Furlough – Where to from now?

Andrew Masters

Partner & Head of Employment

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June 9, 2020

Categories Coronavirus (COVID-19)Employment Law Updates

Details of the Coronavirus Job Retention Scheme (CJRS) were first published on 26 March, three days after the UK was put into lockdown. 7.5 million workers and almost 1 million businesses have made use of the scheme so far.  On Friday, 29th May 2020 the Chancellor announced changes to the scheme as it winds down to the end of October 2020.


What are the main changes which have been introduced to the furlough scheme?

The existing furlough scheme closes on 30th June 2020. Thereafter two main changes are being introduced (1) flexibility and (2) a requirement for businesses to contribute to the scheme.

1. Flexibility:-

From 1 July employers will be able to bring furlough workers back part time while still claiming from the job retention scheme.

Employers will pay normal staff wages on the days they are working, and be able to claim from the furlough scheme when they are not.

Because this will be a new scheme, any employers who want to put staff on furlough need to do so by 10 June – to allow them to complete the minimum three weeks required if they want to make use of these new flexibilities.

Only employees who have had at least one 3 week furlough period under the ‘existing’ scheme , (during which time they cannot do any work at all for their employer), will be eligible for a CJRS claim under the new scheme.

Q. Does this mean that the cut of point for furlough is 10th June?

It appears to be so. However, I became aware that Maternity Action has written a letter to the Chancellor in which it calls for parents on maternity, shared parental or adoption leave to be exempted from the new Coronavirus Job Retention Scheme (CJRS) cut-off date of 10 June 2020. This has not yet been agreed at the time of writing.

Q. Are employees on maternity, paternity and adoption unable to benefit from CJRS?

Its is technically possible for employees to be furloughed during statutory family leave (unless a period of unpaid leave started on or before 28 February 2020). However, an employer can only claim from the CJRS in respect of employees who receive 80% of salary, capped at £2,500 per month. This means where a contractual entitlement to pay during the statutory leave is less than that, the employer may not be able to claim from the CJRS. Many employees on statutory family leave will be on less than 80% of their usual contractual pay. Furthermore, where a woman started the unpaid part of her additional leave (after 39 weeks) on or before 28 February 2020 she will not be able to be furloughed until the date when her maternity leave comes to an end. If it ends on say 11th June, she will lose out.

Q. How will pay be calculated when working flexibly?

Pay will be calculated with reference to the hours worked v hours on furlough as compared to ‘normal working hours’. Further details are to be released on 12th June.

Q. Will employers need to enter into a new agreement with employees when moving them onto the flexible scheme?

Yes. Any flexible furlough agreement will need to be confirmed in writing.

2. Employer’s Contributions:-

The Chancellor also announced plans for employers to start contributing to CJRS. In June and July the scheme will continue as before, with the government paying 80 per cent of wages up to a maximum of £2,500 a month.

From August, employers will be asked to pay national insurance and employer pensions contributions, which the Chancellor estimated would account for about 5 per cent of total employment costs.

From September the government’s contributions will drop to 70 per cent, with employers expected to make up 10 per cent (capped at £2,187.50 rather than £2,500).

In October, the final month of the scheme, the government will pay for 60 per cent of wages with employers expected to contribute 20 per cent.

There is no intention to continue the scheme after 31 October 2020.

Q. Can the employer’s contributions be passed to the employee by agreement?

No, the CJRS claim cannot be passed to the employee. The employer will, therefore, effectively be funding 12.5% of furlough pay from September and 25% from October when factoring in NI and basic pension contributions.

Q. If an employee on furlough wishes to tender their resignation, are they still bound by their notice period?

Yes, they remain bound by the contract of employment apart from those sections varied by any furloughed agreement that they have entered into with the employer. They will, therefore, have to serve notice in the usual way. The parties may agree to contract out of notice. This would make sense if, for example they have a new job to go to and are on furlough. Restrictive covenants and confidentiality provisions will still remain in place unless the parties agreed to waive them.

