What is ‘furlough leave’ and what do businesses need to know?

Covid-19 Advice | Employment & Skills | Latest News
Laura Kearsley

In an effort to keep the economy moving and safeguard UK jobs, the government announced it would be introducing the coronavirus job retention scheme as part of a package of measures to alleviate the impact of COVID-19 on businesses across the UK.

Laura Kearsley, partner and solicitor in Nelsons’ employment law team, explains how the new government scheme will work and what actions businesses need to take.

What is the coronavirus job retention scheme and who can participate?

The scheme will enable businesses to recover 80% of wage costs for employees on ‘furlough leave’ – which is an entirely new concept and is a new class of indefinite leave where the government will reimburse the employer for wage costs.

This has been introduced as an alternative for employers who might have otherwise implemented redundancies, lay-off, unpaid leave or other measures for their employees.

All UK businesses are eligible to claim under the scheme. It seems that employees will be covered, but not other workers (such as casual staff or contractors) or the self-employed.

The government has announced that the scheme is available for at least three months from 1 March 2020 and will be extended if necessary.

What costs can employers recover?

The coronavirus job retention scheme allows for 80% of wage costs to be recovered up to £2,500 per month per employee. There is no limit on the number of employees or the duration. Wage costs are expected to include wages, pension contributions and employer national insurance (NI) contributions.

What do employers need to do?

Employers and employees will need to agree the members of staff being designated as ‘furloughed workers’. This should be straightforward because this route will no doubt be more attractive to employees than redundancy, lay off, unpaid leave or a reduction in pay.

We are recommending employers send a letter or email to each employee concerned and get them to agree to the change in status formally in writing.
Employers will then need to submit details to Her Majesty’s Revenue and Customs (HMRC) through a new online portal, which is being set up urgently.

It’s also worth noting that employees cannot elect to be a furloughed worker without their employer’s agreement.

Does the employer have to top up the employee’s pay to 100%?

No, they do not. Some employers may wish to make up the shortfall, while others may not be able to. This just needs to be made clear to all employees concerned. We do recommend that each employer adopts a consistent approach.

What about employees that have already been dismissed or taken unpaid leave?

The scheme is backdated to 1 March 2020 and employers are urged by the government to take back anyone they had already dismissed and convert them to this leave instead. Likewise, with anyone who is on unpaid leave.

What situations will this not help with?

Furlough leave is recommended for anyone that would have otherwise been laid off or made redundant due to the impact of coronavirus on the employer’s business.

It does not help with any situations where employees had agreed to reduce their hours, or to a pay cut but where they are still required to work. There is currently no option to do a mixture of reduced hours and furlough leave.

How will this affect the employment status of employees?

The employees concerned will remain on the employer’s payroll and will continue to accrue holiday and service.

It is also important for businesses to acknowledge that this scheme may create resentment between employees.

Some will still be at work getting either full or reduced pay, while others will be on furlough leave getting paid at least 80% for doing nothing, and those who are off sick – as they are ill or self-isolating – may only be getting statutory sick pay (SSP), which at around £95 per week is likely to be less than 80% of full pay.

There will be an incentive for employees not to notify their employer if they become sick or need to self-isolate during furlough leave because of these adverse pay consequences.

Likewise, the employer will also be better off as they can only reclaim 14 days of SSP as opposed to indefinite furlough leave pay.

Did you enjoy reading this content?  To get more great content like this subscribe to our magazine

Reader's Comments

Comments related to the current article

Join the conversation

51 Comments

  1. How is furloughed pay going to be calculated?

    I work between 20 to 40 hours every week but am only contracted to 8 hours a week.

    If its 80% of my contracted hours, i’ll only get £55 a week. If it’s 80% of my average monthly earnings, I’ll get about £220 a week.

    That’s a big difference in pay and until we know how its calculated, how can we agree to be furloughed?

    1. The government website (as at 26.3.20) says variable hour workers will be calculated on their average pay over the last 12 months, or from when they started work if less than 12 months. Your company should write to you requesting your agreement to be furloughed.

