COVID-19: Job Retention Scheme

13th May 2020

This article was last updated on 13 May at 10:25.

The Government has announced support for UK businesses to help protect jobs during the COVID-19 crisis.

Under the Coronavirus Job Retention Scheme, all UK employers are able to access support to help pay 80% (up to a cap of £2,500 per month) of the employees’ salary for those employees who would otherwise be laid off during the crisis period. The support package is intended to help protect jobs of employees who would otherwise have been made redundant.

Initially intended to be in operation until the end of May, the scheme has now been extended to the end of October.

HMRC’s portal for making claims in respect of furloughed employees went live on 20 April and employers have received the first payments. To access the scheme the business must have enrolled for PAYE online with HMRC. Businesses, and agents that are authorised to act on behalf of clients for PAYE matters, are able to claim. Unfortunately, file-only payroll agents (including Payroll Bureaus) are not able to make the claims on behalf of employers.

The details of the scheme include:

  • All UK businesses with employees are eligible to claim, including:
    • Businesses
    • Charities
    • Not-for-profit organisations
    • Recruitment agencies (agency workers paid through PAYE)
    • Domestic payrolls, for example, where a nanny is employed by a family and paid through PAYE
    • Public authorities
  • Available to employees on the payroll at 19 March 2020 (initially announced as 28 February 2020)
  • Where a business does not already have an online PAYE account it must register for one online immediately; it can take up to 10 working days for HMRC to process an application
  • To access the scheme, the business is required to:
    • Designate affected employees as ‘furloughed workers,’ and notify their employees of this change – HMRC recognises that changing the status of employees remains subject to existing employment law and, depending on the employment contract, may be subject to negotiation
    • Submit information to HMRC about the employees that have been furloughed and their earnings through the online portal
  • A furloughed worker remains on the business’ payroll, but the worker should not undertake any work for the business while they remain furloughed. This means if an employee is working but on reduced hours they will not qualify for the scheme.
  • The Chancellor has announced that furloughed employees will be able to undertake some part-time work from August, and that employers will be expected to contribute to costs at that stage.  Further details will be announced in due course.
  • HMRC will reimburse 80% of furloughed workers wage costs, up to a cap of £2,500 per month plus the associated employer’s National Insurance and pension costs (capped to the minimum limited under workplace pension regulations)
  • Fees, commissions and bonuses which do not form part of an employee’s regular pay should not be included within the calculation
  • The scheme will cover the cost of wages backdated to March 1st
  • No limit is being placed on the scheme’s funding – the Government will pay grants to support as many jobs as possible

Position of the employee

The employee’s position can be summarised as follows:

  • Furloughed employees must have been on the payroll on or before 19 March 2020 (previously 28 February), which include the following contractual arrangements:
    • Full-time employees
    • Part-time employees
    • Employees on agency contracts
    • Employees on zero-hours contracts
  • The employee remains employed while furloughed
  • The employer must advise the employee of the decision, but equality and discrimination legislation will still apply
  • Employees hired after 19 March 2020 cannot be furloughed or claimed for under the scheme
  • Employees who are on sick leave or self-isolating should get paid SSP but can be furloughed afterwards
  • Employees who are shielding in line with public health guidance can be furloughed
  • Employees on unpaid leave cannot be furloughed, unless they were placed on unpaid leave after 19 March 2020
  • Where an employee has more than one employer they can be furloughed from each job
  • A furloughed employee can take part in volunteer work or training, so long as it does not provide a service or generate income on behalf of the employer (but see below ‘National Minimum and Living Wage’ for further implications for training while being furloughed)
  • Employers can choose to fund the difference between the £2,500 payment and the worker’s salary (pre-furloughed) but do not have to
  • Where an employee has been employed for a full 12 months prior to the claim and whose pay is variable, then claim can be based for the higher of either:
    • The same month’s pay for the previous year; or
    • Average monthly earnings from the 2019/2020 tax year

The grant is only intended to cover salary costs and no other forms of profit extraction, such as dividends which are commonly used by directors of SMEs.

If any employee is working but on reduced hours or reduced pay, they will not be eligible for the scheme. From August, it will be possible for previously furloughed employed to return part-time.

Fixed term contracts

Employees on fixed term contracts can be furloughed. Where a fixed term employee’s contract ends because it is not extended or renewed, then the employer will no longer be able to claim a grant under the scheme.

