9 april 2020

The Coronavirus Act 2020 and Furlough for Employees 


The Government on 9th April 2020 updated their official guidance on the financial help for Employers who have Employees who cannot do any work for their organisation at the present time.  The Government Guidance is now in its third version. Whilst we still have  no  rules in place the official guidance is now a lot clearer.  This note is intended to put the scheme in context for Employers. Until the actual Rules are put in place, legal advice is not possible. 

Eligible Employers

  • Employers are able to receive financial support from the HMRC via PAYE provided they were registered for a PAYE scheme by 28th February 2020.
  • Government organisations and organisations receiving payment from Government to provide services to help combat coronavirus are not eligible.

Employees eligible for scheme include :

  • Those who were employed by the employer on 28th February 2020 and then made redundant who have been rehired.
  • Nannies are included as long as they are on PAYE (and were as at 28 February 2020)
  • Employees with more than one job are still eligible but only for the job where they have no work.
  • Some workers (non-employees) are also covered including agency workers or IR35 contractors.
  • Company directors and Partners in an LLP but this will need to be minuted in the corporate meeting minutes. They can perform statutory duties but do nothing else. For most small businesses, it is unlikely they cannot do any work at all.
  • The revised guidelines now are better set out and should be consulted if you are not sure if you are covered.

Employees not Eligible: 

  • Staff who are already receiving statutory sick pay (SSP) whilst they remain unfit to work.
  • Employees on Maternity Leave, Paternity Leave, Shared Paternity Leave or Adoption Leave.(“Statutory Leave”).
  • Employees hired after 28th February 2020.
  • Employees who must continue working in order  to  run your business.

Changes in Circumstances

  • Employees who become fit for work after illness can be furloughed if they have no work to do on their return.
  • Employees who report sick whilst on furlough should be moved off furlough on to SSP.
  • Staff who complete Statutory Leave such as Maternity Leave  and have no work can then  be furloughed.


  • A Firms Payroll is dynamic and employees changing circumstances  need to be reflected therein.
  • Making the requisite changes will be a lot harder for Employers to manage when their staff not at work.
  • Employees no longer working are unlikely to notify they are sick. (Payment of SSP is at a lower rate than furlough pay).
  • Women on Maternity Leave may not report for work on their notified return date and could lose  their right to return.
  • Employers will need accurate records of those staff on Statutory Leave so they can be furloughed at an appropriate time.
  • Employers who incorrectly claim furlough payments for their employees may encounter later problems on HMRC audits.

Reassigning work

  • Employers may want to issue contractual instructions to reassign work amongst staff.
  • In this instance, staff that might otherwise do reduced hours will then have no work and become eligible to be furloughed.
  • A furloughed employee can take part in voluntary work, as long as it doesn’t generate income for the employer. Employers can agree to find furloughed employees volunteering opportunities if this is in line with public health guidelines.

Financial Assistance

  • The assistance provided consists of:
  • Payment of up to 80% of salary of a furloughed employee’s earnings up to a maximum payment of £2,500 per month.
  • Employers national insurance contributions.
  • The basic employers pension contribution if the employee has opted into the automatic pension enrolment provisions.
  • The guidance acknowledges claims can only be from the date the employees furlough was agreed to start. Thus most claims  will   include   a pro rata calculation as  most monthly paid employees will have started their  furlough part way through their normal payment period. 
  • If an Employees salary varies month-by-month, you can calculate a  claim based on the higher of the same month’s earnings from the previous year; or the average monthly earnings for 2019/20.
  • Discretionary bonuses (including tips), commissions, benefits in kind and salary sacrifice schemes should not be included.
  • The furlough grant is still taxable as income of the business.
  • Unless staff agree to defer payment of wages, this financial help is not immediately going to pay salaries for staff. Employers remain liable for the agreed  full wages of all staff they continue to employ.

From when?

  • Employers can claim for salaries dating back to 1st March 2020 but only if staff were without work on that date.
  • Most businesses had to close between 13th March when live sporting events were cancelled and 23rd March when the stay at home instruction took full effect. Bars, restaurants and most places of entertainment closed on 20th March 2020. Realistically most genuine furlough claims will  commence much  later than  1st March 2020.
  • Staff have to be furloughed for at least 3 weeks to be eligible to include in a claim.
  • Employers need to submit claims each time they do a payroll run.
  • The list of staff on furlough will alter with each change in circumstances.

When Will Payment Arrive?

  • HMRC are setting up a portal for employers to claim by providing their PAYE reference and the details of the employees This is not likely to be operating until late April 2020. It is likely that payment will not be made until sometime later, probably June 2020.

