Flexible furlough – Government provides more detail on how flexible furlough works

The Government has published guidance for employers explaining in more detail how flexible furlough works.   

Flexible furlough

Flexible furlough is being introduced from 1 July.  From that date employers will be able to bring furloughed employees back to work for any amount of time and any work pattern.  They will be able to claim the job retention scheme grant for the hours not worked (up to the 80% limit). 

Employers can also continue to fully furlough employees if they wish.

However, from 1 August, the amount and what employers can claim is changing as the Government starts to require employers to contribute to the cost of furloughed employees’ wages.

There is no minimum flexible furlough period. Flexible furlough agreements can last any amount of time and employees can enter into a flexible furlough agreement more than once. However, there is a minimum claim period of seven calendar days.

Key dates

Employers will have until 31 July to make any claims for claim periods up to 30 June.

It will only be possible to claim for days in July from 1 July onwards.

After 1 July, employers cannot make claims that cross calendar months

Who can you claim for?

Employers can only furlough and claim for employees who have been furloughed for at least three consecutive weeks between 1 March and 30 June. The deadline for furloughing employees for the first time was 10 June (so that the minimum three-week period is completed by 30 June).  However, there is an exception for those returning from maternity and other parental leave. Employers will be able to furlough them after 10 June, even if they are furloughing them for the first time (see below). 

As far as repeat furlough is concerned, any employees who started a period of furlough after 10 June (for example because they have been rotating on and off furlough) will have to complete the three-week minimum period, taking them into July.  During that period they must not work. After that it will be possible to flexibly furlough them for any period.

How many employees can you claim for?

For claim periods starting from 1 July 2020, there is a cap on the number of employees an employer can claim for. The number claimed for cannot exceed the maximum number of employees claimed for under any claim ending by 30 June 2020. However, employees returning from maternity and other parental leave after 10 June are ignored for these purposes, so they can take the number above the cap.

The guidance gives the following example:

“…an employer had previously submitted three claims between 1 March 2020 and 30 June, in which the total number employees furloughed in each respective claim was 30, 20 and 50 employees. Then the maximum number of employees that employer could furlough in any single claim starting on or after 1 July would be 50.”

Employees returning from maternity and other parental leave

Employers will be able furlough an employee returning from maternity, shared parental, adoption, paternity or parental bereavement leave after 10 June, even if they are furloughing them for the first time. This is subject to the following conditions:

• The employer must have previously submitted a claim for another employee in their organisation in relation to a furlough period of at least three consecutive weeks taking place any time between 1 March and 30 June 2020.  So, it is not possible to use the scheme only for those returning from maternity, shared parental, adoption, paternity or parental bereavement leave
• The employee must have started their leave before 10 June and returned from that leave after 10 June
• The employee must have been on the employer’s PAYE payroll on or before 19 March 2020. This means an RTI submission notifying payment in respect of that employee to HMRC must have been made on or before 19 March 2020

TUPE transfers

Where TUPE applies on the transfer of a business, the new employer can claim for employees transferred after 10 June 2020 as long as the previous employer had claimed for them in relation to a furlough period of at least 3 consecutive weeks taking place any time between 1 March and 30 June 2020.  This means the new employer will only be able to furlough employees the previous employer furloughed. 

The transferred employees do not count towards the maximum number of employees the new employer can claim for.  They can be added to that maximum, subject to the maximum cap the previous employer was subject to.   

Agreeing flexible furlough

The guidance says employers will need to agree flexible furlough with their employees and keep a new written agreement that confirms the new furlough arrangement.  It also says it is necessary to keep a written record of the agreement for five years.  For full furlough, it was only necessary for the employer to have confirmed the furlough to the employee in writing.  No written response from the employee was required. It is not clear whether this difference is intended and creates further confusion around the requirements for agreeing furlough.  Employers should therefore try to get signed flexible furlough agreements from their employees, or otherwise agree the terms by email if the contract permits.   

Employees cannot undertake any work for their employer during furloughed hours and so the agreement should make this clear.

Employers will also need to keep records of how many hours their employees work and the number of hours they are furloughed (i.e. not working).

Claim periods

Employers need to decide on their claim period. The guidance around claim periods is complicated.

There is no maximum length for claim periods that end on or before 30 June. However, claims for any periods starting before 1 July must end on or before 30 June.

As the scheme rules are changing each month (see below), claim periods starting on or after 1 July must start and end within the same calendar month. As a result, claim periods may differ from the pay periods used.

Claim periods must last at least seven days, except where the employer is claiming for the first few days or the last few days in a month. Employers can only claim for a period of fewer than 7 days if the period they claim for includes either the first or last day of the calendar month, and they have already claimed for the period ending immediately before it.

Employers should match their claim period to the dates they process their payroll, if they can. They can only make one claim for any period so they must include all their furloughed or flexibly furloughed employees in one claim, even if they pay them at different times.

Employers can claim before, during or after they process their payroll. They can usually make their claim up to 14 days before their claim period end date and do not have to wait until the end of a claim period to make their next claim. Payments will be made six working days after the claim is made.

Employers should not claim for employees who are flexibly furloughed until they are sure of the exact number of hours they will have worked during the claim period. If they claim in advance and their employee works for more hours than notified to HMRC, they will have to pay some of the grant back.

Working out usual and furloughed hours

Under flexible furlough, employers can claim a grant to help cover the employee’s wages for the hours they are not working. Employers will therefore need to work out their employee’s usual hours and record the actual hours they work as well as their furloughed hours for each claim period.  Once they have worked out their usual hours, they can subtract the hours worked and claim the grant in respect of the balance.

