COVID-19 EXPERT LEGAL INSIGHTS

The Coronavirus Job Retention Scheme:
FAQs for UK Employers

Last updated: 4 August 2020

The situation is moving very rapidly. We will seek to update these FAQs as further developments occur and as the Government produces any new regulations and further guidance or new legislation.

Current Government guidance is available on their website and ACAS guidance can be found at hereIn addition, on 15 April 2020 the Treasury issued a Direction to HMRC, which forms the legislative underpinning for the Scheme and can be found here. However, there remain many questions and uncertainties. Here, we do our best to help by filling in as many gaps as possible.


The questions and answers in these pages are for general information only and must not be used as a substitute for legal advice. You should always take legal advice which is tailored to your specific circumstances.

What does “furlough” mean in the context of the scheme?

“Furlough” basically means temporary leave of absence. The purpose of the scheme is to incentivise employers to retain employees on paid temporary leave rather than making them redundant.

Through HMRC, the Government has been subsidising the earnings of furloughed employees (initially up to 80% of earnings, capped at £2,500 per month per employee, but this changed from 1 August 2020 (see question 11 below)).

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Which employers are eligible to apply?

The scheme is open to all UK employers (small, large, charitable, non-profit and for-profit) which were operating a PAYE payroll scheme on or before 19 March 2020 and which have a UK bank account.In principle, all employers are eligible to claim under the scheme.

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When will the scheme end?

The scheme will close on 31 October 2020.No further Government grants will be available from this date.

Adjustments (reductions) to the amount of grant that may be claimed under the scheme came into force on 1 August 2020 (when employers became liable to pay employer National Insurance Contributions and pension contributions in respect of furloughed employees).

Further adjustments will take effect on 1 September 2020 and then from 1 October 2020 (see question 11 below).

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Can we now furlough employees we have never furloughed before?

No, not unless they are returning from statutory family-related leave (i.e. maternity, shared parental, paternity, adoption or parental bereavement leave).

The last date on which employees could have been furloughed for the first time was 10 June 2020.

Employees returning from family-related leave may be furloughed for the first time after 10 June 2020, subject to certain conditions, including that they were on the employer’s payroll on or before 19 March 2020.Such individuals would not count towards the maximum number of employees an employer can make a claim for in a single claim period (see question 5). They would be in addition to that maximum number. 

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Is there a limit on the number of employees we can furlough?

Yes. The total number of employees you can claim for in any claim period cannot exceed the maximum number of employees you claimed for in any claim period up to 30 June 2020.

For example, if the maximum number of employees you have claimed for in a single claim period up to 30 June is 50 employees, you cannot claim for more than 50 employees in any single claim period after 1 July.

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Is there a maximum or minimum period for which employees must be furloughed?

Until 30 June 2020, any employees placed on furlough must have been furloughed for a minimum period of at least three consecutive weeks (which is why the last date on which an employee could have been furloughed for the first time was 10 June 2020).

The “Flexible Furlough Scheme” rules apply from 1 July 2020, under which there is no such minimum requirement. However, subject to certain exceptions, the period that employers can claim for in any claim period must be for a minimum of seven calendar days.

There is no maximum period for which employees may be furloughed (subject to the scheme closure date of 31 October 2020).

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Who can be furloughed?


From 1 July 2020, you can only claim the furlough grant in respect of employees who have been successfully furloughed at any point in the period between 1 March and 30 June 2020. 

Employees - general

You can claim in respect of employees (full-time, part-time, flexible, zero-hours) who were employed on 19 March 2020 and who were on your PAYE payroll on or before that date. This means that a “Real Time Information” (“RTI”) submission to HMRC notifying payment in respect of that employee must have been made on or before 19 March 2020.

New starters (i.e. those who commenced employment after 19 March 2020) may not be furloughed.

Employees who have already been made redundant

The furlough scheme applies retrospectively from 1 March 2020 to any employee who was on your payroll on or before 19 March 2020.

