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Coronavirus furlough scheme – recent clarifications and key issues

01 May 2020

It is now 6 weeks since the government announced its coronavirus job retention scheme, and following some initial hiccups, the guidance is finally becoming more helpful for employers.

All employers should keep an eye on the guidance as it continues to be updated on a regular basis by the government. BTO will of course update our clients and contacts on these changes via our regular blogs.

6 weeks in, it is worth having a recap on some of the key issues, and clarifications that have come through late this week.

Who can be furloughed?

Initially it was suggested that employees could only be furloughed if otherwise facing redundancy or lay off but that message has been significantly altered and the scope of the scheme very much widened.

Reason for furlough

Employees who are not working because of reasons connected with coronavirus can be furloughed (conversely if the reason for not working is unconnected with the virus, that suggests that they cannot be). So employees who cannot work due to child care responsibilities, or who cannot attend work without endangering a vulnerable member of their household (and who cannot work from home) can be furloughed. Whether you can furlough an employee who could, but wishes not to, attend work, and is not in a vulnerable category (and cannot work from home) is open to debate. Remember that there is no obligation to furlough an employee (even if you are entitled to do so) but you need to ensure that any decisions about furlough are not tainted by discrimination, and that any refusal to furlough, or differing treatment of staff, is not so unreasonable as to amount to constructive dismissal.

Shielding and sick leave

A vexed question has been whether you can furlough staff who are “shielding” i.e. have received a NHS letter instructing them to stay at home for 12 weeks. The SSP Regulations were amended to state that such persons were deemed entitled to SSP, and the Treasury Direction to HMRC in relation to the furlough scheme appeared to state (though the wording was difficult to follow) that anyone who was entitled to SSP (whether or not claiming it) could not be furloughed. Put these two together and the conclusion is that you cannot furlough someone who is shielding. This was quite clearly not the intention, and at least 2 subsequent iterations of the government guidance have expressly stated that you can furlough someone who is shielding. Although technically the Direction takes precedence over the guidance it seems likely that the guidance (which is more recent) represents the true position as to how HMRC will operate the scheme. Many employers are taking the view that the intention is clear – that shielding staff can be furloughed – and are doing just that.

Similarly the guidance states that other staff on long term sick can be furloughed, but that furlough should not be used for dealing with short term sickness absence.

Scope of scheme

The scheme applies not just to employees but to salaried LLP members and also “workers” – those individuals who work for a company not as an employee, but equally who are not genuinely self employed and operating their own business. The genuinely self employed are not covered by this scheme but there is other assistance available in some cases.

The guidance details the eligibility criteria – the requirement that the employee have been employed by 19 March and whose employment was notified to HMRC by that date.

Directors can be furloughed, and the latest iteration of the guidance clarifies that directors who are paid an annual salary once a year can be furloughed.

The latest version of the guidance also confirms that where employers acquire staff under TUPE after 28 February, they can be covered by the furlough scheme if they would have been eligible had they stayed with their previous employer.


The guidance states that employees who were made redundant or stopped working for the employer after 28 February 2020 can be re-employed and furloughed. The latest update to the guidance no longer requires that the employment ended before 19 March, as was previously stated.

There remains some uncertainty however. While the chancellor initially announced that employees who left “for any reason” could be re-employed and furloughed, the guidance says that the reason for furlough must be connected with the pandemic, and also reserves the right to reject claims that are not consistent with the “exceptional purpose” of the scheme. Where an employee left for reasons that are unrelated to the virus, is it an appropriate use of public funds to re-employ them merely to furlough them?

Other issues arise – will they have continuous employment? That may depend on the reasons for employment ending. Will they have to be dismissed again at the end of the furlough period and would they be entitled to full notice again? There are a number of practical questions to consider, and take advice on, before deciding to re-employ.

How to calculate pay

We now have detailed and fairly helpful guidance on calculating an employee’s reference salary (on which the 80% calculation would be carried out). This has recently been updated

The guidance seeks to resolve some of the confusion created by the strained wording of the Treasury Direction and sets out what should be included in the calculation.

