Editor’s note: This article was first published on 17 April 2020 and has been updated for relevance.
The Coronavirus Job Retention Scheme was the lifeline that employers had been hoping for when it was announced in March 2020. It’s one that will continue for a longer period of time following an announcement from the chancellor that it’s been extended to October 2020.
The scheme means staff can be temporarily given a leave of absence while the government pays 80% of their salaries (plus employer National Insurance, and the minimum mandatory employer pension contribution). This can be used to partially or completely suspend a business until the coronavirus (COVID-19) disruption eases.
However, questions have been raised around eligibility and the application process for the scheme.
The good news is that the rules are mostly straightforward and logical. But there are caveats and qualifying factors.
Below we attempt to answer some of the essential questions, using the government guidance as a source, including how to make a claim (see question six).
If you have to give employees a leave of absence because of coronavirus disruption, this is referred to as a furlough.
Please note that below we refer to employees in a general sense. Within employment law, there is a difference between employees and workers. Generally speaking, the scheme applies to both (see question four, Which employees are eligible under the Coronavirus Job Retention Scheme?).
Job Retention Scheme webinar
Find out about the Job Retention Scheme, what information you need to collect, how to reclaim, and how to process furloughed pay.
1. How much can I claim under the Coronavirus Job Retention Scheme?
You can claim up to 80% of a furloughed employee’s gross salary per month (that is, before tax, employee NI and other statutory deductions such as student loan repayments are deducted).
This is up to a monthly ceiling of £2,500 per employee, even if they have more than one job with you.
On top of this, for this period you can also claim for their employer National Insurance contributions (NICs), and their minimum (mandatory) automatic enrolment employer pension contribution.
You can claim for regular payments that constitute their salary, and this can include past overtime, fees, or compulsory commission payments. However, you can’t include discretionary payments such as tips, non-compulsory commissions, and non-cash payments.
Payments-in-kind or salary sacrifice complicate things a little – see question 14 (How are benefits-in-kind treated under the Coronavirus Job Retention Scheme?).
It’s important to note that you are not claiming for the costs you incur for wages and payroll. You’re only allowed to claim for what constitutes an employee’s salary, as outlined above.
You can’t keep or deduct anything from the money you get, and pay the employee correspondingly less.
You must pay employer NICs to the government as usual through your payroll. In other words, you will pay employer NICs and then claim them back via the scheme. The employee continues to pay employee NICs and tax through PAYE and your payroll, as usual.
Of course, you can pay more than 80% of the employee’s salary. Some employers are choosing to pay 90% or 100% of the salaries of furloughed employees, making up outstanding amounts from their own funds.
But you can only claim back 80% of salary under the scheme along with NICs and pension contributions on this 80% value (or £2,500 upper limit).
There is no limit on the number of employees you can furlough and claim for under the scheme.
2. How long does the Coronavirus Job Retention Scheme last for? And how long can I furlough staff for?
The scheme lasts for four months, beginning on 1 March 2020. It will be reviewed by the government when this period is coming to an end, and could potentially be extended at that time.
Employees can be furloughed for the whole of the three-month period. The minimum amount of time they must be furloughed for in order to claim under the scheme is three weeks.
They might come back to work after this and rejoin the payroll as a non-furloughed worker, but you can furlough them again under the scheme for additional subsequent three-week minimum periods.
3. Who pays the salaries for furloughed employees under the Coronavirus Job Retention Scheme?
You pay the salary within the limitations mentioned in question one (How much can I claim under the Coronavirus Job Retention Scheme?). You then claim that money back from the government. Because the scheme was not up and running in March 2020, you will claim retrospectively for this period.
You will apply under the scheme shortly before, during or after the payroll run for subsequent months once the scheme is up and running.
If you’re unable to pay salaries because of cash flow issues caused by coronavirus disruption, you might benefit from one of the other government-funded coronavirus schemes: a business rates holiday, the Coronavirus Business Interruption Loan, or one of the coronavirus business grant schemes (depending on eligibility).
The loan scheme, in particular, may provide a solution because interest and fees for the loans are paid by the government for the first 12 months, making it an inexpensive way to get bridging funds.
4. Which employees are eligible under the Coronavirus Job Retention Scheme?
Most of your employees or workers will probably be eligible for you to furlough and claim. These are the criteria:
- The employee must have been paid through your PAYE payroll on or before 19 March 2020 (the previous date was 28 February 2020). Those who you employed after this date or employed but had not yet paid by this date are not eligible for the scheme.