If you made employees redundant, or they stopped working for you on or after 28 February 2020, you could have re-employed and furloughed them under the scheme as long as you did this by 10 June 2020 and as long as they were on your PAYE payroll as at 28 February 2020. You can claim for their wages from the date you furloughed them, even if you did not re-employ them until after 19 March 2020.

If you made employees redundant, or they stopped working for you on or after 19 March 2020, you could have re-employed and furloughed them under the scheme as long as you did this by 10 June 2020 and as long as they were on your PAYE payroll as at 19 March 2020. You can claim for their wages through the scheme from the date on which you furloughed them.

From 1 July 2020, you can only claim under the scheme in respect of employees who have already been successfully furloughed at some point in the period 1 March 2020 and 30 June 2020.

Employees on fixed term contracts

If an employee’s fixed term contract has not already expired, it can be extended or renewed and the employee can be furloughed. However, as with permanent employees, fixed term employees can only be furloughed after 1 July 2020 if they have been successfully furloughed previously in the period between 1 March 2020 and 30 June 2020.

If a fixed term employee’s contract expired, you would have been able to re-employ and furlough them, provided you did so by 10 June 2020 and if either:

  • Their contract expired on or after 28 February 2020 and an RTI payment submission in respect of that employee was notified to HMRC on or before 28 February 2020; or
  • Their contract expired on or after 19 March 2020 and an RTI payment submission in respect of that employee was notified to HMRC on or before 19 March 2020.

Employees who started and ended the same contract between 28 February 2020 and 19 March 2020 do not qualify for the furlough scheme.

Employees on reduced hours and pay

For claims in the periods up to 30 June 2020, if an employee is working, but on reduced hours and for reduced pay, they will not be eligible to be furloughed.

Apprentices

Apprentices may be furloughed in the same way as other employees and can continue to train whilst furloughed.However, apprentices must be paid at least the Apprenticeship Minimum Wage/National Minimum Wage/National Living Wage, as appropriate, for all the time they spend training.This means you have to “top-up” the furlough grant you receive in respect of their pay to the appropriate minimum wage.

Agency workers (including those employed by umbrella companies)

Agency workers may be furloughed if they are paid through PAYE.

Furlough should be agreed between the agency (as the deemed employer) and the worker, though this should also be discussed with the end clients involved. 

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How does the “Flexible Furlough” scheme work?

From 1 July 2020, employees can be moved to a part-furlough/part-work arrangement. This means employers will be able to bring back their furloughed employees for any amount of time and on any work pattern.

Employers need to pay part-furloughed employees their wages as normal in respect of the hours they work and claim the furlough grant in respect of the hours they are furloughed. They will therefore need to calculate the usual hours of work of those individuals and their furloughed hours before they can calculate the amount of the furlough grant they will claim in respect of them (there is detailed guidance on how to do this).

A worked example (prepared by HMRC) of how to calculate the amount of furlough grant an employer should claim for an employee who is flexibly furloughed can be found here.

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Can we “un-furlough” employees if they are required to work and then “re-furlough” them, or rotate employees who are on furlough?

From 1 July 2020 – when the “Flexible Furlough” rules came into force - depending on the needs of your business, you can:

  • Keep all furloughed employees on furlough;
  • Bring back (“un-furlough”) some or all employees on furlough completely (i.e. require them to return to their normal working pattern);
  • Un-furlough some or all employees on a part-time basis; or
  • Un-furlough/re-furlough employees on rotation (e.g. require half of a team to return to work one week while the other half are on furlough and then switch the following week, etc).

You will need to make sure that any decisions regarding the approach you take (particularly if that involves rotation, or un-furloughing some employees and not others) are made objectively and in a non-discriminatory way.

You could have elected un-furlough employees before 1 July 2020, but have to  have done so fully (i.e. it was not possible to bring furloughed employees back to work on a part-time basis before that date).

