The latest on the Coronavirus Job Retention Scheme

7 April 2020

As of 10am on 7 April 2020, the Government’s Coronavirus Job Retention Scheme (the “Scheme”) can be interpreted as follows:


  • The Scheme will apply from 1 March 2020 to 31 May 2020; it may be extended.
  • The Government will refund up to 80% of “usual monthly wage costs” (excluding fees, bonuses and most commission) up to a maximum of £2,500 per month for those employees furloughed PLUS the associated Employers’ National Insurance Contributions AND minimum auto-enrolment pension contributions.
  • It applies to employees on the PAYE payroll as at 19 MARCH 2020 (THE QUALIFICATION DATE HAVING BEEN REVISED ON 15.04.2020) including zero-hour contract workers and agency workers if on PAYE. Critically, it also includes anyone who was on the payroll at 28 February 2020, made redundant thereafter and then re-hired by the employer.
  • “Furlough” is not a term ordinarily used in employment law in England & Wales.  The guidance refers to both employees who have been “laid off” and employees “kept on payroll”. Each of these terms are being used in a non-technical sense and the Scheme only makes sense if “furlough” applies to employees that are placed on paid leave.
  • Currently, under this Scheme, the provisions only relate to employees under PAYE. There is a separate scheme for those who are self-employed.
  • The government guidance states the Scheme applies to those employees “that would otherwise have been laid off during the crisis”. However, it is not thought that employers will need to prove that the employee in question would otherwise have been laid off or made redundant.
  • The contribution will be against the Employer’s gross payments.
  • The Scheme applies to “PAYE employees” and includes: (I) office holders (including Company directors), (II) salaried members of LLPs, (III) agency workers (including those employed by umbrella companies), (IV) limb (b) workers, and (V) apprentices (who may continue to undertake training if they are furloughed).
  • Employers who receive public funding for staff costs are not expected to apply for funding under the Scheme; neither are those employers who provide services necessary to the Coronavirus response.

Variable earnings

  • For those whose pay varies, there is a choice of calculation – the higher of: (a) the earnings in the same month in 2019; or (b) average over the 2019/20 tax year (or a monthly average for a shorter period if they have not been in the job for the whole year). In the case of an employee who only started in February 2020, the employer will be required to pro-rate the employee’s earnings so far.
  • It is possible to “claim for any regular payments you are obliged to pay your employees”. The recent guidance states this includes “past overtime” and “compulsory commission”, but not “discretionary bonus and commission payments”. HMRC are advising that this includes, only, those contractual payments that fall due in the furlough period. The relevance of the term ‘regular payments’ has not yet been clarified.

Contractual variation

  • There is no requirement under the Scheme for employers to “fund the differences between this payment and…salary”.  However, that does not mean a suspension of general contract law or statutory protection.  There would still need to be a contractual right to reduce salary and/or consent to the reduction. There would also need to be a contractual right to furlough or consent to being furloughed.
  • According to guidance, an employer will need to: (i) designate affected employees as ‘furloughed workers,’ and notify employees of this change in writing (to be retained for five years) – changing the status of employees remains subject to existing employment law and, depending on the employment contract, may be subject to negotiation; and (ii) submit information to HMRC about the employees that have been furloughed and their earnings through a new online portal (HMRC will set out further details on the information required). HMRC are working urgently to set up a system for reimbursement.
  • Employees cannot furlough themselves.  It is at the discretion of employers (although in most cases it is likely to require the Employee’s consent).
  • Employees on fixed term contracts can be furloughed. The Scheme also permits those contracts to be extended and for furlough to apply.

Practical details

  • The minimum period for which an employee can be furloughed is three weeks. In theory, part of a workforce could be furloughed for three weeks, then working again, while another part of the workforce is furloughed for three weeks i.e. employers can rotate employees, but for a minimum of three weeks at a time. Employees can be furloughed multiple times.
  • An employee cannot carry out any work for the employer during the furlough period. However, they are able to undertake training and do volunteer work, provided they do not provide services to or make any money for their employer. They are also able to take paid employment with another employer whilst furloughed with the first employer (subject to any contractual restraints/consent).
  • One very unfortunate consequence of the Scheme is that it arguably encourages employers to furlough employees that could otherwise do reduced hours from home.  Many employees have work to do, it is just greatly reduced.
  • Ordinarily, individuals are entitled to the minimum wage for the hours they work. So if they are furloughed and do not work, and 80% of their normal earnings would take them below the minimum wage based on their normal working hours, they still only receive 80% as they are not working.  However, they are entitled to be paid National Minimum Wage for any time spent training. If the hours spent training result in the employee earning over their furlough income, the employer will need to pay this.
  • Employers can only claim once every three weeks; they cannot get weekly reimbursement. Claims can be backdated to 1 March 2020.
  • Employees on maternity (or similar) leave can continue to draw SMP (or similar) payments.  The guidance does not prohibit women on maternity leave agreeing to return to work early and then being furloughed, or electing to change to Shared Parental Leave and then being furloughed.
  • There is a risk that the regulations could state that the £2,500 or 80% grant is per employee, not per employer i.e. HMRC pays £2,500/80% of the combined relevant earnings of any employee. There is nothing to suggest this at the moment but arguably you could guard against it in a furlough agreement by stating that should the detail of HMRC’s Employee Retention Scheme only allow a rebate per employee, the employee will be required to repay to the company such proportion paid by the company whilst under furlough that it is unable to recover from HMRC because of the other employment income.

Other important considerations

  • The employer must be careful not to discriminate in deciding who to offer furlough to. Something akin to a redundancy selection process would be a possible option.
  • Inevitably, ordinary discrimination principles and constructive dismissal issues will apply to an employer’s selection of employees for furlough (or any other perceived detriment).  Employees may see a selection for furlough as a quasi-selection for redundancy (and it may involve “accepting” a reduced salary).
  • If employers are considering dismissing employees that refuse to be furloughed, the full number of potentially furloughed staff will apply for the purposes of triggering collective consultation requirements (subject to timings etc).

Annual leave and Sickness absence

  • Furloughed workers will continue to accrue holiday entitlement during the furlough. Currently, there is nothing explicit in the Scheme to prevent employers requiring employees to take accrued holiday entitlement during furlough (subject to statutory and contractual notification and other obligations). However, whether that is consistent with European jurisprudence on holiday entitlement may be a cause of future litigation.
  • An unfortunate consequence of the Scheme is that those on SSP are likely to be paid less than those furloughed. Employers cannot claim for employees that are receiving SSP. However, employees that are ‘shielding’ in line with public health guidelines and are not working from home can be furloughed.

HMRC Guidance


Additional resources: (updated 6 April 2020) (updated 6 April 2020)


This content is produced for guidance purposes only and does not constitute legal advice. It should also be noted that the guidance is deliberately narrow and to aid understanding of the new Scheme and its administration