March 28, 2020
Employment Law

In this blog we explain what furlough leave is and how the Job Retention Scheme introduced by the Government as a result of COVID-19 can help employers and employees.

Please bear in mind the situation is fluid and if you would like advice around furlough leave or any other aspects of the COVID-19 Job Retention Scheme please contact one of our employment lawyers.


As a result of the economic impact of the COVID-19 pandemic, the Government has introduced the Coronavirus Job Retention Scheme. The scheme is intended to avoid redundancies by alleviating the pressure on employers to continue paying wages in full during the crisis period.

The scheme enables an employer and employee to agree to the employee being put on furlough leave i.e. a period of leave during which the employee is not required to work. The employer can then recover a proportion of the employee’s salary from HMRC. The level of reimbursement allowed will be the lower of 80% of wage costs or £2,500 per calendar month.

Once it is up and running the scheme will be backdated to 1 March 2020. The scheme will be open for three months and then extended if necessary. The Government expects the scheme to go live by the end of April 2020.

Which staff are included in the Job Retention Scheme?


The following individuals are covered by the scheme provided they were on the employer’s payroll on 28 February 2020:

  • Full-time employees.
  • Part-time employees.
  • Employees on agency contracts.
  • Employees on flexible or zero-hour contracts.

Employees who were made redundant since 28 February 2020 can qualify if they are re-engaged by their former employer.


The self-employed are not covered but a scheme is being set up to provide them with similar rights.

Does the employee have to be at risk of redundancy to be covered by the scheme?

The precise circumstances in which an employer can put employees on furlough leave remain unclear but it seems that the scheme is intended to cover employers who, without the scheme, would need to drastically cut their payroll as a result of the crisis, either through lay-off or redundancy. We will need to hear more from the Government about what evidence HMRC may require but we believe it is unlikely that employers will need to provide anything substantial to back up their claims. However, the Government has stated that it will retain the right to retrospectively audit all aspects of the scheme with scope to claw back fraudulent or erroneous claims.

Can you put employees on long-term sick leave on furlough leave?

Government guidance suggests that employees who are on sick leave or self-isolating should receive statutory sick pay (SSP) but can be furloughed once they have recovered or are no longer self-isolating.

It seems likely therefore that employees who are on long-term sick leave and have exhausted SSP will not qualify for furlough leave until they are fit for work.

Where an employer is selecting which employees to designate as furloughed, they must be mindful of the risk of discrimination if selection is linked to a protected characteristic such as disability.

Implementing furlough leave

What steps must employers take?

Government guidance states that employers should discuss the proposal with staff and make changes to the employment contract by agreement. It is a condition of eligibility for reimbursement that furlough leave is confirmed to the employee in writing.

Employers will need to:

  • Decide which employees to designate as furloughed employees.
  • Notify furloughed employees of the intended change.
  • Consider whether to consult with employee representatives or trade unions.
  • Agree the change with the furloughed employees in the form of a “furlough agreement” (more on this below). Most employment contracts will not permit an employer to reduce an employee’s pay, provide them with no work and change their employment status, without agreement. However, faced with the alternatives, which are likely to be unpaid leave, lay-off or redundancy, the majority of affected employees are likely to agree to be placed on furlough leave.
  • Confirm the employees’ new status in writing.This is an eligibility requirement for accessing the subsidy, and a record must be kept of this correspondence.
  • Submit information to HMRC about the employees that have been furloughed and their earnings through the new online portal, expected to be operational by the end of April 2020.
  • Ensure that the employees do not carry out any further work for that employer while they are furloughed.
Furlough Agreement

It is important that the agreement between the employer and employee for the employee to be placed on furlough is carefully drafted as it will amount to a variation to the employee’s employment contract. As well as covering rights to pay during the furlough leave itself, the agreement should address other benefits such as pension rights and bonus entitlement.

Deciding which employees to put on furlough leave

An employer could initially ask for volunteers. However, in some cases an employer may receive more volunteers than it wants to furlough. The procedure an employer follows to decide which employees to furlough may depend on its current financial situation. If the employer needs to very urgently furlough employees or make them redundant in order to be able to continue to trade, a limited selection procedure carried out on an urgent basis is likely to be acceptable. However, where an employer does not have any immediate financial concerns, it is likely to be more reasonable for it to follow a more comprehensive procedure in a similar way to redundancy scoring

It may seem unfair that some employees will be required to continue working, potentially increasing their risk of infection if they are unable to work from home, and others will be permitted to receive a substantial proportion of salary and not be required to do so. However, provided the employer has used appropriate, non-discriminatory criteria to choose who is granted furlough leave, it is possible for an employer to lawfully choose to furlough only part of the workforce.

Will employers need to collectively consult if they intend to put 20 or more employees on furlough leave?

The short answer is “yes” – the employer will have a duty to inform and consult appropriate employee representatives but this is a complex issue in these circumstances and what the employer should do depends on the employer’s position. If you are considering putting 20 or more employees on furlough leave please get in touch with us to discuss the best way forward.

Do employers have to top up the remaining 20%?

Employers are entitled to continue paying full pay during furlough leave, but they are not obliged to do so. If they do top up, they can only claim back employer national insurance contributions and minimum auto-enrolment payments up to the cap.

Withholding 20% of an employee’s salary will, however, amount to breach of contract and unlawful deduction of wages unless the employee gives their consent. It is expected that the majority of employees will consent since furlough leave is a better alternative than unpaid leave, lay-off or redundancy.

How does an employer make a claim to HMRC for reimbursement?

To claim, the employer will need to submit:

  • The employer’s PAYE reference number.
  • The number of employees being furloughed.
  • The claim period (start and end date).
  • The amount claimed.
  • The employer’s bank account number and sort code (UK bank account)
  • A contact phone number.

Employers can only submit one claim at least every three weeks, which is the minimum length an employee can be furloughed for. Claims can be backdated to 1 March 2020 if applicable.

Reimbursement will be paid via BACS payment to the nominated bank account.

The claim can only be made at the point at which the employer runs payroll or in advance of an imminent payroll because actual payroll amounts need to be submitted.

What can the employer claim back?

Employers can claim up to the lower of 80% of usual monthly wage costs or £2,500 per employee, plus the associated employer national insurance contributions and minimum auto-enrolment employer pension contributions.

Fees, commission and bonuses should not be included in the calculation.

The 80% calculation is based on the employee’s gross salary at 28 February 2020.

Auto-enrolment pension contributions and employer’s NICs can be reclaimed in addition to the cap.

The sum paid to the employee during furlough leave is subject to the income tax and national insurance in the usual way.

The reimbursement is made to offset those deductible revenue costs and should be treated as income in the business’s calculation of its taxable profits for income tax and corporation tax purposes, in accordance with normal principles.

If you have any questions or need help with any COVID-19 furlough issues please contact Marc Jones or Imogen Finnegan or call us on 0203 637 6374.