Updated on 20 April 2020

Furlough Leave is intended to assist businesses to retain their employees by offering financial assistance for salary costs where their operations have been severely affected by COVID-19. This will cover businesses suffering or anticipating a significant downturn that need to reduce their salary costs to stay afloat, as well as those whose employees cannot work due to the requirements for social distancing.

We have collated the following in response to typical requests for information and advice we have received. It is based on the guidance as at 20 April 2020, including the Direction issued by the Treasury to HMRC on 15 April 2020.


1. Which employers are eligible for reimbursement?

The scheme is open to all UK employers that:

  • had created and started a UK PAYE payroll scheme on or before 19 March 2020;
  • enrolled for PAYE online; and
  • have a UK bank account.

This includes businesses, charities, recruitment agencies with agency workers paid through PAYE, and public authorities.

2. Which employees are eligible?

Employees on any type of employment contract, officeholders, salaried members of an LLP, agency workers and limb (b) workers, provided that:

  • they were on the PAYE payroll on or before 19 March 2020 (see 7a below regarding employees made redundant or ceased working for an employer before that date; and
  • they are not undertaking any work providing services to, or generating revenue for, their employer or any linked or associated organisation. Training and volunteer work that does not involve providing services to, or generating revenue for, their employer is permissible.

Where an employee has more than one job, their employment for each employer is treated separately for the purposes of Furlough Leave. The reimbursement cap applies to each employer. An employee put on furlough can undertake other employment if their employment contract allows it.

Considerations for some of the eligible individuals who are not employees are set out below:

Officeholders – Furlough Leave and payments should be agreed between the officeholder and party who operates PAYE in relation to their income

Salaried company directors – Subject to board consideration of whether Furlough Leave complies with the statutory duties of affected directors, any decision to put directors on Furlough Leave should be formally adopted as a decision by the company, noted in the company records and communicated in writing to the director.  Fulfilling a statutory duty or relating to the filing of company accounts or provision of other information relating to the administration of the director’s company is permissible. Salaried individuals who are directors in their own personal service companies would also be covered subject to the same criteria.

Salaried Member of an LLP designated as employees for tax purposes – The terms of the LLP Agreement or special terms between the LLP and member may need to be varied, in particular, to reflect the member will provide no work and the effect of changes on their remuneration.

3. Do employees have to be at risk of redundancy to qualify?

No, the decision needs only to be “by reason of circumstances arising as a result of coronavirus or coronavirus disease”.

There is no prescribed qualifying criteria by reference to consequences if employees are not placed on Furlough Leave. The guidance states that the scheme is designed to help employers that cannot maintain their current workforce because their operations have been severely affected by COVID-19. While it is unlikely HMRC will undertake a forensic analysis of the circumstances of Furlough Leave, it is advisable for businesses to retain a record of their decision-making. It is a requirement of the scheme that employers must retain all records relating to their claims and HMRC reserve the right to audit all aspects of the claim.

4. How long is the scheme in place?

4 months starting from 1 March 2020, i.e. to 30 June, but it may be extended (extended from 31 May on 17 April 2020).

5. What financial assistance is available?

Employers can claim up to the lower of: i) 80% of regular monthly wage costs, or ii) £2,500 per employee, plus the associated employer national insurance contributions and minimum auto-enrolment employer pension contributions that are paid on the subsidised furlough wage. The sum is subject to national insurance, income tax and automatic contributions from the employee (unless the employee has opted out or stopped saving) in the usual way.

For salaried employees (or fixed share LLP members), the reference monthly salary is the salary for the last salary period ending on or before 19 March (if 28 February was used in line with previous guidance, this can be used for the first reimbursement claim). Unpaid leave periods should be treated as paid leave. See below at 24 and 25 in relation to what is covered by “wage costs” and the calculation in relation to variable pay. Also, see the guide published on 17 April 2020 to assist with working out 80% of your employees wages to claim through the scheme – https://www.gov.uk/guidance/work-out-80-of-your-employees-wages-to-claim-through-the-coronavirus-job-retention-scheme

The sum should be treated as income, off-set by deductible revenue costs, in the business’ calculation of taxable profits for income tax and corporation tax purposes in accordance with normal principles.