  2. Dear Laura
    Does wage costs include car allowances. The salary value of £37,500 equating to £2500 take home does not equate if pension and employer NI is included

    regards

    1. I would also like to know the answer to this. I have a company car which I also use for personal use, which they now want to take back while I’m furloughed. Is this correct that they can do this? As I’m technically still an employee

    2. £2,500 is gross £30k per annum) rather than net and includes any car allowance you previously got. You will not get anything above this unless your employer decide to add the other 20%. It will be subject to income tax, NI and pension contributions if applicable.

      Recommend speaking to mortgage lender, car finance company on the subject of payment holiday if required.

      There are also petitions doing the rounds for Councils to suspend payments during this time. Councils have withdrawn / reduced some services during this time so it is only right that charges are suspended or reduced accordingly to help everyone.

  3. What help will self employed workers get . If your a driver for Uber taxis . There is no customers so not getting any money

  4. You refer to furlough, lay off and redundancy in one sentence implying a difference. What is the difference between furlough and lay off? If lay off is redundancy then why mention both in one sentence?

    1. New UK Furlough scheme = employer/government pay your wages while you dont work but you have a job to come back too once things are sorted. (Furlough happens in USA government when budget isnt agreed, but thats unpaid and forced)

      Lay off = temporary but could become permanent if things stay bad.

      Redundancy = permanent dismissed from job.

    1. I believe that holiday entitlement would still accrue because you are still employed – still on the company’s books.

  5. My employer is saying they will backdate furloughing us to the 1 March, even though we are still working now (24/03) in the office. Can they do that?

    1. Can you work for another employer while you’ve been furloughed with your present employer?

  6. my new employee has only been with me for 3 weeks. can I furlough her and claim the 80%
    she will be paid monthly

    1. I should be starting a new role next Wednesday in a nursery, contract signed, hours and pay agreed but now they are closing until further notice.
      I have resigned from my job as per normal notice, will I get furlough ??

  7. I have 2 jobs and 1 is going to furlough their workforce but the other is not – can I still work for my 2nd employer and receive the 80% wages from the 1st? I have been with both companies for over 10 years.

  8. If an Employer has not paid tax and ni for the last 6 months how would this affect the furlough scheme and would the employees get
    any pay? could you please reply to this question.

    thanks.

    1. I don’t have a lay off agreement in my contract which means I should get 100% of wages in times of down turn, etc. My company is only offering the 80% so are they in breach of contract

  9. We have employees who are contracted for minimum of 80 hours and paid by the hour not Salaried – does the 80% cover these employees or just Salaried Staff

  10. I’m confused. At the beginning of the article you suggest ( and this is how I read the hmrc info) that employers continue to pay 100% of salary and then claim 80 % back .
    Later you ask whether the employer can top up the 20 % lost by the employee. This cannot be consistent with the first statement.
    Many commentators suggest the 80% is claimed somehow by the employee but that’s not how I read it

  11. I’m now on furlough leave but have holidays booked in another week and told not to cancel them, should we cancel or get these back ?

  12. Will commission or car allowance be taken into account as wage?
    And will the £2,500 be max an employer is paid or does that include pension and ni so the employer will receive less?

  13. I am the director of a Ltd company and I am the only employee. I work as a locum clinician and am no longer able to work due to clinics being cancelled. Can I claim furloughed pay through my company?

  14. I leave my current job this Friday to begin new job on the 1st but the new company has put this furlongh in place for all employees will this include me?

  15. Can I just clarify that the calculation will be on gross pay. Suggested for weekly paid staff to use average earnings of last 3 months – so would this be gross pay?

  16. i require advice, i have a hair salon and I am a self employed kitchen fitter double wammy for me. I have had to shut the hair salon down which opened in october due to this virus which is right. I have 4 staff that I will hold on and they have all said that they are willing to wait until the government pay there wages upto 80%. 2 juniors that are at home and one staff member who can wait. the thing i have a problem is I have no money in the bank to pay there wages while we are shut and they want to come back when we reopen but have told the staff they will get it when the government pay it. do I still put the staff through the payroll every Friday as norma on ther contracted hoursl then claim the money back for them. please help there is no answers anywhere about this i am waiting for this corona relief portal to open on HMRC website when the government get it done to apply for there wages to be paid..

