Update 04 March 2021 – After the Budget annoucement on 03 March 2021, the Furlough scheme has been extended until end of September 2021, with some adjustment to funding levels from July 2021. Read further on how using the scheme benefits both business and employees.

How can I use the furlough scheme to protect my business and employees?

The government’s Coronavirus Job Retention Scheme (JRS) has created a lifeline for many businesses, potentially meaning fewer redundancies and a lesser risk of closure.

However, as restrictions continue and your situation and that of your employees’ changes, you might feel you need some clarity on how best to use the furlough scheme.

Here are the main questions I’m being asked.

Which employees can be furloughed?

For periods ending on or before 30 April 2021, employees must have been on an employer’s PAYE payroll by 23:59 30 October 2020. This means a Real Time Information (RTI) submission notifying payment for that employee to HMRC must have been made between 20 March 2020 and 30 October 2020. Employees do not need to have been furloughed before.

For periods starting on or after 1 May 2021, employees who were employed on 2 March 2021, as long as you have made a PAYE Real Time Information (RTI) submission to HMRC between 20 March 2020 and 2 March 2021, notifying a payment of earnings for that employee. You do not need to have previously claimed for an employee before the 2 March 2021 to claim for periods from starting on or after 1 May 2021.The shift in eligibility from 1 May 2021 onwards was confirmed in Government guidance on 3 March 2021, presumably as a result of the extension of the JRS until the end of September 2021.

The extension meant that there were seven months left to run of the JRS from the announcement and without this change, employers would have been limited for the full duration of the JRS to furloughing only those who had been employed on 30 October 2020 who also met the RTI submission criterion. Employers will now have much more flexibility in furlough decisions in the future; they will be able to furlough those who were recruited between 31 October 2020 and 2 March 2021 who had also been notified to HMRC via a RTI submission between 20 March 2020 and 2 March 2021. It must be noted that this change only becomes effective from 1 May 2021 onwards; until then employers can only furlough those who were employed on 30 October 2020, as long as a PAYE Real Time Information (RTI) submission as made to HMRC between 20 March 2020 and 30 October 2020, notifying a payment of earnings for that employee.

When furloughing an employee from 1 May onwards who would not otherwise have qualified for furlough, it is not necessary that they have been furloughed previously.

As it is necessary to be PAYE, under-16s cannot have wages claimed under the Scheme. National Insurance numbers are only issued at the age of 16 so before that point, the child will not generally be considered PAYE.

Can I furlough an employee on a fixed term contract?

If the employee’s contract has not already expired, it can be extended or renewed. Employees can be put on furlough, as long as they were employed on or before 30 October 2020, as mentioned above.

An employee who was on a fixed term contract can be re-employed and claimed for if:

  • they were employed by you on 23 September 2020
  • their contract expired on or after 23 September 2020
  • you made a PAYE RTI submission to HMRC between 20 March 2020 and 30 October 2020, notifying a payment of earnings for that employee.

All other eligibility criteria must be met.

For periods starting on or after 1 May 2021, you can put the employee on furlough as long as they were employed by you on 2 March 2021, as long as you have made a PAYE Real Time Information (RTI) submission to HMRC between 20 March 2020 and 2 March 2021.
How much is the grant available under the JRS?
Until June 2021, the grant is 80% to a maximum of £2500 per employee per month for unworked hours. Where an employee is on full furlough, this is what they will get per month (unless the employer decides to top it up). Where an employee is on flexible furlough, they will be paid in full by the employer for the hours they work and the grant will cover 80% of pay for the unworked hours only, subject to a cap. The cap will always be less than £2500 because that is the amount which applies to full-time furlough which is not the case with flexible furlough.
From 1 July 2021, the Government grant will reduce to 70% of furloughed employees’ wage costs for unworked hours. Pay for furloughed employees must remain at a minimum of 80% which means that employers must contribute 10% from their own pocket.
From 1 August 2021 until the closure of the JRS, the Government grant will reduce to 60% of furloughed employees’ wage costs for unworked hours. Employer contributions will therefore increase to 20%. Therefore, from July 2021, employers will have to cover a portion of the employee’s actual wages, as well as the national insurance and pension contributions that they have been liable for some months now.