6. Are employers obliged to top up the remaining 20%?

No. If they do, the grant will only cover employer national insurance and minimum auto-enrolment payments on the 80%.

Withholding 20% of an employee’s salary will be a breach of contract (including a breach of the implied term of trust and confidence leading to a potential constructive dismissal claim) and unlawful deduction from wages, unless the employee gives consent. It is expected that the majority of employees will consent as an alternative to unpaid leave, lay-off or redundancy. See further below in relation to practical steps for implementation.

7. Consideration of some specific scenarios common to the current circumstances are discussed below

a. Employees who have already been given notice of redundancy, whose employment has terminated/will terminate for any other reason or placed on unpaid leave before Furlough Leave was announced

Employees terminated for redundancy (or, as clarified by the guidance issued on 4 and 15 April 2020, leave their employment for any reason), given notice of termination for redundancy or otherwise after 28 February 2020, can be re-engaged (even if this is after 19 March 2020) and put on to Furlough Leave instead, provided they were on the payroll as at 28 February 2020 (i.e. notified to HMRC on an RTI submission on or before 28 February). If an employee is on unpaid leave before 28 February 2020, employers will need to wait for them to return in accordance with the pre-agreed timetable before putting them on Furlough Leave. After 28 February 2020, an employee can be placed on Furlough Leave instead.

b. Employees who are already on reduced hours onto Furlough Leave?

An employee on reduced hours or pay due to a downturn in work as a result of the pandemic will not be eligible. Employers may look to agree these type of measures as an alternative in an effort to retain customer/client loyalty where there is some ongoing demand for products and services, and specialist expertise is important.

c. Employees who elected to take unpaid leave to look after children after school and nursery closures

The guidance states that “those unable to work because they have caring responsibilities resulting from coronavirus can be furloughed. For example, employees that need to look after children”. However, neither the guidance nor Direction specifically deal with employees who started a period of unpaid family leave before 28 February 2020. The safest course would be to follow the general position in relation to unpaid leave referenced above. Employers can utilise Furlough Leave instead of unpaid leave otherwise starting after 28 February 2020 or after a period of unpaid leave starting before 28 February 2020 has ended.

See below as to the need to exercise caution in relation to criteria for selection.

d. Can you put employees on long-term sick leave on Furlough Leave?

The guidance suggests that employees who are on sick leave or self-isolating should receive statutory sick pay (SSP), but can be placed on Furlough Leave at the election of the employer. It states Furlough Leave is not intended for short-term absences due to sickness. The Direction suggests that the furlough period for which a claim can be made can only start when a sick employee’s eligibility for SSP has ended.

The guidance states that employers can furlough employees who are on long-term sick leave. It is unclear how this should be interpreted in light of the Direction. One possibility is that it refers to a situation where SSP has been exhausted. The guidance makes clear when an employee is on Furlough Leave, you can only reclaim expenditure through the Coronavirus Job Retention Scheme, and not the SSP rebate scheme.

See below as to the need to exercise caution in relation to criteria for selection.

e. Can employees who are shielding (a measure to protect extremely vulnerable people by minimising interaction their interaction with others, including not leaving their homes for a minimum of 12 weeks) be placed on Furlough Leave?

Yes, the guidance now confirms that shielding employees qualify for furlough without any special qualifying criteria.


8. Can employers defer payment of employees until payment is received from the Government?

See above in relation to changes to contractual terms generally. If at all possible, employers are likely to prefer to pay their team and reclaim in order to maintain good relations and loyalty when normal business resumes. Where this is not possible, consent should be obtained.