Q. If notice pay served by either party during furlough is it paid at 100% of salary?

It may be financially preferable from the employer’s perspective to keep employees on furlough for their notice period so that at least part of their notice pay can be recovered under CJRS.

The amount of the notice (whether it can be at the furloughed rate or whether the employer has to top it up to 100%) depends on what the notice entitlement actually is. The rules are similar for employees on long term sick leave, who have exhausted statutory pay.

An employee with normal working hours who is entitled to only statutory notice from their employer will be entitled to their normal remuneration if served notice of termination of employment while on furlough as long as they are ready and willing to work (section 88(1),Employment Rights Act 1996). The employer will, therefore, need to top up the pay to 100% (assuming they are not doing so already).

An employee with normal working hours who is entitled to at least one week more than statutory notice from their employer will not benefit from the terms of section 88 ERA 1996. Their statutory notice pay will instead be based on the pay that they would otherwise have received during their notice, which will be their reduced furlough pay if they remain on furlough for the duration of their notice.

Q. If someone is being made redundant whilst still on furlough …. can the employer be generous and give the employee longer notice than they are contractually entitled to and still claim furlough for that employee during that notice period?

Provided the employer pays the employee their correct notice pay during the equivalent statutory or contractual notice period, there is no issue with them serving a longer notice. If the employee is entitled to 100% pay during their notice, the employer should top the pay up to 100% for the period of the notice and could put the employee back onto 80% for the extended time.

The employer could also enter into an agreement with the employee to extend the notice on the basis of the employee agreeing to vary their contractual pay during the period of notice to the furloughed rate. There is nothing to prevent an employer or an employee from waiving their right to receive due notice of termination on any occasion (section 86(3) ERA 1996).

Q. If an employee has been furloughed are they entitled to carry over more leave to the next year?

They can do if they are unable to take it, but furlough does not generally mean that workers are unable to take annual leave. There is often confusion in this respect.

To contextualise this issue, the government passed emergency legislation relaxing the restriction on carrying over the four weeks’ leave derived from the Working Time Directive with effect from 26 March 2020. The Working Time (Coronavirus) Amendment Regulations 2020 amend regulation 13 of the Working Time Regulations 1998 to permit the carry-over of any untaken WTD leave where it was not reasonably practicable to take it in the leave year “as a result of the effects of the coronavirus”. The amendment allows for a carry-over for two years. The idea is to support staff who could not take annual leave for a variety of reasons; perhaps they were providing emergency cover; perhaps their employer could not afford to pay for the leave.

The Covid-19 Guidance published on 13 May 2020 states that “workers who are on furlough are unlikely to need to carry forward statutory annual leave, as they will be able to take it during the furlough period (in most cases at least)”.

The one exception the guidance gives where it considers that it may not be reasonably practicable for a worker to take annual leave during furlough is where, “due to the impact of coronavirus on operations, the employer is unable to fund the difference.”

Q. How are furloughed workers to be paid when on annual leave?

Guidance on holiday and furlough has been updated by the government and it can be found on the government link ‘Holiday entitlement and pay during Covid 19’.

Holiday pay, whether the worker is on furlough or not, should be calculated in line with current legislation – based on a worker’s usual earnings. The underlying principle is that a worker should not be financially worse off through taking holiday. If a worker takes annual leave during furlough they should be paid in full. If the employer cannot afford this, then as per the question above, they can carry-over their first four weeks of annual leave for up to two further leave years.

Q. Can an employer require a worker to take annual leave while on furlough?

If an employer requires a worker to take holiday while on furlough they need to follow the requirements as set out in the Working Time Regulations 1998 and that is to serve double the amount of notice as the requisite leave. If the employer wanted the worker to take a week, for example, they would need to serve two weeks’ notice. However, updated guidance makes it clear that the employer should consider whether any restriction that the worker is under such as socially distancing and isolation would prevent them from resting, relaxing and enjoying leisure time which is the fundamental purpose of holiday.

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