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Can we furlough employees who have been furloughed before but who are currently back at work?

Yes, as long as they have been furloughed for a minimum of three consecutive weeks at some point between 1 March 2020 and 30 June 2020. Such employees did not need to be on furlough on 30 June 2020 in order to continue in the scheme.

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What can we claim?

Employers may claim the amount of a furloughed employee’s regular wages, employer National Insurance Contributions and minimum automatic enrolment pension contributions subject to the limits set out below.

Up to 31 July 2020

80% of wages, subject to £2,500 (gross) per month per employee, plus associated employer National Insurance Contributions and pension contributions.

Between 1 and 31 August 2020

80% of wages (subject to the same cap), but employers are liable to pay employer’s National Insurance Contributions and pension contributions in respect of furloughed employees.

Between 1 and 30 September 2020

70% of wages, subject to £2,187.50 (gross) per month per employee.

Employers will have to contribute the shortfall to the original grant (so 10% up to £312.50) to ensure that employees still get 80% of their wages (subject to the £2,500 cap), plus employer National Insurance Contributions and pension contributions.

Between 1 and 31 October 2020

60% of wages, subject to £1,875 (gross) per month per employee.

Employers will have to contribute the shortfall to the original grant (so 20% up to £625) to ensure that employees still get 80% of their wages (subject to the £2,500 cap), plus employer National Insurance Contributions and pension contributions.

No claims may be made for any period after 31 October 2020.

HMRC provides worked examples of calculating the amount of employees’ pay employers can claim for, which can be found here.

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How are “regular wages” calculated?

Salaried employees

You must use the employees’ actual salary before tax (i.e. gross) as at 19 March 2020.

Employees with varied pay

For employees whose pay varies (because they work irregular hours, for example), you must claim the higher of either:

  • The same month’s earnings from the previous year; and
  • Average monthly earnings from the 2019-2020 tax year.

If the employee with variable pay has been employed for less than a year, you can claim the average of their monthly earnings since they commenced work with you.

There is an online calculator to help you work out how much can be claimed as wages, National Insurance Contributions and pension contributions.

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Is commission, overtime, bonuses and tips included in the “regular wages” calculation?

Government guidance states that “regular contractual payments” may be claimed under the scheme. This includes wages, non-discretionary overtime, non-discretionary fees, non-discretionary commission/bonus payments and piece rate payments.

Discretionary bonuses, tips and non-cash payments are not included.

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How are salary sacrifice amounts treated?

The wage calculation is based on employees’ post-salary sacrifice wages as at 19 March 2020. Benefits provided through salary sacrifice arrangements cannot be claimed for.

Normally, employees cannot switch freely out of most salary sacrifice arrangements unless there is a life event. HMRC has confirmed in its guidance that COVID-19 counts as a life event that could warrant changes to salary sacrifice arrangements, if an employee’s employment contract is updated accordingly.

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Are benefits in kind included?

No. The cost of providing non-cash benefits - such as health insurance, gym membership, etc - is not included in the scheme and cannot be claimed for.

However, you will need to maintain such benefits as normal, unless something different is agreed with the furloughed employees.

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Do we have to pay furloughed employees the balance of their normal earnings (i.e. the amount not covered by the furlough grant)?

No. However, if you have been "topping up" the grant to full pay under your current furlough agreement with an employee and no longer wish to do so, depending on the wording of that original agreement, you will need a new or amended furlough agreement in place reflecting that change.

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What if employees’ furlough pay means they are effectively receiving less than the National Minimum Wage/National Living Wage

Furloughed employees may be paid just the furlough grant amount, even if that means they are receiving less than the National Minimum Wage (the idea being that, since they are not working, they are not entitled to pay).

However, time spent training whilst furloughed is treated as working time and employees must be paid at the appropriate National Minimum Wage in respect of such periods.

See question 7 on the position regarding apprentices.

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What happens if we cannot afford to pay the proportion of furloughed employees’ earnings that the scheme will no longer cover once it begins to be scaled back?

