Coronavirus Job Retention Scheme FAQ


Many of our clients and contacts are asking us for further advice and support in relation to the government’s ‘Coronavirus Job Retention Scheme’.  

As a result, we have created this FAQ document to highlight certain key aspects of the Scheme.

The government announced some additional details regarding the operation of the scheme on 4 April, so we have updated this document accordingly – our priority is to continue to update and support you during this difficult time.  

While there are clearly cash flow and tax implications from the scheme, we must reiterate that this is an employment law matter first and foremost and you therefore must seek the appropriate legal advice. 

What is furloughing?

The Government unveiled the Coronavirus Job Retention Scheme on 20 March, introducing the payment of grants of up to £2,500 of wage costs per person per month (see below for the definition) for any employee on ‘leave of absence’ (or ‘furlough’). This involves an employee being sent home without work, and no longer being available to the business or organisation (charities and public authorities are covered too). This will not apply, therefore, if an employee is able to and does work from home, or for contractors.  In some cases, however, contractors may qualify for self-employment reliefs, or as furloughed employees of their own company.  However, the operation of the rules (by reference to prior trading income or salaries) may limit the availability of relief.

Any employer can use furloughing, regardless of its sector and size - as long as it has employees and sends them home without work. The ‘without work’ point is fundamental. The government guidance states that “HMRC will retain the right to retrospectively audit all aspects of [any] claim” – and this could potentially include a forensic analysis of a business’ non-financial systems to confirm that employees subject to a claim have not been working. 

To be safe, you may need to lock furloughed employees out of some of your remote working systems to ensure that they are not ‘helpful’ and give rise to a liability (and potentially significant penalty) in the future.

Who does it affect?

The Scheme applies to full-time and part-time employees, as well as employees on agency contracts and employees on flexible or zero-hour contracts - and there is specific guidance on how an employer should calculate 80% of normal pay in cases where the employee’s pay varies.  The government has also now issued guidance on how the Scheme applies to employees who are on Statutory Sick Pay, Maternity Leave, paternity pay etc.

Although the Scheme is designed to help employers who have been severely affected by measures to tackle coronavirus, it is available to all UK employers that had created and started a PAYE payroll scheme on or before 28 February 2020, have enrolled for PAYE online and have a UK bank account. In addition, where a company is being taken under the management of an administrator, the administrator will be able to access the Scheme on behalf of the company. It is also specifically noted that the Scheme will not be used by many public sector organisations, which are continuing to provide essential public services or contributing to the response to the coronavirus outbreak.

The Scheme will be available to office holders and company directors as well as employees, as long as the furlough conditions are met.  However, this requires the director to have been on the company payroll, and receiving salary in the qualifying period.  Where a company considers that it is in compliance with the statutory duties of one or more of its individual salaried directors, the board can furlough that director, and this should be formally adopted as a decision of the company in the company records.

Where furloughed directors need to carry out duties to fulfil the statutory obligations they owe to their company, they may do so provided they do no more than would reasonably be judged necessary for that purpose. They should not do work of a kind they would carry out in normal circumstances to generate commercial revenue or provide services to or on behalf of their company. These rules also apply to salaried individuals who are directors of their own personal service company (PSC).

Many directors of small companies will be in receipt of no, or limited salary, and receive the majority of their income in the form of dividends, giving a low salary base from which to calculate any furlough payment.  Neither this Scheme, nor the relief for self-employed individuals, will compensate for the loss of income attributable to dividends.

Salaried members of Limited Liability Partnerships (LLPs), who are designated as employees for tax purposes, are able to be furloughed. It may be that the terms of the LLP agreement may need to be varied by a formal decision to reflect that the member will perform no work for the LLP during the furlough and that effect of this on their remuneration.

There is also now specific reference within the guidance to employees who are shielding and those with caring responsibilities.

How will it work?

