The Job Retention Scheme (Furlough): qualification date change, holiday during furlough and Treasury Direction

Following the announcement of the government’s Job Retention Scheme (‘the Scheme’) on 20 March 2020, the Scheme has now been extended to 30 June 2020, in order to take account of continuing social distancing measures. In addition, updates to the guidance regulating the Scheme now been published, including – amongst other changes – some clarification of the position on holiday and furlough.  The government has also issued a Treasury Direction setting out the legal basis for the Scheme.

The guidance and Treasure Direction are essential reading for all employers affected by coronavirus.

Please click here to view the full government guidance for employers and here for the full government guidance for employees. The Treasury Direction is available here.

The key changes introduced by the latest versions of the Job Retention Scheme guidance and the Direction are that:

  • the qualification date and pay reference date has changed from 28 February 2020 to 19 March 2020; and
  • holiday can be taken during furlough and should be paid at employees’ normal wage rate

The Treasury Direction is an important document. It forms the basis of the legal framework for the Job Retention Scheme (‘the Scheme’). Broadly, it echoes the rules set out in the government’s guidance – although there are a number of key differences. Where the two documents depart, in strict legal terms the Treasury Direction takes precedence.

Scope of the Scheme- does there have to be a redundancy situation?

The Scheme applies to all UK employers. Except for public sector employers providing services responding to the coronavirus crisis, public sector employers are included. Private sector employers receiving public funding for staffing costs are expected to continue to pay staff in the usual way, and not furlough them.

The scope of the Scheme has broadened since the Scheme was originally announced; it originally applied to employers who were “unable to operate or have no work for [employees] to do because of coronavirus (COVID-19)”, although the exact scope remains uncertain. The guidance now refers to the Scheme being available for employers where they cannot “maintain [their] current workforce because [their] operations have been severely affected by coronavirus.” The Treasury Direction adopts an even broader definition and states, at paragraph 6.1, that the Scheme applies where

  • an employer has instructed an employee to cease all work
  • for at least three weeks
  • in circumstances arising as a result of coronavirus [our emphasis].

The requirement for a link between furlough and redundancy (which appeared in earlier versions of the Scheme guidance) has now fallen away altogether, at least in the Direction, although there should be some link the impact of the pandemic.

The Scheme does not apply where any work is undertaken by the employee while on furlough.Employees who are working but on reduced pay will be excluded. It will also exclude zero-hours employees who are working fewer hours than normal; such employees may prefer to have their hours cut to zero so that they can be furloughed.

All types of contracts are covered, including agency contracts (using PAYE) and zero-hours contracts. For agency employees it is likely that the decision to furlough and claim back their wages will be a matter for the agency.

As well as employees, the Scheme includes workers i.e. people who are not employees but who provide work personally to an ‘employer’, other than as a client or customer. 

Employees on furlough leave can undertake training and voluntary work. Any voluntary work must not generate any revenue or services for the employer. Employees who undertake training while on furlough leave must be paid the national minimum wage. The guidance also confirms that furloughed employees can work for another employer, provided their existing employment contract allows for this.

What is included in ‘wages’?

The 80% payment (capped at £2,500) is calculated on the basis of an employees’ usual monthly wages.  This will encompass all “regular payments” which an employer is obliged to pay – including regular contractual overtime, "compulsory" commission payments and bonuses.  Non contractual performance related pay and bonuses are excluded.

In summary:

  • Employees' actual salary before tax as of 19 March 2020 (or, if an employer has already undertaken calculations based on the original salary reference date of 28 February 2020, these figures can be used, if they are different).
  • For employees with variable pay, ‘wages’ for furlough purposes are based on EITHER the same month’s earnings from the previous year; OR average monthly earnings from the 2019-2020 tax year, whichever is higher.
  • Commission and bonuses which are not regular and are discretionary (including tips) are excluded.

Further information on calculating what is included in ‘wages’ under the Scheme (including worked examples) is set out in new HMRC guidance, published on 17 April 2020 – please click here to read this guidance. An online calculator will be available from 20 April 2020.

What is the latest position on pensions?

In addition to a claim for a furloughed employee’s wage costs, an employer may also claim for the associated minimum automatic enrolment employer pension contributions on that wage.

Whilst employers will welcome the ability to recover those costs in addition to a claim for wages, in many cases employers may still be required to pay greater pension contributions than those which are recoverable under the job retention scheme. Where an employer has an obligation to make higher contributions – either contractually or as required by the rules of their pension scheme – those higher levels of contributions will probably need to be maintained unless the employee opts-out of the employer’s qualifying scheme or elects to reduce their own contributions. Employers should continue also to deduct employee contributions at their normal levels, save that both employee and employer contributions could be based upon the employee’s reduced level of pay, subject to:

  • the rules of the pension scheme;
  • the employee’s contractual entitlements (including salary sacrifice arrangements); and
  • in all cases, the minimum automatic enrolment contribution levels.

The government has confirmed that it will issue further guidance on how employers should calculate their claims for minimum automatic enrolment employer pension contributions before the scheme becomes live.

Can you rotate employees on furlough leave?