9. What steps must employers take to put employees on Furlough Leave?

The guidance states that employers should discuss the proposal with staff and make changes to the employment contract by agreement. The Direction states, as a condition of eligibility for reimbursement, that Furlough Leave must be confirmed to the employee in writing and there is agreement in writing that the employee will cease all work in relation to their employment (a new requirement of the Direction). By implication, the employee’s consent to Furlough Leave is required. The wording suggests that such an agreement had to be in place before Furlough Leave but this would be inconsistent with a right to backdate claims, provided criteria is met, to before the scheme was announced. Notwithstanding the above, the guidance arguably departs from the Direction in relation to the requirement of written agreement with regard to the employee’s cessation of work:

“if this is done in a way that is consistent with employment law, consent is valid for the purpose of claiming [under the scheme]”

This leaves open the possibility of implied or oral agreement. Given the uncertainty, employers may consider it is worthwhile putting a written agreement in place before a claim is made. Many will have done so as a matter of good practice where changes to contract terms were required.

Most employment contracts will not permit an employer to reduce an employee’s pay. Some contracts will also require employers to provide work. Where this is the case, any change in these respects will require agreement and it may be advisable to record these in writing. Subject to the express requirements of the scheme set out above, if employers plan to “top up,” other consents may not be required. Faced with the alternatives, which are likely to be unpaid leave, lay-off, or redundancy, we have seen that the majority of affected employees are likely to agree to be placed on Furlough Leave.

The safest way to put an employees on Furlough Leave is as follows:

  • Identify those employees who qualify for Furlough Leave. Likely candidates at the initial stage will be those unable to work because of the measures currently in place. See further below in relation to selection. It would be advisable for decisions to be supported by evidence.
  • Notify those employees of the intended change.
  • Consider whether it needs to consult with employee representatives or trade unions.
  • Agree any changes to employment terms with the furloughed employees, including reduction in salary if it is not intended that the employer will “top up”. Agreement in relation to the employee’s ceasing to work is a requirement. At the same time, employers may look to introduce terms in relation to lay-off and short-time working if these measures may be necessary to respond to financial challenges of the future when the scheme ends (see below and here for more information).Have a plan in place in relation to any employees who refuse changes to their employment contract.
  • Confirm the employees’ new status in writing. There must also be written agreement (email is fine) that the employee must cease all work in relation to their employment. These are eligibility requirements for accessing the grant, and a record must be kept of this correspondence. Agreement in relation to any changes to employment terms should also be recorded in writing. Ideally, the employer should advise how long it expects furlough leave to continue. Given the significant uncertainty in this regard, employers may wish to put employees on Furlough Leave for an initial period, subject to review.
  • Submit information to HMRC about the employees that have been furloughed and their earnings through the new online portal, expected to be operational by 20 April 2020, with payments to start within 6 working days. It is advisable to collate the material before accessing the portal. Sessions cannot be saved.
  • Ensure that the employees do not carry out any further work for that employer (or connected organisations) while they are furloughed. Training in relation to the employee’s employment and agreed between the employer and employee before it is undertaken is permissible (see further below).

10. When an employer is deciding who to put onto Furlough Leave should they go through an equivalent redundancy scoring exercise?

Provided employers use appropriate, non-discriminatory, criteria to choose who is granted Furlough Leave, it is possible for an employer to lawfully furlough only part of the workforce. There is no mandatory process. However, a clear business rationale is likely to offer protection from allegations of discrimination (see below) and unfairness if redundancies or dismissal/re-engagement on new terms becomes necessary.

Any procedure an employer decides to follow is likely to depend on its current financial situation. If the employer needs to urgently furlough employees or make them redundant in order to be able to continue to trade, a limited selection procedure, carried out on an urgent basis, is likely to be justifiable. However, where an employer does not have immediate financial concerns, it is likely to be more reasonable for it to follow a more comprehensive procedure.

Employers may want to ask for volunteers first.

Employers could draw up a matrix of objective criteria in a similar way to redundancy scoring, although it is unlikely that anything as formal as this is required.

Employers should ensure that their decisions on who to select for Furlough Leave are not based on discriminatory criteria. General practices, policies or rules applying equal to all (but which may have a worse effect on some people because of their protected characteristics than others i.e. indirectly discriminatory) may be capable of objective justification. Direct discrimination cannot be justified save in the case of age. Age is unique in the nine protected characteristics as direct discrimination on the basis of age is also capable of objective justification. For example, it will be directly discriminatory for employers to use age as a criteria and select employees over 70. However, such action may be justified as a proportionate means of achieving the legitimate aim of protecting the health and safety of vulnerable employees, as identified in Government guidance.