The employer needs to calculate the usual hours for each pay period, or part of a pay period, that falls within the claim period. There are two ways of doing this, depending on whether the employee works fixed or variable hours.  Employers should use the variable hours method if:

• the employee is not contracted to do a fixed number of hours or
• the employee’s pay depends on the number of hours they work

Otherwise they should use the fixed hours method.

Fixed hours method

To calculate the number of usual hours for each pay period (or partial pay period):

• Start with the hours the employee was contracted for at the end of the last pay period ending on or before 19 March 2020
• Divide by the number of calendar days in the repeating working pattern, including non-working days
• Multiply by the number of calendar days in the pay period (or partial pay period) you are claiming for
• Round up to the next whole number if the outcome is not a whole number.

If an employee with fixed hours was on annual leave, off work sick or on family related statutory leave at any time during the last pay period ending on or before 19 March, the usual hours should be calculated as if the employee had not taken that leave.

Variable hours method

The ‘usual hours’ will be calculated based on the higher of either:

• the average number of hours worked in the tax year 2019 to 2020
• the hours worked in the corresponding calendar period in the tax year 2019 to 2020

When calculating usual hours, employers should include:

• any hours of leave for which the employee was paid their full contracted rate (such as annual leave)
• any hours worked as ‘overtime’, but only if the pay for those hours was not discretionary

Calculation based on the average number of hours worked in 2019 to 2020 tax year

• Start with the number of hours worked in the 2019-2020 tax year before the employee was furloughed, or the end of the tax year if earlier
• Divide by the number of calendar days the employee was employed by you in the 2019-2020 tax year, up until the day before they were furloughed, or the end of the tax year if earlier
• Multiply by the number of calendar days in the pay period (or partial pay period) you are claiming for
• Round up to the next whole number if the outcome is not a whole number

Calculation based on the corresponding calendar period in the 2019-2020 tax year

• Identify the pay periods in the 2019-2020 tax year that correspond to at least one calendar day in the pay period (or partial pay period) you are claiming for
• If the pay period (or partial pay period) you are claiming for starts and ends on the same calendar days as the identified pay period in the 2019 to 2020 tax year - use the number of hours they worked in that pay period
• If the pay period (or partial pay period) you are claiming for does not start and end on the same calendar days as the identified pay periods in the 2019 to 2020 tax year – you’ll need to add together a proportion of the hours worked in each of the pay periods you’ve identified.

The guidance gives examples of each of the calculations

Paying employees and claiming the grant

Employers must pay the full cost of an employee’s wages for any hours worked. For furloughed hours, the employee must be paid 80% of their wages up to a cap of £2,500 per month. The cap is proportional to the number of hours worked. For example, an employee is entitled to 60% of the £2,500 cap if they are placed on furlough for 60% of their usual hours.

Employers can choose to top up wages above the scheme grant at their own expense.

From 1 August 2020, the level of government grant will start to be tapered and employers will have to contribute to the costs of keeping employees furloughed. Furloughed employees cannot work in June and the government will continue to pay 80% of wages up to a cap of £2,500, as well as employer National Insurance Contributions (NICS) and pension contributions.

 For hours the employee does not work for furlough periods in:

• July: The government will continue to pay 80% of wages up to a cap of £2,500, as well as employer National Insurance Contributions (NICS) and pension contributions
• August: The government will pay 80% of wages up to a cap of £2,500. Employers will pay the employer NICs and pension contributions
• September: The government will pay 70% of wages up to a cap of £2,187.50. Employers will pay employer NICs and pension contributions and top up employees’ wages to ensure they receive 80% of their wages up to a cap of £2,500
• October: The government will pay 60% of wages up to a cap of £1,875. Employers will pay employer NICs and pension contributions and top up employees’ wages to ensure they receive 80% of their wages up to a cap of £2,500

There is a calculator which employers can use to calculate their claim.  However, the calculator cannot be used for employees who:

• returned from family-related statutory leave (maternity leave, paternity leave, shared parental leave, adoption leave, parental bereavement leave)
• get director’s payments
• have been transferred under TUPE
• have been employed at separate times throughout the year
• receive employer pension contributions outside of an auto-enrolment pension scheme
• have an annual pay period

In these cases, calculations will need to be done manually and there is guidance on how to do this. 

Record keeping requirements

Employers must keep a copy of all records for six years, including:

• the amount claimed and claim period for each employee
• the claim reference number
• their calculations in case HMRC need more information about a claim
• usual hours worked, including any calculations that were required, for employees that were flexibly furloughed
• actual hours worked for employees flexibly furloughed.

Errors in claims

If an employer makes an error that results in them claiming too much, they must pay back the over payment to HMRC.

Employers can now tell HMRC about an overclaimed amount as part of their next claim and the new claim amount will be reduced to reflect this.

If an employer makes an error that results in them claiming too little, they should contact HMRC to amend their claim and HMRC will need to conduct additional checks.

If an employer makes an error and does not plan to submit further claims, HMRC is working on a process that will allow employers to let them know about their error and pay back any amounts that were overclaimed.

When the scheme ends

When the scheme closes on 31 October, employers must decide, depending on their circumstances, whether employees can return to their normal hours. If not, it may be necessary to consider reducing their hours, or terminating employment for redundancy. Normal redundancy rules apply to furloughed employees. The guidance still does not clarify whether the grant can be used to fund notice pay.  You can access the government guidance here