Coronavirus Job Retention Scheme and lay-off: what employers need to know



The Coronavirus Job Retention Scheme is intended to keep people in jobs during the COVID-19 crisis who would otherwise be made redundant.  The scheme is due to end on 30 September 2021. 

The full collection of HMRC guidance about the scheme appears here. 

How it works

Under the scheme, HMRC reimburses 80% of the wages of furloughed staff for the proportion of their usual hours which they do not work, up to £2,500 per month per employee.  

There is no minimum period of furlough.  Staff can be furloughed more than once, including on a rotating basis. 

To access the scheme, employers need to designate affected employees as 'furloughed workers' and must obtain written agreement from the employee (which can be communicated electronically). Once the employer has done so, it can apply for reimbursement through the online portal. 

Operation from 1 November 2020

Furloughed staff can work on a flexible basis, working fewer than their usual hours.  Employers should agree return terms in writing with the relevant staff and report their usual working hours and actual hours worked to HMRC when submitting claims. The furlough grant will cover 80% of their wage costs for the proportion of their usual hours which they are not working and they will be entitled to pay under their employment contract for the hours they are working. The furlough pay cap will be adjusted proportionately. 

The HMRC guidance sets out in detail how 'usual hours' should be calculated.  

Which staff are eligible? 

Any staff paid through PAYE are potentially eligible, including staff on zero hours contracts and agency workers (who may be furloughed by their agency).  

The scheme also includes statutory directors, office holders and salaried LLP members.  However,  it does not apply to self-employed individuals, although a broadly similar scheme for the self-employed is in place. 

For periods ending on or before 30 April 2021, you can claim for employees who were employed on 30 October 2020, as long as you made a PAYE Real Time Information (RTI) submission for that employee to HMRC between 20 March 2020 and 30 October 2020.

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 made a an RTI submission for that employee to HMRC between 20 March 2020 and 2 March 2021.

Businesses which have already commenced redundancy consultation (particularly collective redundancy consultation) will need to consider whether and how the extension of the scheme will alter their plans. 

Staff do not need to have been furloughed previously in order to be furloughed under the extended scheme.

What will be reimbursed by HMRC?

The grant from HMRC covers 80% of pay for furloughed hours, up to a maximum of £2,500 per employee per month (this amount is pro-rated to reflect the proportion of usual hours which the employee is not working). 

From 1 November 2020, the HMRC grant does not cover employer National Insurance Contributions and minimum employer auto-enrolment pension contributions, so employers will be liable for bearing these costs. 

From 1 July 2021, HMRC's contribution will decrease and employer contributions will increase.   From 1 July 2021, HMRC's contribution will cover 70% of pay (capped at £2,187.50 per month) for furloughed hours and from 1 August 2021 HMRC's contribution will cover 60% pay (capped at £1,875) for furloughed hours. 

The grant calculation is slightly different, depending on the employee's reference dates (see below)

Employers claiming under the scheme have to calculate the employee's reference pay and furloughed hours (i.e. the number of their usual hours which they are not working while furloughed) in order to calculate the reimbursement due. 

Reference dates

The employee’s reference date is 19 March 2020 if:

  • you paid the employee in the tax year 2019 to 2020 (and reported this to HMRC via RTI on or before 19 March 2020); 
  • you made a previous valid CJRS claim for the employee for a claim period ending on or before 31 October 2020; or
  • the employee was on their previous employer’s payroll on 28 February 2020, was transferred to you by that employer after 28 February 2020 and the TUPE or business succession rules applied to the transfer

If the reference date isn't 19 March 2020,  the employee’s reference date is 30 October 2020 if :

  • you paid the employee and reported it to HMRC via RTI between 20 March 2020 and 30 October 2020 (inclusive); 
  • you made a previous valid CJRS claim for the employee for a claim period between 1 November 2020 to 30 April 2021; or
  • the employee was on their previous employer’s payroll on or before 30 October 2020, was transferred to you by that employer after 31 August 2020 and the TUPE or business succession rules applied to the transfer

Where neither 19 March 2020 nor 30 October 2020 reference dates apply the employee is not eligible for periods starting before 1 May 2021. If you made a payment of earnings to the employee which was reported to HMRC via RTI between 31 October 2020 and 2 March 2021 (inclusive) they may be eligible for claim periods starting on or after 1 May 2021 and their reference date will be 2 March 2021.

Calculating reference pay

The rules for calculating reference pay are complex and detailed guidance appears here. 

For salaried staff, the reference pay is calculated using their contractual salary as at the reference date. 

For employees with a reference date of 19 March 2020, calculate 80% of the higher of the:

  • wages earned in the corresponding calendar period in a previous year
  • average wages payable in the tax year 2019 to 2020

For employees with a reference date of 30 October 2020, you need to calculate 80% of the average wages payable between 6 April 2020 (or, if later, the date the employment started) and the day before they were first furloughed on or after 1 November 2020.

For employees with a reference date of 2 March 2021, you need to calculate 80% of the average wages payable between 6 April 2020 (or, if later, the date the employment started) and the date before they were first furloughed on or after 1 May 2021.