11. Can an employer rotate furlough leave between its employees?

Employees must be furloughed for a minimum of three weeks. Subject to this, employees can move on and off Furlough Leave. Rotating employees may assist employee relations.

12. Can an employee request their employer puts them on to Furlough Leave?

Yes, but the employer does not have to agree. It is for the employer to designate.

It seems that an employer can also utilise redundancy. However, it is hoped that in most cases, furlough will be the preferred alternative allowing for cooperation between employers and employees for the benefit of all.

It is unclear whether refusing to place an employee on Furlough Leave and making them redundant could amount to an unfair dismissal.

13. Can employers incentivise those not selected?

This is a unique situation where challenges to decision-making in relation to Furlough Leave may come equally from those not selected as those selected. Some employers are considering enhanced pay to incentivise employees to remain in work rather than enter furlough. Employers should be careful to ensure that any increase in pay for those continuing to work is capable of objective justification in the circumstances, since it is arguable that such an offer disproportionately impacts upon disabled persons and women, who may be less able to put themselves forward to continue working. Some disabilities are more likely to require self-isolation due to the effects of coronavirus. Further, with schools closed, many women have taken on a greater responsibility for childcare, which prevents them from working their contracted hours.

14. Will employers need to collectively consult if they intend to put 20 or more employees on Furlough Leave?

No. However, the guidance has confirmed that if sufficient numbers of employees are involved then it may be necessary to engage in collective consultation to procure agreement to change the employees’ terms.

15. When does the duty to collectively consult arise?

Where the employer intends to vary the contracts of 20 or more employees, and it intends to dismiss employees who do not consent to the change in their terms within a period of 90 days or less, the duty will arise. Failure to consult (enhanced compensation) awards are only a risk if a dismissal and claim follow.

In many (but not all) cases, an intention to dismiss may underpin Furlough Leave. At the stage consent is being sought, it is arguable the duty does not arise.

If Furlough Leave is in the context of employers proposing to make redundancies down the line, employers are well-advised to comply with their duties to:

  • Inform and consult appropriate employee representatives of the employees for at least 30 or 45 days depending on the numbers; and
  • Notify the Secretary of State using form HR1.

Employer exposure is likely to be minimal if:

  • No contractual variation is intended (because the employer already has the right to suspend and does not intend to reduce pay to the level that can be reimbursed); or
  • It anticipates all those proposed for Furlough Leave are likely to consent.

It is worth noting that if there are 20 or more employees who do not consent, an employer who insists on making changes to terms of employment through a process of dismissal and reengagement will trigger collective consultation obligations. There is a risk (probably low in the current climate) that employees treat themselves as dismissed, claim unfair dismissal and full notice pay or accept furlough. Alternatively, they may ‘work under protest’ by making it clear that the reduction in pay is not accepted and then claim breach of contract of unlawful deduction of wages. We consider that these scenarios are unlikely if the alternative is likely to be compulsory redundancy and having to secure new work in the current uncertain job market. Each case will also turn on its own facts so it is important to take advice before embarking on a ‘fire and re-hire’ strategy.

16. Can an employer use the “special circumstances” defence?

An exception of “special circumstances” exists to the duty to consult. In order to qualify, employers need to show that compliance was not reasonably practicable, and that the circumstances were “special”.

In terms of reasonable practicability, the effect of the pandemic may mean that there are practical difficulties with appointing representatives in absence of a recognised trade union or body of representatives and undertaking full consultation.

Given the unique and unprecedented nature of the pandemic and the economic effects of the Government response, there is likely to be mileage in the argument that circumstances are “special”.

Insolvency, in itself, does not amount to a special circumstance, but given that the pandemic is a sudden and out of the ordinary event, the defence may apply. As time moves on, the availability of the defence may diminish.

Some form of consultation as is reasonably practicable in the circumstances is advisable.