Contractual position

  • Contractually if staff continue to be employed and are fit to work, an Employer is obliged to either pay them or terminate their employment unless their contract contains a provision that allows the Employer to pay no salary or a minimal salary if employees have no work. 
  • Some contracts of employment do provide for employees to be laid off. These are usually in manufacturing or seasonal work. Section 28-34 of the Employment Rights Act 1996 states employees without work that are laid off employed for more than a month are eligible for statutory guarantee payments of up to £29 a day or £145 a week.
  • Contractors on project work or fixed term contracts of not more than 3 months are not eligible.
  • Employees who are eligible are entitled to receive from their employers statutory guarantee payments for up to 3 months.
  • Collective agreements in some industries may provide more favourable terms for staff who are laid off.
  • Most employment contracts do not provide for laying off staff and zero hours contracts have been more common.
  • Employers will usually have to agree with eligible employees in writing a contract change by entering a furlough
  • All Employees on furlough agreements remain liable to income tax and national insurance deductions as usual  on their pay.
  • Employees will also have their pension contributions deducted   unless opted out of the  employee pension scheme.
  • Employees are still entitled to the same employment law  if they furlough staff and Employers  cannot discriminate for reasons of race sex or age or any other protected characteristics in their treatment of staff. 
  • Employers will have to come to separate arrangements with ineligible This may mean reducing pay deferring pay, putting staff on annual leave, agreeing additional unpaid leave paid.                                 


  • Employees taking holiday is not inconsistent with furlough absence as staff on holiday should not be working. However, holidays must be paid holiday pay and  furloughed staff have this shown  separately on their pay slip at the usual contractual rate.
  • Employers who don’t pay holiday or fail to show this separately  will be vulnerable to claims for the whole of an Employee’s accrued  legal holiday entitlement  if they are later made redundant.
  • Employees who are unable to take holiday due to the virus are allowed to carry unused holiday over for 2 years under the Coronavirus Act. This is intended to help Key Workers such as Police and NHS staff that won’t be able to take holiday during this emergency. It could also assist Employees whose Employers made it not reasonably practical for their Employees to take normal paid holidays. 

Employers Record Keeping

  • The Employer is eligible for help only for those workers who agree to be furloughed. They must confirm in writing to the relevant employees that they have been furloughed.
  • This communication must be kept for 5 years.
  • HMRC audits of Employers payroll records after the pandemic are likely due to the  large amounts involved.
  • Employers must pay all the amount claimed for pay  to furloughed employees and cannot retain for the business.


  • If businesses go into administration, administrators can furlough but only if there is a reasonable expectation of a sale of a part of the business where the furloughed staff are as a going concern.


  • When the current scheme is ended by the Government employees furloughed will be entitled to return.
  • Furlough is only a temporary expedient for exceptional circumstances.
  • Staff furloughed will continue to have continuous employment and their entitlement to redundancy and PILON payments will continue to accrue.
  • Employees unable to take holiday due to the virus are allowed to carry unused holiday over for 2 years under the Coronavirus Act.
  • Furlough of some of its employees may not be right for every business.
  • The Furlough scheme provides the greatest help to those businesses with staff not working on salaries of  not exceeding £30K pa.
  • Each business will have different circumstances and financial resources and continuing in business for many will depend on the duration of the social distancing restrictions.
  • Many employers may still have to make redundancies and need to decide on objective criteria for these, such as business premises or areas of work  that are not profitable to resume after the coronavirus restrictions end.
  • Employers must remember they must give notice to the Government and consult with elected Employee Representatives or recognised Trades Unions where they are considering making 20 or more Employees redundant in the next 90 days.
  • 30 days prior consultation must take place where less than 100 redundancies are envisaged and 45 days prior consultation where over 100 are needed.
  • Failure to follow these rules could result in a protective award of up to 90 days pay to each Employee affected under Section 189 of Trade Union and Labour Relations (Consolidation) Act 1992.
  • The prudent employer should be considering consultation on redundancies as the next part of its Coronavirus Strategy.
  • Unfair Dismissal and Redundancy claims will still be possible by staff who are made redundant and consultation with staff individually will still be required when collective consultation is completed if employers wish to follow a fair procedure.
  • For those Employers who need to find  commercial business solutions,  Settlement Agreements with individual staff may be appropriate in the interests of certainty.


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Christopher Atkinson
Christopher Atkinson
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Please note that this post has been prepared for the purpose of providing general information in a non-specific situation. Legal advice should be taken in relation to your particular circumstances. It is not intended that this post is relied upon by any party, and no liability is accepted for reliance.