Table showing funding position from May 2021

 Government contribution: wages for hours not worked80% up to £2,50080% up to £2,50070% up to £2,187.5060% up to £1,87560% up to £1,875
 Employer contribution: employer National Insurance contributions and pension contributionsYesYesYesYesYes
 Employer contribution wages for hours not workedNoNo10% up to £312.5020% up to £62520% up to £625
 For hours not worked employee receives80% up to £2,500 per month80% up to £2,500 per month80% up to £2,500 per month80% up to £2,500 per month80% up to £2,500 per month

What if I have an employee that is unable to work due to shielding/caring/sickness?

Employees can be furloughed if they are unable to work, including from home or working reduced hours because they:

  • are clinically extremely vulnerable, or at the highest risk of severe illness from coronavirus and following public health guidance
  • have caring responsibilities resulting from coronavirus, such as caring for children who are at home as a result of school and childcare facilities closing or caring for a vulnerable individual in their household.

Guidance was updated on 10 December to clarify that employers may furlough shielding employees even if their business is not adversely affected by coronavirus. However, the same flexibility is not extended to the furlough of employees who have caring responsibilities resulting from coronavirus. Employers considering furloughing affected workers during school closures, for example, will still need to demonstrate their business has been severely affected.

The JRS is not intended for short-term sick absences. However, employees who are currently off sick can be furloughed for business reasons.  

Furloughed employees who become ill for any reason, must be paid at least statutory sick pay (SSP). It is up to employers to decide whether to move these employees onto SSP or to keep them on furlough, at their furloughed rate.

What kind of part-time working arrangements can be used for flexible furlough?

Any arrangement can be agreed; employers have utmost flexibility to assess what will work for them.

Flexible furlough will not be an option for employers who have no work to provide to their staff. Such employers may choose to keep their employees on full furlough for as long as they deem necessary subject to the closure of the scheme in its entirety at the end of October 2020.

How long does furlough last?

There is no minimum furlough period. An eligible employee can stay on furlough for as long as the JRS is in operation and they have agreed to it.

If I have furloughed an employee, brought them back to work and then I want to furlough them again, do I have to get a new written agreement?

Yes, you will need a new written agreement that states the employee will cease to do all work again for the new furlough period. The written agreement relates to the single furlough period only and that agreement expires when the employee is recalled.

Can I rotate employees on and off furlough?

There is nothing within the guidance which prohibits this. Potentially, it’s a good way of keeping all employees happy as they will get a more equal share of 100% and 80% pay.

Do holidays accrue during furlough?

Yes. You could try to agree that statutory minimum holiday will not accrue but this may make it harder to get agreement to furlough in the first place. Plus, it’s not clear whether any conditions other than a reduction in pay can be applied to furlough.

Can annual leave be taken at the same time as furlough?

Yes, but the employer must top up to 100% pay. It can be taken during both full and flexible furlough.

If an employee is flexibly furloughed and takes annual leave, the hours of annual leave should be counted as furloughed hours and not working hours. This means that the employer may include these hours in their claim to the Scheme but must top up pay because annual leave during furlough must be paid as normal.

Updated guidance on 1st December states that employees can only be placed on furlough if coronavirus is affecting their operations. Also, employees should not be placed on furlough just because:

  • they are going to be on paid leave
  • they are going to be on holiday
  • the business is usually quieter over on-seasonal period.

This rule is to prevent employers arbitrarily placing an employee who is about to go on annual leave on furlough in order to recoup a portion of wage costs.

employers have a rule that no annual leave can be taken during furlough?

Yes. Given that it is now possible to carry four weeks of leave forward to the next two holiday years, the employer may be less concerned about workers having lots of annual leave to take in that leave year on their return from furlough.