17. Can an employer rely on an employee’s implied consent to changes in terms applicable to Furlough Leave?

Courts and tribunals are usually slow to infer consent to a contractual change in the absence of express agreement, especially where the change is to the detriment of the employee*.  In agreement from the employee, as well as confirmation in writing to the employee that they have been furloughed, the Direction requires that there must be agreement in writing between the employer and employee that the employee will cease work in relation to their employment (see 9 above).

Subject to the express requirements above, if the employer effectively communicates in writing its proposal to place an employee on Furlough Leave, with a deadline for objection, a lack of response by the employee, who accepts reduced pay without objection, may be regarded as sufficient consent. Each case will turn on its own facts. Clearly, the safest way to implement Furlough Leave is to have a written agreement in place that is signed by both parties, confirming all contractual changes. This can also deal with other measures the employer may need to rely on to avoid compulsory redundancies, such as provisions relating to lay-off or short-time working, if agreed.

18. Is consideration required where an employee agrees to reduced pay on Furlough Leave?

Any agreement to vary the terms of an existing employment contract must either be supported by consideration or executed as a deed. It is likely that, where Furlough Leave is being offered as an alternative to redundancy or lay-off, continued employment would be sufficient consideration.

19. How does an employer make a claim to HMRC for reimbursement?

Employers should prepare the following information for furloughed employees now:

  • The employer’s PAYE reference number.
  • The number of employees being furloughed.
  • The names of those being furloughed.
  • National Insurance numbers and payroll numbers (optional) for those you want to furlough.
  • The employer’s Self-Assessment Unique Taxpayer Reference or Corporation Tax Unique Taxpayer Reference or Company Registration Number.
  • The claim period (start and end date).
  • The amount claimed.
  • The employer’s bank account number and sort code (UK bank account).
  • A contact phone number.

Employers will need to calculate the amounts to claim and records will be required to substantiate claims made. The claim can only be made at or shortly before the point at which the employer runs payroll using actual payroll amounts. If employees on Furlough Leave are not being topped up, salaries should be adjusted to 80% of the reference pay (see further below) within payroll before they are paid.

Employers should not the reference provided as an email confirmation will not follow.

Reimbursement will be paid via BACS payment to the nominated bank account within 6 working days after making the application.

The Government have created a step-by-step guide to completing a claim – https://www.gov.uk/government/publications/coronavirus-job-retention-scheme-step-by-step-guide-for-employers


20. Will workers continue to accrue holiday during Furlough Leave?

The guidance indicates that employees’ employment rights continue when on Furlough Leave, which is likely to include holiday accrual. The Working Time Regulations 1998 currently give workers the right to 5.6 weeks’ paid holiday per year. It is believed that holiday taken (including bank holidays if usually taken as leave) during Furlough Leave should be paid at the full (pre-furlough) rate.

21. Can an employee work for another employer?

Yes, subject to any enforceable restrictions contained in the employee’s contract of employment that affect the employee working elsewhere.

22. Can employees on furlough leave do volunteer work?

Yes provided volunteer work does not provide services to, or generate revenue for, the employer.

23. Can employees on furlough leave undertake training?

Yes, provided that training the employee does not provide services to, or generate revenue for, the employer. Employees must be paid the national minimum wage in respect of the training (in most cases, this will be covered by the grant amount).

If the employer will require the employee to undertake online training during Furlough Leave, this must relate to the employee’s employment and should be agreed between the employer and employee before being undertaken. It would be advisable to include appropriate mechanisms in the furlough agreement and referred to in the correspondence confirming Furlough Leave.


24. What can be included in salary costs?

Any “regular” payments, including past overtime and compulsory commission payments. Discretionary bonuses and commission should be excluded. The Direction also states that employers cannot claim for any salary which is “conditional on any matter”.

The cost of benefits in kind/salary sacrifice schemes (including pension contributions) that reduce an employees taxable pay should be excluded from the reference salary that forms the basis of Furlough Leave pay. No part of the sums paid under the scheme should be netted off to pay for the provision of benefits or salary sacrifice. Where an employer provides contractual benefits to furloughed employees this should be in addition to salary paid under the scheme or, if agreed, varied.

In relation to LLP salaried members, fixed and variable profit allocation can be included provided that no account should be taken of any profit allocation determined by performance of the member or LLP.