For employees with variable pay, for claim periods which start on or after 1 May 2021, you should not include in the averaging calculations days during or wages related to a period of:

  • statutory sick pay related leave
  • family related statutory leave
  • reduced rate paid leave following a period of statutory sick pay related leave
  • reduced rate paid leave following a period of family related statutory leave

This is unless the employee was on one of these kinds of leave throughout the entire period used to calculate their average wages, in which case you should include the days during and wages related to that leave.

For staff who have taken such leave, you should not disregard payments that are not derived from the particular period of leave, for example performance related (non-discretionary) bonuses.

Contractual commission, past overtime and fees can be reimbursed, but not discretionary commission or bonuses.  It is not always straightforward to determine whether a bonus or commission scheme is genuinely discretionary or contractual and specialist advice may be useful here.   In general terms, if commission or bonuses are paid under a legally enforceable agreement, they will be recoverable under the scheme. 

Enhanced contractual maternity, paternity, shared parental, parental bereavement and adoption pay can be reimbursed under the scheme, although not statutory maternity pay, statutory paternity pay, etc. (although these are largely recoverable already under existing schemes).

Where staff receive benefits in kind, the cost of these will not be reimbursed.  Employers whose staff who receive benefits under a salary sacrifice arrangement will need to use the post-sacrifice salary for calculation purposes, but HMRC has confirmed that COVID-19 will be treated as a life event which would justify the employee opting out of the salary sacrifice scheme to increase their furlough pay.   This will need to be appropriately documented.  

Claims for full or part time employees returning from statutory leave (such as statutory maternity leave) should be calculated against their salary, before tax, not the pay they received whilst on statutory leave.

Calculating usual hours

For flexibly-furloughed staff, the employer must also calculate their usual working hours in order to claim for the difference between their usual working hours and their actual working hours (which = furloughed hours).  

For staff with fixed hours whose pay does not vary according to the hours they work, calculating normal working hours is straightforward – their normal working hours are their contractual working hours.

For staff who are entitled to receive paid overtime or similar payments, or whose hours vary, the calculations are more complex.

Again, the relevant dates for the calculations depend on the reference date. 

For employees with a reference date of 19 March 2020, you should calculate ‘usual hours’ based on the higher of the:

For other employees, you should calculate ‘usual hours’ based on the average number of hours worked in the period they worked from 6 April 2020 up to (and including) the day before the employee’s first day spent on furlough on or after either:

  • 1 November 2020 (for those with a reference date of 30 October 2020)
  • 1 May 2021 (for those with a reference date of 2 March 2021)

Can furloughed workers undertake any work?

Under the extended scheme applying from 1 November 2020, furloughed staff can work on a part-time basis, as under the previous flexible furlough scheme.   Any working pattern can be agreed. 

If staff are required to undertake training during furlough leave, they are entitled to be paid at least the applicable minimum wage rate for doing so, even if this exceeds the 80% which will be reimbursed by HMRC.

Directors can carry out statutory filing duties and other statutory duties relating to company administration, but otherwise must cease undertaking work for the company during furloughed hours (they can undertake flexible furlough and carry out these duties during working hours).

The guidance states that furloughed staff can carry out work for other (non-linked/associated) employers in any case without breaching the terms of the scheme - but some employers may not want to permit this. 

The guidance also states that 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.  This will include acting as a representative for collective redundancy consultation purposes. 

Do employers need to top up the additional 20% - or the extra salary for staff earning over £3,125 per month?

No, but some may wish to do so.   Whether or not pay is topped up, employers need to obtain the employee's agreement and document this in order to place them on the extended furlough scheme. 

Do employers need to pay employer's national insurance contributions and pension contributions on the 80%/£2,500 being reimbursed by the government?

These payments should be made in the normal way and will not be reimbursed. 

Does holiday accrue during furlough leave?

Yes.    The usual rules on calculating holiday pay will apply.   This means that, for staff with normal working hours, holiday should probably be based on usual contractual pay.  The government guidance now confirms that holiday can be taken during furlough leave and that that employers will be able to claim reimbursement of the 80% /£2,500 furlough pay for periods of holiday (although the employer will be responsible for the balance). 

What about staff on sick leave or who are self-isolating?  

Staff who are currently receiving SSP can be placed on furlough according to the government guidance, although being on sick leave should not be a consideration in deciding whether to furlough an individual.    The employer and employee need to agree that the period of sick leave and SSP entitlement will come to an end.  

However, the furlough scheme shouldn't be use to cover short-term absence of staff who would not otherwise have been placed on furlough. 

An employee who becomes sick during furlough can be moved onto SSP or can remain on furlough. 

As enhanced contractual sick pay is not recoverable,  employers may wish to specify in the furlough agreement that it is not payable during any furlough period. 

What steps does the employer need to take?