- All types of employment and employment contracts are included, including full time, part time, agency workers, flexible workers, and zero-hour contracted workers – see question 15 (How do I furlough and claim under the Coronavirus Job Retention Scheme for an employee whose pay varies?) for employees who work irregular hours.
- Foreign nationals who work for you are eligible too.
If you made employees redundant after 19 March 2020, or they resigned, they are eligible for the scheme. But you will need to update your payroll to remove their termination, and send an updated Full Payment Submission (FPS) to HMRC.
You can re-employ them, furlough them, and claim their wages as outlined in question one (How much can I claim under the Coronavirus Job Retention Scheme?).
Employees on fixed-term contracts are also eligible. If their contract ends during the furlough period you can either extend it, as you might in any other circumstance, or end it, at which point you will not be able to furlough and claim for them.
5. What employers or businesses are eligible to furlough and claim under the Coronavirus Job Retention Scheme?
Your operation must be running a UK PAYE payroll. You don’t necessarily need to be an incorporated business, for example, and there are no size restrictions with relation to turnover.
If you have your base or office outside the UK, you are included – provided you run a UK payroll.
You can furlough and claim for any number of employees.
However, employers must also have the following in place:
- A UK PAYE payroll scheme that was still operational on 19 March 2020 (the cut-off date was 28 February but that has since been extended). This means the employee must have been in the Full Payment Submission (FPS) data sent as part of the Real Time Information (RTI) reporting to HMRC that must be sent before or when a payroll is run. You can’t furlough and claim for employees on a payroll created or started after this date.
- Be enrolled for PAYE Online – although you can register for this now if you aren’t already (the government says the process can take up to 10 days).
- A UK bank account.
6. How do I claim under the Coronavirus Job Retention Scheme?
For each payroll run, you’ll need to claim via an online service provided by HMRC, which opened on 20 April 2020, at which point claims can be backdated to 1 March 2020.
Before you start, check to ensure your payroll and employees are eligible for the scheme – see questions four and five above.
The service walks you through step-by-step in order to make a claim. You’ll need to input information as listed below. The application process doesn’t require you to use your payroll software, although you’ll probably need certain information stored within it.
Once you’ve applied, you’ll be given a claim reference number, at which point HMRC will check your claim to ensure it’s correct. You should tell your employees you’ve made a claim and that they do not need to do anything more.
You should have also worked out how much you intend to claim, which will be based on your payroll. The government offers a calculator that you can use to help you work this out.
Before applying, you may want to check the online service’s availability because this is a new service.
You’ll need to gather quite a few details before making the application.
Note that you or your payroll agent can apply, but if you use a ‘file-only agent’ (one who files your Real Time Information return but doesn’t act for you in other matters), you must claim yourself. The file-only agent will be able to provide the details you need if you don’t already have them to hand.
How you claim depends on whether you’ve furloughed more than 100 employees.
Claiming under the Coronavirus Job Retention Scheme for 1-100 employees
Details about your business and the claim you or your agent will need are as follows:
- Your UK bank sort code and account number.
- Your employer PAYE scheme reference number.
- Your name (or the employer’s name if you’re an agent).
- The Government Gateway user ID and password you got when you registered for PAYE Online.
- Your company’s Corporation Tax unique taxpayer reference, and your company registration number (if your business is incorporated).
- Your Self Assessment unique taxpayer reference (if you’re self-employed).
- The start date and end date of the claim.
- The full amount you’re claiming for, including employer National Insurance contributions and any employer minimum pension contributions.
- A phone number and a contact name.
Details about your employees you or your agent will need:
- The total number of employees you’ve furloughed.
- Each of their National Insurance numbers (your employees can find their NI numbers via the free HMRC app).
- Optionally, you can also provide each of their payroll or employee numbers.
Claiming under the Coronavirus Job Retention Scheme for more than 100 employees
Those who wish to claim for more than 100 furloughed employees will need to create a spreadsheet file containing the following details, with each employee occupying one line of the spreadsheet:
- The full name of each employee.
- The employee’s National Insurance number.
- The furlough start date for that employee.
- The furlough end date for that employee, if known.
- The full amount claimed for that employee.
You can optionally provide the following:
- The payroll number for that employee.
You’ll need to upload this file when requested during the application process.
Job Retention Scheme module
We've created a module and step-by-step guides so you can do what's required to make a claim under this scheme.
7. If I’ve reduced an employee’s hours (or their pay), can I claim for them under the Coronavirus Job Retention Scheme?
No, not even if you did this as a direct result of coronavirus disruption, or in a bid to avoid having to lay-off staff.
