Furlough Developments: Updated Guidance on UK Coronavirus Job Retention Scheme

April 10, 2020

The UK government published updated guidance on the Coronavirus Job Retention Scheme on 4 and 9 April, providing clarity on such issues as which employees can be furloughed, what activities are permissible during furlough leave, and how to calculate furlough payments. However, the government has yet to clarify formally how annual leave will operate with respect to furloughed employees.

The Coronavirus Job Retention Scheme, announced by the UK government on 26 March, is designed to enable employers to furlough any employee on a temporary basis, during which time the employer will receive a government grant covering 80% of the employee’s wages, up to a cap of £2,500 per month. The scheme is intended to keep employees in employment (albeit furloughed) where they might otherwise have been made permanently redundant. Please see our earlier LawFlash for additional detailed guidance on how the scheme will work in practice.

Employer Eligibility

Whilst we were told previously that all UK employers would be eligible for the scheme, the updated guidance has provided clarification with respect to certain types of employers.

  • PAYE. In addition to having created and started a PAYE payroll scheme on or before 28 February 2020, employers must have enrolled for PAYE online (which can take up to 10 days for confirmation). Employers who have consolidated their payroll schemes after 28 February 2020 will not be prevented from accessing the scheme.
  • Public Sector. Where employers receive public funding for staff costs, they are not expected to furlough employees and recover costs under the scheme. This extends to any business in the private sector that receives public funding for staff costs.
  • Individuals. Individuals will be eligible to furlough employees they engage directly such as nannies or cleaners, provided that these employees were on their payroll on or before 28 February 2020 and paid through PAYE. If payments were made in cash, individuals will not be able to claim under the scheme.
  • Administrators. The government has clarified that, whilst the scheme is open to administrators, they will only be able to access the scheme if there is a reasonable likelihood of rehiring the workers; for example, as a result of an administration and pursuit of a sale of the business.

Employee Eligibility

The updated guidance provides a great deal of additional information regarding which employees can be placed on furlough leave, adding to the basic premise that all eligible employees must have been on payroll as of 28 February 2020.

  • Employees transferred under TUPE. Employees of a previous business transferred under the Transfer of Undertakings (Protection of Employment) Regulations (TUPE) and after 28 February 2020 will be entitled to receive furlough payments. Either TUPE or PAYE business succession rules must have applied to the recent change in ownership.
  • Foreign nationals and “limb (b)” workers included. Employees can be on any type of employment contract, including full-time, part-time, agency, flexible, or zero-hour contracts. The government has also confirmed that “limb (b) workers,” also known as dependent contractors, which includes many individuals engaged in the gig economy, are eligible to be furloughed, as are foreign nationals. The government does not consider furlough payments to constitute “access to public funds,” which would otherwise invalidate certain visas. Therefore, employees on all categories of visa may be furloughed.
  • Shielding employees and those with caring responsibilities. Shielding employees are those shielding in line with public health guidance. Employers can put shielding employees on furlough leave, provided they are unable to work from home and they would otherwise be made redundant. Further, employees with caring responsibilities resulting from coronavirus (COVID-19) can be furloughed, e.g., if they need to look after children due to school closures.
  • Reemployment. The updated guidance states that employers can reemploy employees who stopped working or were made redundant on or after 28 February 2020 and place them on furlough leave. In theory, this means that individuals who resigned from employment could be reinstated for these purposes, although the employer is not required to do so. Employers should be consistent when making decisions as to which employees to reinstate for these purposes, and take care not to discriminate or subject any whistleblower to a detriment in the event that they request to be reemployed and placed on furlough leave.
  • Fixed-term contracts. Employees on fixed-term contracts can be placed on furlough. Their contracts may be renewed or extended, but if the contract expires without such renewal or extension, the employer will no longer be entitled to the grant for that individual.
  • Apprenticeships. Apprentices can be furloughed and continue to train whilst on furlough leave. However, apprentices must be paid the appropriate national minimum wage for any time they spend training whilst on furlough leave. The employer will need to cover any shortfall in order to claim wages through the scheme.
  • Agency workers. Agency workers (including those employed by umbrella companies) are also eligible for the scheme. An agreement to furlough will need to be made between the worker and the agency (the deemed employer). Whilst on furlough leave, the worker will not be able to work for or on behalf of the agency.
  • Eligible individuals who are not employees. Salaried company directors can be furloughed provided that they do not work, save for complying with their statutory duties. This is not expanded on but may include filing annual returns or attending annual general meetings. A decision to furlough a company director needs to be taken by the board and adopted as a decision of the company. This right also extends to salaried members of limited liability partnerships (LLPs); the terms of the LLP agreement will need to be varied by a formal decision of the LLP and the member at issue.

Calculation of the Furlough Payment

The updated guidance has introduced an additional element to the furlough payment: As well as basic salary, an employer can claim for any regular payments it is obliged to pay to its employees. This includes fees, past overtime, and compulsory commission payments. However, payments such as discretionary bonuses, tips, discretionary commission payments, and benefits in kind are excluded from the scheme.

Significantly, it is now clear that employees can work for another employer whilst on furlough leave. Employees will have the ability to earn 80% of their furloughed employment salary and an additional 100% of any additional wages they make under a new employment. However, employees must undertake any required training during the furlough period and be able to return to work for their original employer once the furlough period has terminated. This necessarily limits the scope of additional employment available to furloughed employees during the furlough period.