The contributions that employers are required to make from 1 August 2020 in order to receive the furlough grant are mandatory. 

If you cannot afford to make those contributions, you will need to remove those employees from furlough and consider other options, such as redundancies or varying their terms and conditions of employment (to reduce pay or working hours, for example).

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Is there a time limit on when we have to claim under the scheme?

Yes. Claims in respect of the period up to 30 June 2020 must have  been submitted by 31 July 2020.

The deadline for claims in respect of the period 1 July to 31 October 2020 has not yet been announced.

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Do furloughed employees continue to accrue annual leave?

Yes, furloughed employees continue to accrue their statutory holiday entitlement (5.6 weeks’ holiday per year for full-time employees) because they continue to be employed whilst furloughed.

However, as part of the furlough agreement with the employee, you can seek to agree to reduce any enhanced contractual holiday entitlement beyond the statutory minimum to reflect the fact that the employee has been on furlough.

Taking the Government guidance into account, the position on annual leave for furloughed employees can be summarised as follows:

  • Employees can take holiday whilst on furlough without breaking the period of furlough. To do so, they should give you notice of their holidays in the usual way.
  • You have the ability to restrict when holiday can be taken if there is a business need to do so.
  • You can require employees to take holiday while on furlough and the usual notice requirements will still apply.
  • However, before doing so, you should consider whether in reality, in view of the restrictions, such as the need to socially distance or self-isolate, they would be able to rest, relax and enjoy leisure time.

Specific guidance with further details has been issued on the subject of holiday during furlough.

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How is holiday pay treated?

Employees should be paid holiday pay in accordance with the Working Time Regulations. That is, despite being on furlough, they should be paid at their normal rate of pay or, where the rate of pay varies, pay calculated on the basis of average pay received by the employee in the previous 52 working weeks. This means you will have to “top up” the furlough pay as necessary to ensure that this is the case.

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What about employees on family-related leave?

Employees on statutory family-related leave (i.e. maternity, shared parental, paternity, adoption or parental bereavement leave) are subject to the normal rules in relation to such leave and pay.

However, you may need to calculate your employee’s average weekly earnings differently for these purposes if your employee was furloughed and then commenced leave on or after 25 April 2020. Broadly, the principle is that those earnings should be calculated based on the pay those employees would have received had they not been furloughed. This effectively means that those employees do not lose out if they are on a lower rate of furlough pay during the period for calculating their statutory family-related leave pay (statutory maternity pay, for example).

You can claim for enhanced contractual pay for employees who qualify for maternity pay, adoption pay, paternity pay, shared parental pay or parental bereavement pay. This means that, in relation to maternity pay (for example), you would reclaim statutory maternity pay in the usual way and the portion of the enhanced maternity payment through the furlough scheme.

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What about employees returning from family-related leave?

Employees returning from statutory family-related leave after 10 June 2020 may be furloughed, even if you are furloughing them for the first time.

For employees on fixed pay, the claim for full or part-time employees furloughed on return from such leave should be calculated based on their salary before tax and not the pay received whilst on leave. The same principles apply where the employee is returning from a period of unpaid statutory family-related leave.

For employees on variable pay, the furlough amount to be claimed in respect of them should be calculated using the higher of:

  • 80% of the same month’s wages from the previous year (subject to a maximum of £2,500 per month); or
  • 80% of the average monthly wages for the 2019 to 2020 tax year (subject to a maximum of £2,500 per month).

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What about employees on sick leave, or who are unable to work due to self-isolation?

The guidelines state that if an employee is on sick leave or self-isolating as a result of coronavirus, they will be eligible for Statutory Sick Pay (“SSP”), subject to other eligibility conditions being met. The furlough scheme is not intended for short-term absences from work due to sickness.

The guidelines also state that short term illness and isolation should not be a consideration in deciding whether an employee should be furloughed.