An employee might request to use their leave to ensure 100% pay for a period. It is up to the employer whether to grant this – many employers are keen for staff to use up their leave. Employers may, however, refuse for seasonal reasons – for example if the business is particularly busy in August, they’d be within their rights to decline leave especially if it could have been taken during a quiet period.
In usual circumstances, this would be the case – staff are expected to work in the busy periods and take holiday in quieter times.

Can employers enforce annual leave during furlough?

Yes. Government guidance published on 13 May 2020 confirms that employers can require a worker to take annual leave when on furlough. However, if an employer wants to do this, they should “consider whether any restrictions the worker is under, such as the need to socially distance or self-isolate, would prevent the worker from resting, relaxing and enjoying leisure time, which is the fundamental purpose of holiday.”

Home schooling parents may request furlough for this reason but employers have the right to refuse.

Can the employer claim 80%, 70%, 60% of holiday pay through the scheme?

Yes. See above – you can take annual leave whilst on furlough.

Can an employee request leave whilst on furlough?

Yes, unless the employer has designated furlough as a time when leave cannot be taken. The employer can refuse the request though, as they normally can.

Does furlough override pre-booked holiday and bank holiday?

No, annual leave including bank holidays can be taken whilst on furlough.

If the worker would have usually worked the bank holiday, their furlough will be unaffected. However, if the worker would usually have taken it as annual leave, there are two options.


  • the bank holiday is taken as annual leave in which case the employer must pay the correct holiday pay or
  • the bank holiday is deferred if the employer and the worker agree that it will not be taken as annual leave at that time. This holiday will have to be given later in the year.

Can I make a claim for wages payable during the statutory notice period?

You can continue to claim for a furloughed employee who is serving a statutory notice period; however, grants cannot be used to substitute redundancy payments. Claims are only permitted from 1 November for the statutory, not the contractual element of notice pay. Statutory notice runs first, so anything after the length of that period would have to be covered by the employer.

A claim cannot be made for any period on or after 1 December 2020 during which the furloughed employee was serving notice (including notice of retirement or resignation). If an employee subsequently starts a notice period on a day covered by a previously submitted claim, an adjustment will need to be made.

There are various options for dealing with employees who are in a notice period from 1 December onwards, with differing resulting payments.

Can I put an employee on garden leave?

Yes. If this option is not included in the employee’s contract, it could be agreed at the time. An employee is unlikely to refuse, as it would mean full pay for the period although this may be restrictive for the employer.

Can I lay off employees?

Yes. Lay off is an option used to preserve jobs when there is a temporary lack of work. In this scenario, the employee performs no duties and receives statutory pay. This can be used during notice periods, if there is no work available. Payment depends on whether the statutory notice period is protected. if it is, full pay will be due; if not, statutory guarantee pay (£30 per day (or the employee’s normal daily pay if lower than this) for 5 days per rolling 13 week period) will be due.

It’s unclear how a tribunal would view this action, and whether it may constitute a breach of the fundamental term of mutual trust and confidence. For this reason, it could be easier to opt for the safe, though more expensive, route of garden leave.

Can I make someone redundant when they are on furlough?

Yes. Redundancy processes are still subject to the normal rules. To prevent an unfair dismissal claim, the decision would have to be deemed reasonable and the financial position of the employer will be considered. Employers should, however, consider why furlough, with its ability to claim capped wages from the Scheme, was not suitable in the circumstances.

The previous question regarding claiming for an employee’s wages during their notice period, may help to prevent redundancies.

If someone is made redundant after a period of furlough, is their statutory redundancy pay calculated on their reduced furlough pay or their normal pay?

On 31 July 2020, regulations came into effect which require redundancy pay to be calculated using an employee’s full pre-furlough pay.

The regulations also require full pre-furlough pay to be used when calculating:

  • pay during time off to look for work/training during redundancy notice period
  • pay during the notice period
  • compensation for failure to provide a written statement
  • unfair dismissal compensation
  • whether the employee has worked ‘short time’ for the purposes of claiming statutory redundancy pay

I hope this blog helps to explain how the furlough scheme could work for your business.

If you have any further questions about furlough or any other issues affecting your business, please feel free to contact me at:
info@bphrconsultancy.co.uk or 07855 374 511