Only 100% furloughed workers are eligible, provided they fit within the eligibility guidelines mentioned in question four (Which employees are eligible under the Coronavirus Job Retention Scheme?).
Rather than reducing hours and pay, many employers are opting to keep a skeleton staff of full-time non-furloughed workers, with all non-essential staff furloughed under the scheme.
8. Do I have to furlough all my staff under the Coronavirus Job Retention Scheme?
You can furlough and claim for any number of staff – from just one, all the way through to all of your staff.
9. When do I get repaid the money for the Coronavirus Job Retention Scheme?
You’ll need to claim via an online service provided by HMRC, which opened on 20 April 2020, at which point claims will be backdated for March 2020.
If you face cash flow issues running your payroll, it’s also worth considering the other coronavirus schemes.
HMRC says applicants can expect a payment to be in their bank account within six working days after submission of the claim.
However, it adds that you should allow at least 10 working days for the payment to arrive before raising a query via the helpline due to high call volumes at its call centres.
Coronavirus: Government funding support tool
Use this simple tool to help you understand which government schemes your business is likely to be eligible for and guidance on accessing them.
10. What adjustments do I have to make in my payroll run for furloughed employees under the Coronavirus Job Retention Scheme?
If you are covering the difference between the government grant and the normal salary then you will not need to make any changes to your payroll. That is, no changes are required if you’re paying 100% of salaries to employees.
However, many businesses may not be able to afford this and you will probably need to manually reduce furloughed staff salaries to 80% of their reference salary up to the maximum of £2,500 per month. HMRC will not do this for you.
Seek help from your payroll provider if you need help undertaking this task.
See question 15 (How do I furlough and claim under the Coronavirus Job Retention Scheme for an employee whose pay varies?) if the employee’s hours or salary usually vary.
If you pay employees more than the 80% outlined by the scheme (for example, you opt to continue paying 100% of salaries), this should be a separate payment line within your payroll for identification purposes.
11. How much do I have to pay my staff via the Coronavirus Job Retention Scheme?
You pay them the contribution you received via the Job Retention Scheme grant. This will be the 80% of their earnings before deductions, up to a cap of £2,500 per month for each employee. Of course, you can pay them more than this if you make up the shortfall.
You cannot pay them less than the 80% you claim for, in order to keep some of the cash yourself.
If you do not pay the full amount of the grant (less the employer’s National Insurance contribution and pension contribution elements) to your employees, then you will need to repay 100% of it back to HMRC.
As the government explains, the importance of the scheme is measured in several different ways: “[The scheme] is designed to help employers whose operations have been severely affected by coronavirus (COVID-19) to retain their employees and protect the UK economy.”
The employee continues to pay taxes and National Insurance out of their wages, just like they would normally – see question 13 (What taxes are paid with the Coronavirus Job Retention Scheme?) below.
12. What happens to pension payments under the Coronavirus Job Retention Scheme?
You can claim under the scheme for the minimum (mandatory) automatic enrolment employer pension contributions, in addition to the 80% of salary as outlined in question one (How much can I claim under the Coronavirus Job Retention Scheme?).
You can’t claim for pension contributions you make because you’ve chosen to top-up your employee’s salary.
Whether the employee continues to make pension contributions while furloughed is their choice. You may wish to communicate with them and suggest a pension payment holiday, if the pension scheme allows this.
Of course, if the individual opts-out of pension payments then you will not be able to claim the corresponding minimum automatic enrolment contribution under the scheme.
13. What taxes are paid with the Coronavirus Job Retention Scheme?
There are two sides to this question, relating to the employer and the employee.
Employer: Money you claim under the scheme must be included as income in your calculation for Income Tax and Corporation Tax, in accordance with normal principles.
You can deduct employment costs as normal from your taxable profits.
Employee: You must deduct employee tax and NICs as usual via the payroll on the salary you pay them under the scheme.
You should pay employer NICs too, and the minimum mandatory pension contributions, although you can claim these back under the scheme along with the salary as outlined in question one (How much can I claim under the Coronavirus Job Retention Scheme?).
14. How are benefits-in-kind treated under the Coronavirus Job Retention Scheme?
The salary you pay and subsequently claim under the scheme as outlined in question one (How much can I claim under the Coronavirus Job Retention Scheme?) should not include the cost of non-monetary benefits provided to employees.
This includes benefits-in-kind, or benefits provided through salary sacrifice schemes (including pension contributions) that reduce an employee’s taxable pay.