However, if you want to furlough an employee for business reasons and they are currently off sick, you may do so in the same way that you furlough other employees. In those circumstances, such employees would be classified as furloughed and no longer receive sick pay.

Such employees can continue to be furloughed from 1 July 2020 only if they have been successfully furloughed previously at any point in the period between 1 March 2020 and 30 June 2020.

 

What about employees on long term sick leave or who are shielding in line with public health guidance?

Employees who are shielding (or need to stay at home with someone who is shielding) may be furloughed. 

Employees who are on long-term sick leave may also be furloughed and it is for the employer to decide whether to furlough such individuals.

Both category of employee may only continue to be furloughed from 1 July so long as they have successfully been furloughed previously in the period between 1 March and 30 June 2020.

You can claim under the furlough scheme and under the SSP regime for the same employee in such circumstances but not for the same period. So, when an employee is on furlough, you can only claim the furlough grant in that period and not under the SSP rebate scheme.

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Can we furlough employees we have inherited by operation of TUPE?

If the employees transferred to you by operation of TUPE after 28 February 2020 and either the TUPE or PAYE business succession rules apply to the change in ownership (i.e. a “business transfer” under TUPE), those employees may be furloughed provided you have submitted a claim in respect of them in relation to a furlough period of at least three consecutive weeks any time between 1 March 2020 and 30 June 2020.

You can also claim the furlough grant in respect of employees who transfer to you after 10 June 2020, provided that the employees you seek to furlough have successfully been furloughed by their previous employer at some point in the period between 1 March 2020 and 30 June 2020.

In these circumstances, the maximum number of employees you can claim for is the total of both:

  • The maximum number of employees you claimed for in any claim period ending on or before 30 June 2020; and
  • The number of employees that are transferring to you under TUPE in respect of whom the transferor has claimed under the furlough scheme at any time between 1 March 2020 and 30 June 2020 (subject to the cap the transferor was subject to).

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What is the position regarding LLP members?

LLP members who are designated as employees for tax purposes (i.e. salaried members) may be furloughed.

To furlough a member, the terms of the LLP agreement may need to be varied by a formal decision of the LLP. The variation could, for example, reflect the fact that the member will not perform any work for the LLP whilst on furlough leave and the effect this will have on his/her remuneration from the LLP.

Self-employed partners with taxable profits below the £50,000 annual threshold may be eligible for support under the Coronavirus Self-Employment Income Support Scheme.

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What is the position regarding company directors and office holders?

Office holders can be furloughed, provided that the income they receive for holding their office is paid through the PAYE payroll.

As office holders, salaried company directors are also eligible to be furloughed. Where one or more individuals’ furlough is decided by the board of directors, this should be formally adopted as a decision of the company, noted in the company records and communicated in writing to the director(s) concerned.

Where furloughed directors need to carry out particular duties to fulfil the statutory obligations they owe to their company during hours in which they are recorded as being on furlough (directors’ duties under the Companies Act 2006), the Government guidance confirms that they may do so, provided they do no more than would reasonably be judged necessary for that purpose. They should not carry out work that they would carry out in normal circumstances to generate money for the company.

Company directors on furlough should therefore be very careful not to cross the line by carrying on their normal work. In practice, furlough might only be a realistic option for directors in certain companies whose business simply cannot continue during the crisis.

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What about self-employed consultants and other independent service providers?

Assuming they are not on your PAYE payroll then the furlough scheme will not apply to these categories of workers, but they may be eligible to apply for support under the Coronavirus Self-Employment Income Support Scheme.

Workers providing personal services to your business (other than through a business or profession), who are not your employees but are paid through your PAYE payroll, may be furloughed.

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Can furloughed employees do any work for us whilst on furlough?

Not until the flexible furlough scheme rules came into effect on 1 July 2020. Until then, employees could not do anything that provides services or makes money for the employer that had furloughed them, or for an organisation associated or linked with that employer. If they did carry out such work for you or an organisation associated/linked with yours, you may be required to repay the furlough grant.