The guidance states that:

  • furlough must last for at least three consecutive weeks; and
  • employees can be furloughed more than once.

Helpfully, the implication of this is that employers can rotate employees on furlough leave, provided each employee taking the leave reaches the three week threshold.

The extension to the Scheme also make this a more viable option.

How does timing affect who is in scope?

The guidance and Treasury Direction confirm that the Scheme does not apply to new recruits. Furloughed employees must be on an employer’s PAYE payroll on 19 March 2020 (rather than on 28 February 2020, as originally announced).

In an important diversion from previous versions, the latest guidance (and Treasury Direction) specifies that not only must employee be on an employer’s payroll on 19 March 2020, but HMRC must also have been notified of them on a Real Time Information (RTI) submission on or before 19 March 2020.  This is a system which requires employers to provide information to HMRC every time they pay an employee.  Given that most employers run payroll monthly, it seems that the extension of the Scheme, designed to bring more new starters into scope, will mostly only benefit weekly paid employees.

Employees who have transferred to a new employer under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) after 19 March 2020 will be covered by the Scheme (provided, presumably, that they were on the previous employer’s payroll on 19 March 2020). Under the previous version of the guidance, transfers after 28 February 2020 were covered.

If employees have left their employer’s employment since 28 February, it is possible to re-hire and furlough those employees (even if they have not been re-employed until after 19 March 2020). This is why the scheme is backdated to 1 March 2020. The guidance confirms that this applies either where an employee has been made redundant, or where they “stopped working” for an employer. It therefore appears that an employer can re-hire a previous employee and furlough them, even if they had resigned. Employers may wish to exercise some caution with this as the general requirement for the instruction to cease to work due to coronavirus appears to still apply – for example, if an employee was made redundant for reasons entirely unconnected with coronavirus, it would not be possible to re-hire and furlough them if their role remained unaffected by the virus.


It may be worth noting that the Business support: FAQs advise that HMRC will retain the right to retrospectively audit all aspects of the scheme, with scope to claw back fraudulent or erroneous claims. The updated employer guidance confirms that HMRC will check claims made through the Scheme and payments may be withheld or repaid.

Can you furlough employees who are not currently at work?

  • Employees on sick leave/self-confining – unclear. The guidance sets out that the Scheme is not intended for short term sickness but nevertheless employees can be placed on furlough whilst on sick leave.  According to the guidance, it is up to employer to decide whether to pay the employee Statutory Sick Pay (SSP) or furlough pay – but employers cannot claim under the Scheme and under the coronavirus SSP rebate at the same time.  Unfortunately, the Treasury Direction now conflicts with the guidance on this point. It states that employees who are receiving SSP are not eligible to be furloughed until their SSP has been exhausted. However, if they subsequently become unwell while on furlough, this does not exclude them from the Scheme (paragraph 6.3).  But see also below.
  • Employees who are unable to work because they are 'shielding' or have to stay at home with someone who is shielding –  unclear.

As of 15 April the guidance was clear that shielding employees could be furloughed. However as with sick employees the same issue arises under  under the new Treasury Direction ieonly employees who are ineligible for SSP  can be placed on furlough. Employees who are shielding are now also entitled to SSP (under an amendment to the SSP Regulations on 16 April 2020) and it therefore seems that, at the time of writing, there may again be a risk that they are not eligible for furlough. 

However, at the time of writing the contrary guidance had not been changed (despite  new versions after the Direction on 16 and 17 April). 

In addition explanatory notes to the amendment to the SSP Regulations refer to them being a ‘safety net’ for shielding employees whose employers chose not to place them on furlough – which implies that it is  possible to put shielding employees on furlough before their SSP has been exhausted. 

Given the above, it may well be this aspect of the Treasury Direction is an error, particularly in respect of shielding employees, and possibly in respect of long term sick employees. One option for employers especially where they have already furloughed such employees is to claim (being open and clear that the relevant employees are shielding/on long term sick leave) citing the iteration of the relied upon guidance and hope the claim is met. It may be a sensible precaution to take a screen shot of the current guidance, in case the guidance is revised in line with the Treasury Direction in future.

  • Employees who have caring responsibilities resulting from coronavirus (for example, childcare) – yes. The guidance confirms these individuals are covered.
  • Employees on unpaid leave (such as unpaid parental leave or a sabbatical) – no, unless they are placed on unpaid leave after 28 February 2020.  The guidance requires that such employees can be formally taken off unpaid leave and placed on furlough. The latest guidance also confirms that if an employee went on unpaid leave on or before 28 February 2020, they cannot be placed on furlough until the date it was agreed that they would return from unpaid leave.
  • Employees on maternity leave, adoption leave, paternity leave or shared parental leave –Employers can claim through the Scheme for enhanced pay for all these types of leave (but not for any statutory pay).

The National Minimum Wage and National Living Wage do not apply to furloughed workers (subject to the exception above, for training). This is because these payments only arise when an employee is working.

Do collective consultation obligations apply?

Importantly, the guidance states that collective consultation obligations to procure employee agreement do potentially apply if more than 20 employees are involved. However, the guidance provides no clarity on whether employers must follow a full collective consultation procedure, or whether the “special circumstances” exception applies.