In other words, if an employee earns £2,500 per month but their salary is listed as £2,000 because of a salary sacrifice scheme that pays £500 towards their pension, then you can only claim for 80% of £2,000.
This should be communicated to the employee.
However, if the individual opts-out of the benefit or salary sacrifice scheme then you can increase their salary to its full contractual amount and claim for this. Again, this option should be communicated to the employee.
Some benefit or salary sacrifice schemes don’t allow opting-out outside of extraordinary circumstances, such as major life changes – marriage or serious illness, for example.
The government says: “HMRC agrees that COVID-19 counts as a life event that could warrant changes to salary sacrifice arrangements if the relevant employment contract is updated accordingly.”
15. How do I furlough and claim under the Coronavirus Job Retention Scheme for an employee whose pay varies?
If the employee has been with you for 12 months or more, you should use as a reference salary the higher of either the same month’s earnings in 2019, or the average monthly earnings for the 2019/20 tax year.
If the employee has been employed for less than 12 months, simply claim for 80% of the average monthly earnings since they began working for you.
If the employee began in March 2020 (the cut-off date for claims is 19 March 2020), you should work out a pro-rata rate for their earnings so far, and then claim for 80% of this.
16. Can I charge my employees a fee to administer the Coronavirus Job Retention Scheme?
No fees should be charged from the money you claim. You should not pay the employee less than you claim for, or pay them in anything other than the form of money.
17. What checks will be in place for the Coronavirus Job Retention Scheme?
The government says: “HMRC will retain the right to retrospectively audit all aspects of your claim.” Remember that HMRC has access to your PAYE records and tax returns for you and your employees.
18. Can agency staff be furloughed under the Coronavirus Job Retention Scheme?
Agency staff can be furloughed if they’re on your payroll. If they’re employed by an umbrella company and on their payroll then the umbrella company can furlough them.
Speak to both the worker and the agency to find the best arrangement for your business and the individual concerned.
The same applies to Limb workers, which are also known as dependent contractors – if they are on your payroll then you can furlough them and then claim.
19. Can I furlough myself under the Coronavirus Job Retention Scheme?
Those who can be furloughed include officeholders such as salaried company directors as set out in the Companies Act 2006, and salaried members of Limited Liability Partnerships (LLPs).
Contractors who are salaried through their own personal services company (PSC) and are a director of the PSC can furlough themselves. They can claim only for their salary and not for any dividends.
However, self-employed individuals who use Self Assessment for income tax should use the Self-Employment Income Support Scheme (SEISS).
Furloughing of salaried company directors should be a formal decision of the board of directors, and noted in the company records and communicated in writing to the director(s) concerned.
During the furlough period, company directors can carry on statutory obligations required of their role, but as with any furloughed employee, they cannot carry out work for the company that creates commercial revenue, provides services, or is carried out on the behalf of the company.
Members of an LLP can be furloughed only if they’re designated as employees for tax purposes under the Income Tax (Trading and Other Income) Act (ITTOIA) 2005.
Furloughing might require a formal decision by members of the LLP and potentially changing the LLP agreement. The reference salary to be used to calculate the claim should be the LLP’s profit allocation (excluding any personal/LLP performance additions).
20. How do I tell staff they’re furloughed under the Coronavirus Job Retention Scheme?
Seek agreement with each employee and, once this has been achieved, write to them with the dates of the furlough period, and inform them what their salary will be during the period.
You may need to adjust their employment contract to take the furlough into account, along with the adjustment in salary.
You must keep a record of your communications to employees with regard to furloughing for five years.
21. Does furloughing via the Coronavirus Job Retention Scheme need a new employment contract?
This is possible, although it will depend on existing provisions within the employment contract. You should consult an employment or contract law specialist if in any doubts.
Remember that whatever adjustments you make to the contract continue to be subject to equality and discrimination laws.
22. Do I have to pay just 80% of the salary under the Coronavirus Job Retention Scheme?
No, you aren’t limited to paying just 80% of a salary under the scheme. That’s all you can claim for. You could continue paying the full salary, or between 80% to 100% of it, if you contribute the shortfall.
23. When does the Coronavirus Job Retention Scheme end?
24. Can employees work while furloughed under the Coronavirus Job Retention Scheme?
If you furlough an employee then they are not allowed to undertake work for, or on behalf, of your organisation.
This should be communicated to them when they are furloughed. You or they shouldn’t try to get around this by reassigning different types of work tasks to them during their furlough, for example, or assigning them a different role (or in a different office).
The government says the ban on working for your organisation during furloughing includes “providing services or generating revenue”.