It is important to draw this rule to the attention of the employees you intend to furlough so that they are aware not to do anything (work whilst furloughed) that could jeopardise your ability to claim under the scheme.

The flexible furlough scheme rules which came into force on 1 July 2020 mean that you have the option (after that date) to furlough employees for any amount of time and on any work pattern you wish based on the needs of the business (as long as those individuals have already been successfully furloughed at any point between 1 March 2020 and 30 June 2020). So, if you need an employee to work some, but not all of their usual working hours, it is possible for you to achieve that through flexible furlough.

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What can employees do whilst furloughed?

Furloughed employees may:

  • Take part in training (the purpose of which must be to improve employees’ effectiveness in your business or the performance of your business. The guidance states that employees should be encouraged to undertake training, but that undertaking the training should not provide services to or generate income for you or an organisation linked or associated with your organisation);
  • Undertake voluntary work for another employer or organisation; and
  • Work for another employer (if their contract of employment with you allows them to do so).

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How do we select who to furlough?

You will need to assess your requirements for employees to carry out work of particular kinds over the coming months. In some cases, where the business essentially needs to be temporarily closed, your requirements are likely to be only for a very small skeleton team. In other cases, where substantial business is likely still to be coming in and can be conducted safely and viably, you may only wish to furlough a small proportion of your workforce.

You should seek to apply fair and reasonable selection criteria, very much along the lines of a redundancy exercise, although rapidly executed. The selection criteria should usually be based on retaining the skills and experience that you need to keep going, as against those you do not anticipate needing in the next few months.

You should seek to consult with employees to the extent that this is practicable.

Where non-furloughed employees will be required to work from home it would in our view be reasonable to take into account the extent to which employees may not be able to work effectively from home, for example due to child care requirements. However, there are obvious potential discrimination risks in this area. You should not assume, for example, that female employees with young children will be unable to work effectively, or that they will necessarily be the primary carers.

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Do employees have to agree to being furloughed?

Strictly speaking, yes, depending on the wording of their employment contract.

The guidelines state that employers should discuss the matter with staff and make any changes to their employment contract by agreement. On the other hand, the guidance also states that the employee does not have to provide a written response to the employer’s written confirmation that they are furloughed.

The position therefore seems to be that, if the employee’s existing employment contract contains a contractual right for the employer to “lay off” the employee (i.e. put the employee on unpaid leave where there is a temporary cessation of work – such clauses are uncommon), the employee is not entitled to refuse to be furloughed. In any event, being furloughed would be more beneficial than lay off because lay off is unpaid leave, whereas furlough means the employee will receive at least some of their pay whilst furloughed.

If there is no lay off clause in the employment contract (the more likely scenario), furloughing an employee and reducing their pay will involve a change to their contract and so would need to be agreed by the employee. However, since the alternative to being furloughed is probably redundancy, it is likely that employees will agree to being furloughed. 

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Can employees insist on being furloughed?

No. It is for the employer to designate which employee to furlough.

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Will furloughed employees be gaining continuous service (for the purposes of statutory rights such as unfair dismissal and redundancy payments) while on furlough?

Yes. The contract of employment will remain in place throughout the furlough period. Employees will therefore remain in continuous service for statutory purposes if they are placed on furlough leave.

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What documentation are we required to keep?

The current guidelines state that employers should keep a copy of all records for six years, including:

  • The amount claimed and claim period for each employee;
  • The claim reference number for your records;
  • Your calculations in case HMRC need more information about your claim;
  • For employees you flexibly furloughed, usual hours worked including any calculations that were required; and
  • For employees you flexibly furloughed, actual hours worked.

You should also keep a copy of the furlough agreement and any documentation amending its terms. 

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How do we claim under the scheme?

Claims should be made through the Government’s online portal

You will need to have a Government Gateway user ID and password, which would have been assigned to you once you registered for PAYE online (which you must also do in order to claim).