Given the extraordinary situation in which employers find themselves, our view is that employment tribunals may be sympathetic to employers who argue a ‘special circumstances’ defence. This will, however, definitely remain a risk. How can you reduce that risk? Keep a good record of the scale of the challenges being faced and engage in as much consultation as you possibly can in the circumstances, obtaining employee and union buy-in. If you go down the full consultation route, try to get Union agreement to a reduced period of collective consultation.

If you think collective consultation obligations may have been triggered, you may wish to lodge a Form HR1.  Remember that criminal sanctions apply if an HR1 form is not lodged and collective consultation obligations are triggered.

Fair selection of employees for furlough is not dealt with explicitly in the guidance, except to confirm that furloughing should be discussed with affected employees and that the usual obligations under the Equality Act 2010 or applicable equality legislation as applies in Northern Ireland - not to discriminate or subject to a detriment - will apply.

How should employers proceed in order to limit the risk of claims of discrimination?

Employers could:

  • ask for volunteers for furlough leave;
  • explain to employees the rationale for the decision to furlough roles generally;
  • explain the specific rationale to the specific employees in question;
  • consider rotating employees.

In terms of selection criteria, if used, there are no set rules. Some employers may consider using ‘last in first out’ (with a slight risk of age discrimination claims) or selection based on performance from the employee’s most recent appraisal.

Putting employees on furlough – agreement/documentation needed

It has always been likely that employee consent for furlough would be needed, unless contracts already contained a right to lay off.

Another complication created by the Treasury Direction, (para 6.7) is that it states that in order to be eligible for the grant, employers must obtain from each employee written agreement to being placed on furlough. This can be by email. 

However he guidance  issued after the Direction states there need only to be written confirmation from the employer to the employee being put on furlough, and also a written record of an employee’s consent,) but there does not need to be a written response, nor is there mention of written agreement.  

This suggest that under the Scheme and in addition to the written notification to the employee (which should include an instruction that no work should be undertaken), a (one sided) record of agreement reached eg verbally or with trade union, may well suffice rather than individual written agreements (although pending further clarification the risk created by the inconsistency still unfortunately remains).

In any event from an employment law perspective written/email agreement will still be safer.

 All written records of  employees’ consent must be kept for five years.

What about holiday?

The interface between holiday and furlough leave has been an area of difficulty and controversy.  Employee guidance (updated on 17 April 2020)  has finally provided  some clarity on this point.

The employee guidance confirms that employees can take holiday whilst on furlough - i.e. holiday is consistent with furlough and if an employee takes holiday whilst on furlough, it will not stop the employer from being able to claim a grant for the employee’s wages.

NB The guidance does not go as far as saying that employers can require employees to take holiday during furlough so this remains unclear.

The Scheme’s employee guidance sets out that employees on furlough are entitled to be paid their normal rate of pay for time which is allocated as holiday during furlough leave. It seems likely that this should be based on the employee’s normal, pre-furlough, rate of pay, based on rules on calculating pay under the Working Time Regulations 1998.

The employee guidance confirms that employers can restrict when leave is taken, according to business need. This would be subject to normal rules around reasonableness and the duty to maintain employees’ trust and confidence.

Contrary to popular belief, there is no statutory right to paid time off on a bank holiday and this is reflected in the guidance; it confirms that employees who would normally work on a bank holiday would be entitled to their furlough rate of pay for bank holidays, whereas employees who normally take bank holidays as leave are entitled to full pay on bank holidays or a day off in lieu.

Working time and holiday pay is a complex and technical area of law. The guidance notes that it is keeping holiday pay during furlough under review, suggesting that further information and updates are likely to be on their way.

Timings and cash flow / insolvency

 The online portal  will be operational  from today (20 April 2020). There will be no ‘save and return’ function on the portal, so you may wish to save a screenshot of your application. Payments will be made 6 working days after each claim  is received.  HMRC will, however, have the power to go in and audit employers for compliance after payments have been made.

If your business has cash flow difficulties or concerns about whether the assets of the company are sufficient to cover its liabilities, we strongly recommend that you seek legal advice in order to avoid risk around liability for wrongful trading.

The High Court has already provided its first ruling on how the Scheme operates under administrators during insolvency. In a decision which considered the closure of the ‘Carluccio’s’ chain of restaurants, the High Court said that the company’s administrators were able to place consenting employees on furlough, and claim their wages under the Scheme. The High Court held that the employees’ contracts were ‘adopted’ by the administrators, meaning that employees’ wages will be paid to them when grant monies are received under the Scheme, in priority over the administrators' fees and expenses and the distribution of assets to floating charge and unsecured creditors.

Latest developments

Further information

Follow the TLT Employment team on Twitter to keep up with fast moving developments on the impact of coronavirus on HR and employment law, and other employment law developments @TLT_Employment

Contributors: Sarah Maddock, Stuart McBride,  Laura Jackson, Chris Crighton and Sarah Skeen  

 This publication is intended for general guidance and represents our understanding of the relevant law and practice as at 20 April 2020. Specific advice should be sought for specific cases. For more information see our terms & conditions.

Date published

20 April 2020



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