This is what we know so far:

  • An online portal is being set up by HMRC to manage the scheme.  Although not yet operational, it is planned to go live by the end of April
  • The government will pay 80% of usual monthly wage costs to the employer, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that amount
  • There will be a recovery cap of £2,500 per month, which is the figure being paid to the employee (not the normal wage)
  • Pension and NI contributions still need to be paid by the employer to HMRC
  • Furlough grants can still operate alongside HMRC’s ‘Time to Pay’ arrangements in respect of PAYE liabilities
  • Grants will be pro-rated if an employee is only furloughed for part of a pay period.  Claims should be started from the date the employee finished work and starts furlough, not when the decision is made or the employee is written to
  • An employer can choose to top-up wages to 100%.  However, there is no requirement for employers to top up. You cannot claim for additional National Insurance and pension contributions you make because you choose to top up or any pension contributions above the mandatory employer contribution
  • You can claim for any regular payments you are obliged to pay your employee, including wages, past overtime, fees and compulsory commission. However discretionary bonuses, tips, commission payments and non-cash payments should be excluded
  • The cost of non-monetary benefits provided to employees, including taxable benefits in kind provided through salary sacrifice schemes, should not be included.  Coronavirus has been noted as a ‘life event’, enabling an employee to agree to change a salary sacrifice arrangement
  • Employers can only submit one claim to HMRC under the Scheme at least every three weeks, which is the minimum length for which an employee can be furloughed
  • The amounts received by an employer under the Scheme need to be included as income in its calculation of its taxable profits for Income Tax and Corporation Tax purposes
  • It is available to employees on the payroll at 28 February 2020. The Scheme also covers employees who were made redundant since 28 February 2020, if they are rehired by their employer. It is therefore possible that employees who have been dismissed by reason of redundancy since the start of March can be re-engaged, if they agree, and then placed on furlough leave.
How do I put an employee on furlough?

The government’s advice makes it clear that: “Employers should discuss with their staff and make any changes to the employment contract by agreement. When employers are making decisions in relation to the process, including deciding who to offer furlough to, equality and discrimination laws will apply in the usual way.” 

If an employment contract has clauses permitting short time working or the ability to introduce lay off, then no consent should be required to put an employee on furlough leave. 

However, consent will be required if there are no such clauses. Placing an employee on furlough leave with a reduction in pay without consent will be a change of status, as described in the government guidance. As such, it will amount to a fundamental change to their contract of employment and would normally require employee consent.

Selection for furlough should take place via a simplified selection criteria process, akin to redundancy. Where the employee is furloughed on full pay whilst receiving the grant for 80% of their wages costs, we understand that employee consent will still be needed.

If an employee refuses to be put on furlough leave, they may risk being dismissed by reason of redundancy (see below).

In all cases, employment law advice should be sought. 
What are the other options?
Dismissal by reason of redundancy
Before considering redundancies, there must be a genuine redundancy situation and a fair and reasonable procedure must be applied.  This needs to include the relevant notification, selection and consultation procedures.
Employees will be entitled to be paid their normal wage until their termination date, as well as their contractual notice pay (which can be paid in lieu if the contract has such a provision) and usually a payment in lieu of accrued but untaken annual leave. In addition, employees with two years’ service or more will be entitled to a statutory redundancy payment. 
Voluntary redundancy programmes can be considered, being mindful of the eligibility criteria and the agreement process that you want to use. For example, you may not agree to every voluntary request if the role is deemed critical and necessary to retain. 
Employment law advice should be sought.
Holiday pay
Employees can be asked to use annual leave entitlements to cover some of the period of not working. If they wish to do this, employers must give at least double the amount of notice as the period of leave they wish for the employee to take. 
Employment law advice should be sought.
Reduced hours
Where the employer forces the employee to take a cut in hours (and, therefore, wages), the employee would be entitled to make a claim for unlawful deduction of wages and constructive dismissal.
Consent is usually required for any reduced hours.  However, consent may not be needed if the contract already contains a provision allowing the employer to reduce or stop pay where there is no work available (albeit this would be unusual).
Employment law advice should be sought.
Unpaid leave
An employer can ask an employee not to attend work, but it would have to pay the employee unless there is a specific lay-off clause in the contract. Employee consent would therefore be required.
How can companies with cash flow issues pay their retained workers’ wages?
The government has launched a number of initiatives to support businesses affected by coronavirus.  These include HMRC’s Time to Pay initiative and two loan schemes.  A form of relief is also available to the self-employed.  Further information can also be found on the government’s website.

Please get in touch if we can help in any way at all:

London office:
Stephen Goderski (  +44 (0)207 516 2224)
Peter Hart (  +44 (0)207 516 2221)

Leeds office:
James Sleight (  +44 (0)113 426 7404)
Oliver Collinge (  +44 (0)113 426 7405)