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When will we receive the money once we submit a claim?

The guidelines state that once you have made a claim:

  • You will receive a claim reference number;
  • HMRC will then check that your claim is correct; and
  • Pay the claim amount by BACs into your bank account within six working days. 

The guidelines also instruct employers not to contact HMRC unless they have submitted a claim and not received anything for at least 10 working days.

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What if the company has gone or is going into administration?

Where a company is being taken under the management of an administrator, the administrator can furlough and claim for employees who have been successfully furloughed at any time between 1 March 2020 and 30 June 2020.

The guidance states that administrators should only use the furlough scheme if there is a reasonable likelihood of rehiring the workers.

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What about public sector organisations or organisations with employment costs funded through the public sector?

According to government guidance, if you have staff costs that are publicly funded (even if you’re not in the public sector), you should use that money to continue to pay your staff and not furlough your employees. This is because the majority of public sector employees are continuing to provide essential public services and/or contributing to the response to the coronavirus outbreak.

However, organisations can use the furlough scheme if they are not fully funded by government grants and the guidance states that they should contact their sponsor department or respective administration for further guidance.

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Are there additional issues to consider if I want to furlough an employee who is sponsored under Tier 2 of the immigration system?

Please see our UK Immigration FAQs. These also cover the temporary provisions currently in force on right to work checks.

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What happens if we do not comply with the strict conditions for applying for the furlough grant (for example, if employees do undertake the odd task for us whilst they are on furlough)?

This would be a breach of the furlough scheme rules and the Government has introduced provisions dealing with this within the Finance Act 2020, which came into force on 22 July 2020.

The new provisions provide for a new tax band on companies, effectively giving HMRC powers to recover monies from a business where it is proved that a claim under the furlough scheme did not meet the strict criteria set out by the Government.  In other words, if HMRC discover that employees on furlough were carrying out work for you, you will be required to repay the furlough grant you received in respect of those individuals (in the form of a tax), plus a penalty if you are found to have deliberately not complied with the rules (see below).  

The new legislation provides employers with a grace period to review and check the validity of their furlough claims and, if an error is found, notify HMRC and not have to pay a penalty.  The grace period is 90 days, ending on the latest of:

  • 90 days after the employer received the furlough grant it was not entitled to;
  • 90 days after the circumstances changed so that the employer was no longer entitled to keep the furlough grant received (for example, when the employee claimed for started carrying out work for it whilst furloughed); and
  • 20 October 2020.

If an employer knows it has received furlough grant amounts it was not entitled to and fails to ”own up” within the grace period, this will be treated as a “deliberate and concealed” failure to notify and it will be subject to a penalty starting at 100% of the tax. This means that repaying any furlough grant could cost double (i.e. the amount of the grant, plus the same amount by way of penalty).

If employers do come forward within the 90 day window, they will still have to repay the furlough grant they were not entitled to, but would escape the penalty.

If an employer “owns up” after the grace period, the penalty it pays can be reduced, but to no lower than 30% of the tax (or 50% if HMRC queried the claim and prompted disclosure).  

Criminal prosecution is likely to be considered (for defrauding the public purse) if an organisation fails to comply with a direction from HMRC to repay the furlough grant.  HMRC carried out its first arrest for “furlough fraud” in July (our partners, Richard Fox and Nicola Finnerty commented on this and the Finance Act 2020 in their article which was published in Business Matters on 22 July 2020).   

Further commentary on employers’ possible exposure in the event that furloughed employees are required to work can be found in our partner, Richard Fox’s article, published in SME Magazine in April.

It is recommended that you seek specialist advice if you have concerns regarding how you have implemented the furlough arrangements and what the new legislation may mean for you. 

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As a director, could I be personally liable for any furlough penalty?

Yes.  The new legislation includes powers to impose the penalty on company directors personally where HMRC is of the view that the company is at risk of becoming insolvent and unable to pay the tax. 

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