Businesses need to decide which employees to designate as furloughed employees, using appropriate criteria; consider the terms of the furlough leave it will offer, including the level of pay and impact on benefits; and consider if collective consultation obligations are triggered.  The government guidance makes it clear that these may be triggered if sufficient numbers of employees are involved. 

Anti-discrimination law will apply to furlough arrangements as with other aspects of employment, so employers will need to ensure that decisions about who is offered furlough and on what terms comply with the Equality Act.

Employers will need to obtain employees' written consent to be placed on 'furlough leave' and to carefully document the arrangements. The employer should keep a copy of the agreement/communication for at least 5 years.  Any employers who did not obtain written consent when first notifying staff of furlough arrangements should do so urgently. 

The government guidance summarises the formal steps to be taken in respect of company directors and LLP members; the decision of the company will need to be formally adopted, while the LLP agreement/deed of adherence may require formal amendment. 

Employers must submit information to HMRC about the employees that have been furloughed, actual working hours for flexibly furloughed staff and their earnings.   Employers will need to provide the following information:

  • PAYE reference number
  • the number of employees being furloughed
  • names and National Insurance numbers for the employees being furloughed
  • Payroll/works number for the employees you want to furlough
  • Self Assessment Unique Taxpayer Reference or Corporation Tax Unique Taxpayer Reference or Company Registration Number
  • the claim period (start and end date - usually this must be at least 7 days but this is subject to detailed provisions)
  • amount claimed
  • actual worked hours and usual working hours for furloughed staff undertaking some work
  • company bank account number and sort code
  • a contact name and phone number at the company

Employers will need to calculate the amount claimed. HMRC will be able to retrospectively audit all aspects of claims, so employers should keep adequate records in case the reimbursement is challenged by HMRC at a later date.

Can furloughed employees take on other work while furloughed?

Working for another employer does not breach the terms of the furlough scheme but in many cases would be a breach of their employment contract.  We recommend that employers make it very clear that this is not permitted if this is a concern.

Communicating with employees on furlough leave

Employers should ensure that staff who are placed on 'furlough' under this scheme receive regular updates about the business and are not disadvantaged by virtue of their status (e.g. in any future redundancy process).

Publication of claims

HMRC publishes the names of employers who have claimed under the scheme for claim periods from 1 December 2020 onwards, together with the value of their claims (within bands).  There are limited exceptions for employers which can demonstrate that publication would place them, their staff or officers at risk. 


My business may need to lay off employees as a result of the disruption of business. How does this work?

Although the Coronavirus Job Retention Scheme offers a helpful option for employers who need to reduce staff costs immediately, in some cases employers will still need to consider lay-off or redundancies as an alternative. 

A laid-off employee is an employee who is not paid because they have been given no work.  The employment contract must contain an express right to lay off the employee without pay (or the employment contract may permit the employer to reduce hours and pay accordingly, known as short time working).   

Laid-off employees and those on short-time working can claim a statutory redundancy payment if they have been employed for more than two years and have been laid off/working short-time for 4 weeks continuously or 6 weeks in total.   To claim the redundancy payment, they must serve a written notice on their employer within 4 weeks of the lay-off/short-time period ending.  The employer has an opportunity to dispute the claim by serving a counter-notice and the employee can bring a claim in the Employment Tribunal if the matter cannot be agreed between the parties.  

Laid-off employees are also entitled to receive a statutory guarantee payment (which is paid for up to 5 'workless days' in a three month period, at the rate of £30/day). 

What happens if there is no contractual right of lay-off?

If there is no such contractual right, the employer will not be entitled to lay them off without pay.   Laying off an employee with no or reduced pay in the absence of an express right (or the employee's agreement) would be a fundamental breach of contract, allowing the employee to claim a guarantee payment, sue for the pay or resign and claim constructive dismissal.   

Likewise, the only way to reduce hours in the absence of an express clause permitting this is to vary the employee's terms and conditions (which may entail collective consultation with employee representatives, depending on the numbers affected and whether the employer proposes to make redundancies if the changes are not agreed).

Can my employees take on extra work during a period of lay-off or short term working or during a period of paid leave?

Employment contracts may prevent this, in which case employers and employees can agree that employees are able to take on alternative work to supplement their income.

Employers will want to make sure that their employees are not working for a competitor, or that their employee's extra work does not compromise their ability to resume normal working hours when required.

Can I require staff to take paid annual leave if I don't have enough work for them?

Employers can require employees to take statutory annual leave. This can be for the whole of their annual leave entitlement due within the leave year, or for particular days.

Employers need to give two days' notice for every day that they require the employee to take off. For example, if the annual leave requirement is 7 days, employers need to give 14 days' notice of this requirement to the employee.



This note gives general guidance and an overview but is not intended to be legal advice. 

The situation in relation to COVID-19 is developing rapidly: we have sought to ensure that the contents are accurate as at the date of publication but you are advised to check for the latest information.

Public Health England provides public health information and up-to-date information is available here.  

Guidance for employers and employees provided by Advisory, Conciliation and Arbitration Service, is also available here

For any legal advice on specific circumstances please contact your usual Howard Kennedy Employment Team contact.

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