The guidance also provides the following clarifications:

  • Employers can claim for 80% of an employee’s wages, even for employees on national minimum wage; this has the effect that employees may be below the national minimum wage when furloughed (provided they receive national minimum wage in respect of any time spent training).
  • The £2,500/month cap applies to each job that an employee has. If an employee has two jobs, and is placed on furlough leave for both, the employee could earn a maximum of £5,000/month. Further, there is nothing to prevent an employee from being furloughed in one job but not in the other.
  • The reference salary should not include the cost of nonmonetary benefits provided to employees, including taxable benefits in kind. Similarly, benefits provided through salary sacrifice schemes (including pension contributions) that reduce an employee’s taxable pay should not be included in the reference salary. Where the employer provides benefits to furloughed employees, this should be in addition to the wages that must be paid under the terms of the scheme (albeit employers and employees may agree contractually that certain benefits, other than auto-enrollment pension contributions, will be discontinued during the furlough period).
  • Whilst normally an employee cannot switch freely out of a salary sacrifice scheme unless there is a “life event,” the guidance confirms that HM Revenue and Customs (HMRC) considers the COVID-19 pandemic to be a life event that could warrant changes to salary sacrifice arrangements, if the relevant employment contract is updated accordingly.

Annual Leave

The updated guidance itself failed to provide much needed clarity on issues surrounding annual leave for furloughed employees. Guidance published by the Advisory, Conciliation and Arbitration Service (ACAS) briefly notes that furloughed employees can still request and take their holidays in the usual way, and this includes taking bank holidays.

HMRC has also tweeted to say that employees who are currently on furlough leave can still take their annual leave or bank holiday leave despite being furloughed, and significantly, that such employees should be paid their full rate of pay, not just their “furlough rate of pay.” HMRC will reimburse the employer at the usual furlough rate but the employer will be responsible for topping up the holiday pay to 100%.

It is hoped that HMRC will provide confirmation on this issue in the next update to its furlough guidance to provide greater certainty for employers. As things stand now, based on HMRC’s Twitter communication, any salaried employee who is on furlough leave with temporarily reduced pay over the furlough period will be entitled to pay at their pre-furlough rates of pay for the April and May bank holidays (if taken).

It also follows from this communication that taking holidays will not break a furlough period, which will be of comfort to employers once confirmed.

Important Additional Issues


The new guidance confirms that employers are required to notify furloughed employees of their furlough status in writing, and states that a record must be kept for five years. It is important that employers keep this record in the event that HMRC investigates claims made under the scheme in the future. Claims should be started from the date the employee finishes work and starts furlough, as opposed to the date the decision to furlough an employee is made.

Leave and Rights During Furlough

The original guidance permitted furloughed employees to take part in volunteer work; the updated guidance takes this a step further and states that employers can actively assist and support furloughed employees to find new volunteering opportunities in line with public health guidance.

Employers are reminded that furloughed employees are still entitled to their statutory employment rights, including but not limited to statutory sick pay (SSP), redundancy, and maternity and other parental leave rights. Employees returning from statutory leave after 28 February 2020 are entitled to receive 80% of their salary as opposed to the pay they were receiving whilst on leave. However, furloughed employees may find that their future rights to statutory maternity pay, adoption pay, paternity pay, and shared parental pay are affected by the reduction in their salary. Employees who are on sick leave will also be eligible for the scheme. Employees are entitled to receive a furlough payment instead of SSP, provided that the furlough payment is equal to or higher than their SSP entitlement.

Collective Consultation

Questions remain on the extent to which collective consultation is required in order to seek and obtain the consent of each employee being placed on furlough. The guidance states that “if sufficient numbers of staff are involved, it may be necessary to engage collective consultation processes to procure agreement to changes to terms of employment.”

Employers will need to take a pragmatic approach as to the extent of consultation that takes place, balancing the need to take urgent steps to reduce costs against the strict obligations that apply under collective consultation legislation. A risk analysis should be undertaken in each case, and employers should bear in mind the “special circumstances” defence, which can be asserted where an employer has been unable to comply in full with collective consultation legislation, and which might be invoked in the unprecedented circumstances presented by the COVID-19 crisis.


Importantly, the updated guidance notes that employers may need to consider terminating the employment of furloughed employees by reason of redundancy. Redundancies may occur both during the furlough period and once the scheme has ended. The updated guidance also recognises that employers may need to make employees redundant if they refuse to consent to the scheme in the first place, provided that employers comply with redundancy rules and protection. This is a helpful acknowledgment from the government that, whilst the scheme may offer temporary support for struggling businesses, redundancy may still be inevitable both during furlough leave and once the scheme is terminated. This possibility can be taken into account by employers in their forecasting and contingency planning during the furlough period.

This does, however, give rise to a further question not currently clarified in the guidance with regard to employees who act as “employee representatives” for the purposes of a collective consultation exercise for redundancy purposes. Such representatives are appointed for the purposes of consulting with their constituent employees on issues relating to the proposed redundancies for a period of either 30 or 45 days (depending on the number of proposed redundancies), and will be required to disseminate information and report to the employer with views and concerns.

The guidance does not currently make clear whether such representative duties would be classed as “work” for the purposes of the scheme, which would make such employees ineligible for the government grant. In our view, it should be possible for employees to act as representatives without this being considered “work,” as it is separate from the duties the employee is employed to perform, and ultimately, by acting as a representative, the employee is serving the interests of employees as opposed to the employer. However, this position is not clear, and urgent clarification is being sought from the government in this respect.

We will provide further updates on these important issues as and when further information is made available.

Coronavirus COVID-19 Task Force

For our clients, we have formed a multidisciplinary Coronavirus COVID-19 Task Force to help guide you through the broad scope of legal issues brought on by this public health challenge. We also have launched a resource page to help keep you on top of developments as they unfold. If you would like to receive a daily digest of all new updates to the page, please subscribe now to receive our COVID-19 alerts.


If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:

Matthew Howse
Louise Skinner