There remains room for debate on some points, such as whether overtime should be included in the calculation for employees who are salaried. We believe that it should, along with other payments and allowances, at least if paid with sufficient regularity as to be “normal” salary. In such cases, as with non-salaried employees, remuneration should be averaged over the tax/year 2019/20, or if higher the remuneration in the same pay period a year previously should be used.

The employer guidance also makes clear that an employer is not restricted to claiming for sums already paid to employees – a claim can be submitted for an “imminent” payroll run

Annual leave

While some issues relating to annual leave remain unclear we do know:

  • Employees can be on holiday during furlough
  • This will not break the furlough period
  • HMRC will pay the 80% furlough pay in the usual way
  • The employer must top up to 100% - a week’s pay being calculated as per the current law on holiday pay (which may not be the same calculation as working out reference salary for furlough pay)

What we do not know is whether an employer can give notice to an employee to take their holidays during a period of furlough leave. In terms of the Working Time Regulations that can certainly be done, though employers should also check what the contract says. The issue is whether it is reasonable for employers to require employees to be on holiday when it is of no real benefit to them (a day’s holiday is no different from a day’s furlough, and the employee is limited in “enjoying” the holiday due to the lockdown). Given that the law has been changed to allow staff to carry forward some of their holiday entitlement for up to 2 years if they were unable to take it due to coronavirus, there is certainly an argument that it would not be reasonable to require furloughed staff to take holidays. Many employers however will take the view that they have little to lose by issuing such an instruction – realistically staff are unlikely to treat it as a material breach of contract justifying their resignation. Indeed some high earners may be quite happy to be paid at 100% rather than the lower, capped, furlough pay.

Activities on furlough

Furloughed staff must do no work for their employer. However they can:

  • Carry out voluntary work
  • Undertake training (training must be paid at least at minimum wage)
  • Continue to work for another employer, or even start work for another employer if permitted by their contract of employment
  • Act as an employee representative for example to attend another employee’s disciplinary hearing, or for collective consultation purposes – this is confirmed by the latest amendment to the government guidance

A director who is furloughed can carry out tasks that are necessary to fulfil statutory obligations as a director. That is an extremely limited provision and care should be taken – where the director goes beyond that and could be said to be “working” that is inconsistent with the scheme and HMRC may seek to withhold, or recover, furlough payments

Next steps

The furlough scheme has created some welcome breathing space for employers but some businesses are coming to the conclusion that when the scheme ends, there will be a need for redundancies.

Remember, as per our previous blog that where you propose 20+ redundancies at one establishment, within 90 days, there is a need for collective consultation. As above, employees can act as representatives for such a process even if furloughed, and it is clear that a collective consultation process can take place even during a period of furlough. Employees can be made redundant while on furlough, and there are 2 schools of thought as to whether they would be legally entitled to full pay during their notice period, or only furlough pay. It likely depends on the reasons why they are not working, and whether they are ready willing and able to work, if there was work to be done.

If you are considering a redundancy exercise it is important to take advice and potentially look at starting the process sooner rather than later. If you wait until the furlough scheme has ended, then employees are likely to be entitled to full pay (unless you have a lay off clause) while the consultation process is being followed.

We do not know of course when the furlough scheme will end. There is some suggestion that it may become more flexible. It may be that employees would be permitted to work part time, as their employer’s business hopefully gets back to normal, with the government meeting part of the shortfall in wages. At present that is not permitted – if an employee is furloughed they cannot work at all. Watch this space for the latest developments!

This update contains general information only and does not constitute legal or other professional advice.

Employment law

Caroline Carr, Partner: E: / T: 0141 225 5263
Laura Salmond, Partner: E: / T: 0141 225 5313
Jacqueline McCluskey, Partner: E: / T: 0131 222 2936
Douglas Strang, Senior Associate: E: / T: 0141 225 5271

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