  17. I work as an administrator in a private care home. My children’s school only had 70 spaces for keyworkers, which my children didn’t get. I’m a single parent and my employer refused to let me work from home because of GDPR even though another department are allowed. I have been informed I have to take the time off as unpaid leave but how does that pay my bills? I requested furlough and my employer refused citing the business does not fall into the category of furlough as they are not at risk of closing.

  18. Will employers need to keep paying furloughed workers while they are not working or can they just pay them (including back payments) once the government releases funds to the employer

  19. I handed my notice in before things got into this state. My new employers Offered me the job and I confirmed acceptance of the position they agreed the start date of the 10th April. I accepted.

    But I have no contract as yet and they think I will not be able to get the furlough benefits.

    Where do I stand please

  20. I have seen a sample Furlough template that lays out the terms of the Furlough which tries to address the issue of the holiday that has and will accrue, and is worded as:

    “Whilst you are in the furlough period, you are required to take any holiday entitlement which has accrued and is outstanding as at today’s date and all holiday leave that accrues during your furlough period.”

    Since the Furlough period is likely to be substantial and could be extended even further, the amount of holiday that could be accrued by each employee could be substantial and could cause a problem for any organisation at the end of the Furlough period, also some people might be Furloughed whilst the “holiday year” rolls over resulting in unused holiday entitlement being lost.

    When Furloughed, should accrued holiday be paid in full or is it subjected to the same 80% salary reduction?

  21. Hello, I am paid a small basic salary and i top my income with commission due to my job. Please can you confirm how the 80% is calculated? I would also like to know if we still accrue holidays in the meantime?

    Thank you

  22. I have 4 jobs and 2 is going to furlough their workforce but the others is not – can I still work for my others employer and receive the 80% wages from the 1st? I have been with the companies for over 6 years.

  23. I have been put on furlough leave from today and advised I am loosing 3 days holiday a month is this correct?

  24. I have a company car with fuel allowance. will the cash equivalent be deducted from the amount I am paid whilst getting the furlough? If so can I return the car as obviously it won`t be using it?

  25. What if my employer does not take part in the furlough scheme and makes me work and there is not work what rights do I have

  26. I saw a similar question to this however no clear answer. Does anyone know if the 80% should include car allowance? I was on the understanding it would be 80% of current monthly take home including this however I have been told by my employer it is just basic salary. If they were to include it, the amount would still be less than £2500. Does anyone have any info at all?

  27. My contract ends on April 24th as I have children out off school that require looking after and my husband is a Paramedic I am assuming if the schools dont go back I will now not be able to get a new job until the current situation has stabilize.

    Can I apply for a furlough payment through my current employer? if so how do I go about this and what will it mean going forward?

  28. If I am placed on Furlough by my employer, can they flip flop me on and off Furlough over the course of the months. This is due to there being around 90 staff and they want to rotate us all.

  29. The big question is what do you need to do to qualify, not claim. All uk businesses can claim, but is it only businesses forcibly shut that will qualify? Really need clarification on this otherwise mass redundancies are likely.

  30. My partner and my brother are classed as high risk and has asked their employer if they can be placed on the furlough scheme. The business they work for (manufacturing sport/ motor homes) are still working as normal. Their employer has told them that they are not entitled to be placed on furlogh and that they should take either annual leave or unpaid leave. How do i find out if they can be placed on furlough and what they need to do.

    1. I work in a private nursery full time, so i am classed as a keyworker and we are open. However the very few keyworker parents of children have made other arrangements for their children so they failed to arrive, Because it’s a six mile round trip daily on public transport and social distancing won’t be understood of young children can i request to be placed on furlough.

  31. i have been laid off work due to my employer saying they dont have the cash flow to pay out the 80% and because they dont know when the government will be reimbursement them. When will company’s have access to the funds?

Leave a comment

Your email address will not be published. Required fields are marked *