Other qualifying individuals

The scheme has been extended to the following groups, but where they are paid via PAYE:

  • Officeholders (including company directors)
  • Salaried members of a Limited Liability Partnership
  • Agency workers
  • Limb (b) workers

The following are high-level comments concerning each of the above groups:


Where furloughed directors need to carry out particular duties to fulfil certain statutory obligations they owe to the company, they may do so provided they do no more than is reasonably required. They should not carry out any duties which could be seen as generating revenue or providing services on behalf of the company.

Salaried members of a Limited Liability Partnership (LLP)

Members who are designated as employees for tax purposes are eligible to be furloughed and receive support under the scheme.

To furlough a member, the terms of the agreement between the LLP and the member may need to be varied to reflect the fact that the member will not be performing any duties for the period of furlough and the effect of this on their remuneration from the LLP.

Agency workers

Where agency workers are paid through PAYE they are eligible to be furloughed and receive support under the scheme. The scheme will also include those who are employed via an umbrella company.

The agency will be regarded as the deemed employer, but it will be necessary to discuss with the end client whether they still need the services of the agency worker. Where agency workers are furloughed, they should not perform any duties through or on behalf of the agency that has furloughed them.

Limb (b) workers

Where Limb (b) workers are paid via PAYE, they can be furloughed and benefit under the scheme.

However, those who pay tax on their trading profits through Self-Assessment may instead be eligible for the Self-Employed Income Support Scheme.

Minimum furlough periods

The Government has confirmed the minimum furlough period must be three consecutive weeks. When the employee returns to work they must be taken off furlough. Employees can be furloughed multiple times but each separate period must be for a minimum period of three consecutive weeks.

Benefits in kind and salary sacrifice

Under the scheme the reference salary should not include the cost of non-monetary benefits provided by the employer, for example medical benefit. Similarly, benefits provided as part of a salary sacrifice arrangements (including pensions contributions) which reduce an employee’s taxable earnings should not be included as part of the reference pay.

Where an employer provides benefits to furloughed employees, this will be in addition to the salary that must be paid under the terms of the scheme.

Normally, employees cannot opt-out of a salary sacrifice arrangement unless there is a life event. HMRC accepts that COVID-19 counts as a life event which could warrant changes to the salary sacrifice arrangement. The employment contract will need to be updated.

National Minimum and Living Wage

Employees are only entitled to receive the minimum wage whilst they are working. Where an employee is furloughed, so not working, may be paid less than the hourly minimum wage rates.

However, where an employee is required to undertake any training, for example, an online training course whilst they are furloughed, then they must be paid the minimum wage for the time spent training even if this is more than the 80% of their wage which is being subsidised.

Maternity Leave, adoption pay, paternity or shared paternity pay

Individuals who are on, or plan to take, Maternity Leave must take at least two weeks off immediately after the birth of a child. If the employee is eligible for Statutory Maternity Pay (SMP) or Maternity allowance, the normal rules apply, and they are entitled to claim up to 39 weeks of statutory pay or allowance.

Employees who qualify for SMP will still be eligible for 90% of their average weekly earnings for the first 6 weeks, followed by 33 weeks of pay paid at 90% of their average weekly earnings or the statutory flat rate, whichever if the lower (£148,68 rising to £151.20 from April 2020).

Where the employer pays enhanced maternity pay, which is earnings related, this is included as a wage cost and will qualify under the scheme.

The same also applies for contractual adoption, paternity or shared paternal leave.

TUPE and payroll consolidation

HMRC have confirmed new employers are eligible to claim under the scheme in respect of employees of a previous business which was transferred after 19 March 2020, if the TUPE or transfer of business succession rules apply to the change of ownership.

If a group of companies transfers employees from multiple payroll schemes into a new consolidated scheme after 19 March 2020, the new payroll will qualify under the scheme.

Information needed to make a claim

HMRC have stated that the following information will be needed:

  • The business’s ePAYE reference number
  • Number of employees being furloughed
  • The claim period (start and end date)
  • Amount claimed (per the minimum length of furloughing of three consecutive weeks)
  • The business’s bank account number and sort code
  • Contact name
  • Phone number

The business will need to calculate the amount it is claiming. HMRC have stated that they retain the right to retrospectively audit all aspects of a claim.

Some of the questions that remain unanswered are:

  • How the furlough payments should be operated for weekly paid employees?
  • How to prove redundancy caused by COVID-19? What evidence is required?

Further guidance will be provided once details are released by both the Government and HMRC. We are also waiting for the legislation to be published.

If you wish to discuss the Job Retention Scheme and/or any other COVID-19 related initiatives please contact your usual haysmacintyre contact or email

Nick Bustin

Employment Tax Director
+44 20 7969 5578
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