25. How is the 80% calculated for those with variable earnings?

If the employee has been employed (or engaged by an employment business) for a full twelve months prior to the claim, the employer can claim for the higher of either:

  • The same month’s earning from the previous year.
  • Average monthly earnings from the 2019-20 tax year.

If an employee has been employed for less than a year, the employer can claim for the average of their monthly earnings since they started work. If the employee started employment in February 2020, the amount should be calculated from their pro-rated earnings.

Some employers may take the view that those casual or zero hours workers and employees who are not guaranteed work from the employer do not need to be put on Furlough Leave because the employer can lawfully refrain from offering them work. However, this approach is not in the spirit of the scheme, to ensure that employees and workers retain a basic income during the crisis stages of the pandemic.

26. How is salary calculated for employees returning from or just about to go on maternity or other types of family leave?

It is not clear whether employees on family leave will be treated as furloughed in the same way as other employees, or as still on statutory leave. The guidance states that being on Furlough Leave will not reduce or change any other employment rights and that any claim for enhanced contractual maternity (and other family friendly) pay may be claimed through the scheme. Statutory entitlements or any enhanced contractual pay for family leave may be based upon an employee’s temporarily reduced rate of pay on Furlough Leave (statutory pay is calculated by reference to an eight week period ending with the fifteenth week before the baby is due).

Furlough Leave may offer a better alternative than family leave for some e.g. an employee on 80 % of pay for Furlough Leave may prefer not to assert rights to paternity leave where they would entitled to statutory payments only.

Furlough Leave will not affect the two-week compulsory maternity period in any event. Most employees are likely to prefer the guaranteed time-off and entitlements family leave offers in circumstances where the continuation of the scheme benefits is uncertain. It is likely that 80% of any enhanced contractual pay could be claimed under the scheme.

An employer making a claim in respect of an employee returning from maternity leave or other statutory leave will be entitled to reimbursement based on the pre-leave salary, not the reduced pay, if any, they received before their return.

27. What is the position if 80% of pay is less than national minimum wage (NMW) based on normal working hours?

The guidance has confirmed that if an employee’s reduced salary on Furlough Leave would cause an employee to fall below NMW employers do not need to top up. Any time spent training must be at NMW.


28. Will it be an unfair dismissal if an employer makes someone redundant rather than placing them on Furlough Leave?

Employees can be made redundant when on Furlough Leave.

Whether or not such a dismissal is unfair will be determined in accordance with the test for reasonableness under section 98(4) of the Employment Rights Act 1996 (ERA 1996). It will depend on the particular circumstances of the case, the timing of dismissal and the size and resources of the employer.

There will be cases where an employer cannot afford to furlough employees at this stage and pay the 80% of salary until HMRC has set up the scheme and reimburses it. While those employers could ask for the employees to agree to defer payment until it is reimbursed by HMRC, some employees will be unwilling to agree to this, or not be in a financial position to do so. In those circumstances, it may be fair for an employer to dismiss for redundancy. Employers should bear in mind this is unlikely to be a quick and inexpensive solution. Consultation obligations may be engaged and redundancy payments may be due. The effect on employee relations, as well as relationships with third party contacts and clients, should not be overlooked.


If your employees can work from home and you need employees to continue working hard for the business as and when there is a demand for your product or services, other measures you may want to consider where there has been a significant downturn in work are:

  • Lay-off – a contractual right to put employees on unpaid leave where there is a temporary cessation of work.
  • Short time working – a contractual right to reduce employees’ hours and pay for a period of time to deal with a reduction in work.
  • Agreement to a reduction in salaries.

In the absence of a contractual right to implement any of the above measures, employers should agree measures with their employees.

The content of this article is for general information purposes only. It is not a substitute for legal advice, which must be taken in relation to specific circumstances.

To discuss any concerns or questions, including generally in relation to what measures can be taken to protect your business, team or your employment, please contact Caroline Field or Remziye Ozcan, or any other member of the Fox & Partners’ team.


*This has been confirmed in this context by a decision handed down in the matter of Carluccio’s Limited (in administration) [2020] EWHC 886 (Ch).