However, if their employment contract allows it, the employee is free to undertake paid work for other employers or individuals at their discretion – either existing employment they were already undertaking alongside their employment with you, or new work.
It’s possible some individuals may end up being furloughed by more than one employer.
Again, if you don’t wish them to do take on new work with another employer, that should be communicated to the employee. However, you might want to consult an employment or contract law expert with regard to enforcing such a measure.
Your employees can take part in training while furloughed, or volunteer work – although the work or training can’t provide services to your organisation, or generate revenue, or be on behalf of your organisation.
25. How are staff on statutory leave or pay affected by the Coronavirus Job Retention Scheme (e.g. maternity leave)?
Employees continue to have the same rights at work during the furlough. They can still claim Statutory Sick Pay (SSP), maternity leave, and other parental rights.
You must pay statutory pay as usual (with the exception of the first two weeks of SSP, for which the rules are different for those affected by coronavirus).
Should the employee be claiming a statutory payment then you can’t claim for them under the scheme.
The exception is if there is enhanced earnings-related contractual pay for maternity, adoption, paternity or shared parental pay. You can claim this through the Coronavirus Job Retention Scheme.
Once the individual is back at work following their statutory leave period then you can then furlough them and claim for them under the scheme as with any other employee.
26. What happens to employee annual leave during furloughing via the Coronavirus Job Retention Scheme?
This will depend on the employment contract you have with the employee. Many employees are likely to continue to accrue leave as they would ordinarily.
However, if the contract says leave is accrued per hours worked then, in this instance, the employee might not accrue leave.
Of course, no employee will take their leave while furloughed. But the option is there, in theory.
You should be careful an employee doesn’t take leave such that it reduces the three-week minimum length of a furlough period. That will mean you are unable to claim their salary for that period.
Furloughing may leave the individual with a surplus of leave as the end of the year approaches, so your communications with them should include reminders to book their leave for periods following the end of the coronavirus disruption.
27. Can I use the Coronavirus Job Retention Scheme funds to make somebody redundant?
No. The intention of the scheme is quite the opposite – it intends to keep employees paid during the disruption.
It’s possible under the scheme to re-employ somebody you previously made redundant in order to furlough them and pay them a salary.
28. Are charities allowed to use the Coronavirus Job Retention Scheme?
Yes, charities can. And public authorities can make use of the scheme too.
However, the government does not expect it to be used by public sector organisations because they will continue to provide essential services or contribute to the coronavirus response.
29. Can an employee demand or ask to be furloughed under the Coronavirus Job Retention Scheme?
No. Under employment law, employers must allow time off to help someone who depends on them in an unexpected event or emergency.
The government has confirmed that situations related to coronavirus would qualify, but there is no legal obligation for employers to pay employees for this time, or furlough them.
Employees who are shielding in line with public health guidance (or need to stay at home with somebody who is doing this) can also be furloughed if they can’t work from home and you would otherwise have to make them redundant.
The government says: “Shielding is a measure to protect extremely vulnerable people by minimising interaction between those who are extremely vulnerable and others.”
30. Are there any commitments at the end of the Coronavirus Job Retention Scheme?
Existing employment laws must be observed, and the Coronavirus Job Retention Scheme does not override these. But it also demands no further commitments from businesses.
The money is supplied as a grant, so does not need to be repaid – however, the funds must be returned if they are not used in line with the purpose of the scheme. There is no need to maintain employment after the payments have ceased.
Existing redundancy laws apply should you find yourself needing to take such measures following the end of the scheme.
For example, if 20 or more employees are being made redundant at the same time then collective redundancy rules apply. You will need to carry out a consultation of a minimum length with a representative for the workers.
Additionally, you will need to provide a contractual or statutory notice period.
31. How long do I have to keep documents relating to my Coronavirus Job Retention Scheme application?
Following your application for the scheme, you should keep the details on file. HMRC does not state how long.
However, it says you should keep a record of your communications with employees with regard to the scheme for five years, so this is perhaps a best-practice time period.
You should keep the following:
- A copy of all records, including the amount claimed under the scheme, and the claim period for each employee.
- The claim reference number you’re given following the application.
- Any calculations you used to work out how much the claim should be, such as spreadsheet files or even calculations that you’ve written down.
32. How do you pronounce ‘furlough’?
In British English, it’s typically pronounced fur-low. The verb/adjective form of ‘furloughed’ is therefore usually pronounced fur-lowed.
Coronavirus and your business
We’ve gathered information and resources to help navigate this situation, including tools and webinars, to help you understand what financial support is available.