from May or June 2020 fall to be used in the determination, employers must substitute these with figures from the corresponding month in 2019. This modification has been made to account for the fact that employees furloughed in May or Junel 2021 could potentially have been furloughed during those months in 2020.

If an employee was not previously eligible for the scheme and works fixed hours or their pay does not vary according to the number of hours they work, their usual hours will be the contracted hours worked in the last pay period ending on or before 30 October 2020.

If an employee was not previously eligible for the scheme and works variable hours, their usual hours will be the average hours worked between:

  • the start date of the 2020 to 2021 tax year, (for example, 6 April 2020)

  • the day before their JRS extension furlough periods begins.

All of the above dates are inclusive.

You’ll then need to work out 70% of your employee’s usual wage.

Preparing for the claim

You will need to do the following:

  • Decide on the length of the claim period. The start date of your first claim period is the date your first employee was furloughed. Claim periods must start and end within the same calendar month. All claim periods must last at least seven days. Periods of fewer than seven days can be claimed for if they are what HMRC call an “orphan period”, which is a period of no more than six consecutive days that:

    • begins on the first day of a JRS extension calendar month, or

    • ends on the last day of a JRS extension calendar month.

  • You should match your claim period to the dates you process your payroll, if you can. You can only make one claim for any period so you must include all your furloughed or flexibly furloughed employees in one claim even if you pay them at different times.

  • Claims cannot straddle calendar months from July so the claim periods must start and end within the same calendar month. Separate claims must be submitted where the pay period contains days which fall into more than one calendar month.

  • Determine the employee’s reference salary.

  • Calculate 60% (80% for claim periods up to the end of June 2021 and 70% during July 2021) of the employee’s wage, bearing in mind which elements may be included and which may not. These rules are the same as under the original furlough arrangement.

  • Calculate the employee’s usual working hours for the claim period, together with the number of hours the employee has worked/will work in that period, and the remaining number of hours, in the context of the usual hours, that they will not/did not work. Employers do not need to calculate usual and furloughed hours if the employee is fully furloughed ie did no work for you during the claim period.

  • Determine the applicable cap on furlough pay (this will differ depending on the month the pay relates to).

  • Calculate the minimum furlough pay.

Applying for the grant

HMRC’s online portal to apply for the grant opened in April 2020. To claim, you will need the following:

  • employer PAYE scheme reference number

  • the number of employees being furloughed

  • National Insurance numbers for the furloughed employees

  • names of the furloughed employees

  • payroll/employee numbers for the furloughed employees (optional)

  • their Self Assessment Unique Taxpayer Reference, Corporation Tax Unique Taxpayer Reference, Company Registration Number or Employer Name (as appropriate)

  • the claim period (start and end date)

  • amount claimed (per the minimum length of furloughing of three consecutive weeks)

  • their bank account number and sort code

  • their contact name

  • their phone number.

If you use an agent who is authorised to act for you for PAYE purposes, they will be able to make a claim on your behalf. If you use a file only agent (who files your RTI return but doesn’t act for you on any other matters) they won’t be authorised to make a claim and you will need to make the claim yourself.

Claims must be submitted by 11.59pm 14 calendar days after the month you’re claiming for. The full set of deadlines are:

  • November claims: deadline is 14 December 2020 (now passed)

  • December claims: deadline is 14 January 2021 (now passed)

  • January claims: deadline is 15 February 2021 (now passed

  • February claims: deadline is 15 March 2021 (now passed)

  • March claims: deadline is 14 April 2021 (now passed)

  • April claims: deadline is 14 May 2021 (now passed)

  • May claims: deadline is 14 June 2021 (now passed)

  • June claims: deadline is 14 July 2021 (now passed)

  • July claims: deadline is 16 August 2021

  • August claims: deadline is 14 September 2021

  • September claims: deadline is 14 October 2021.

HMRC may accept a claim made after the relevant deadline if you have a reasonable excuse, have taken reasonable care to try and claim on time, and claimed without delay as soon as you were able to. You should contact HMRC to ask to submit a late claim. You should do this as soon as you are ready to make your claim. You should only contact HMRC after the claim deadline has passed.

HMRC may accept a claim made after the relevant deadline if you had a reasonable excuse for failing to make a claim in time despite taking reasonable care to do so and you then claimed without delay after the excuse no longer applied. You may have reasonable excuse if for example:

  • your partner or another close relative died shortly before the claim deadline

  • you had an unexpected stay in hospital that prevented you from dealing with your claim

  • you had a serious or life-threatening illness, including Coronavirus-related illnesses, which prevented you from making your claim (and no one else could claim for you)

  • a period of self-isolation prevented you from making your claim (and no one else could make the claim for you)

  • your computer or software failed just before or while you were preparing your online claim

  • service issues with HMRC online services prevented you from making your claim

  • a fire, flood or theft prevented you them from making your claim

  • postal delays that you could not have predicted prevented you from making your claim

  • delays related to a disability you have prevented you from making your claim

  • an HMRC error prevented you from making your claim.

Dealing with errors in claims

If an error has been made in a claim that has resulted in the employer receiving too little money, they still need to pay their employees the correct amount. They should contact HMRC to amend the claim.

Employers can no longer:

  • submit any further claims for periods ending on or before 31 October 2020

  • add to existing claims for periods on or before 31 October 2020.

For claims relating to periods after 1 November 2020, amounts claimed can only be increased if the claim is amended within 28 calendar days after the month the claim relates to (unless this falls on a weekend or a bank holiday, it would then be the next working day).

To amend a claim for:

Claim must be amended by 11:59pm on:

November 2020

29 December 2020

December 2020

28 January 2021

January 2021

1 March 2021

February 2021

29 March 2021

March 2021

28 April 2021

April 2021

28 May 2021

May 2021

28 June 2021

June 2021

28 July 2021

July 2021

31 August 2021

August 2021

28 September 2021

September 2021

28 October 2021

Taking staff off furlough

Staff can be furloughed more than once, depending on the needs of your business. If you wish to end a period of furlough, you should notify the employee when you expect them to return to work. You should also make clear if this is to be in the workplace or working from home.

Depending on your circumstances, it may also be necessary to extend a period of furlough. Again, notification should be provided to the staff member.

It is advisable to provide as much written notice as is reasonably possible. While government guidance does not outline what should be considered reasonable, you should consider providing at least one week's notice. This gives staff time to get their personal situation in order; for example, they may need this time to make arrangements for child care.

You can ask staff to volunteer to come back in off furlough, something that may prove popular if staff have been receiving 80% of their wages. This can be a useful way of managing a situation where you do not want your staff to all return at once. If too many volunteer, you should then consider different processes, such as a rota system or asking staff to return part time through flexible furlough. Alternatively, you may also need to implement a selection criteria. Any procedure put in place should be non-discriminatory.