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What is the Employee Retention Scheme and when should your business consider using it?

Update 3 March 2021 – Furlough Extension  

The Coronavirus Job Retention Scheme (CJRS or furlough scheme) has been extended until 30 September 2021We provide answers to questions to help you understand how your business can use the scheme.  This information focuses on the most recent extension to the scheme as notified on 3 March 2021 (NB –All information correct as at 3 March 2021).

Following the Chancellor’s announcement on 3rd March, how is the scheme changing? 

The scheme currently allows businesses to claim up to 80% of any furloughed (those on a leave of absence) workers wages up to a maximum cap of £2,500 per month, with employers paying employer national insurance contributions and pension contributions From 1 July 2021, the level of government support will be tapered down, with employers expected to cover 10% of wages for hours not worked throughout July, rising to 20% in August and September (subject always to the monthly cap of £2,500). 

Employers are still able to choose to top up employee wages above the 80% total.  

What should I do now that the extension to the scheme has been announced? 

Where relevant, the next step for employers is to notify their employees that they are aware of the extension and, where applicable, updated furlough letters will be provided.

Which businesses are covered? 

The scheme is open to all UK employers with a UK bank account and who had created and started an operational PAYE payroll scheme on or before 30 October 2020 For claims starting on or after 1 May 2021, the payroll scheme must have been operational on or before 2 March 2020.   

Any business can apply, to include charities, recruitment agencies and public authorities (although in practice the majority of public sector organisations are expected to be providing essential public services during the outbreak).   

Which employees are eligible? 

The scheme is intended to cover all employees regardless of their contract type, provided they were employed on a particular date.   

For periods ending on or before 30 April 2021, employers can claim for employees provided that they were employed on 30 October 2020.  The employer must have made a PAYE RTI submission to HMRC between 20 March 2020 and 30 October 2020 notifying a payment of earnings for that employee  

For periods starting on or after 1 May 2021, employers can claim for employees who were employed on 2 March 2021.  The employer must have made a PAYE RTI submission to HMRC between 20 March 2020 and 2 March 2021 notifying a payment of earnings for that employee. 

The scheme covers full time and part time employees, apprentices, employees on fixed term contracts and employees on flexible or zero hours contracts.  Foreign nationals are eligible to be furloughed; grants under the scheme won’t be treated as “access to public funds” and employees on all categories of work visa are eligible. 

As well as employees, the following categories can also be furloughed as long as they are paid via PAYE: office holders (to include company directors), salaried members of LLPs, agency workers, and limb (b) workers. 

What level of support is provided? 

The Scheme will run until 30 September 2021.  Until 30 June 2021, the government will continue to pay up to 80 per cent of an employee’s normal pay (subject to the £2,500 cap), and employers will be responsible only for NICs and pension contributions.   Support will be reduced from July, with employers expected to pay 10% towards the hours staff do not work in July, increasing to 20% throughout August and September.  Employers are still able to choose to top up employee wages.   

There is no maximum number of employees that an employer can claim for from 1 November 2020 onwards.  

Employers can furlough employees to include those: 

  • who are unable to work because they are clinically extremely vulnerable;  
  • who are at high risk of severe illness if they contracted COVID-19, or if an employee;  and 
  • who are unable to work because they have caring responsibilities arising from COVID-19, including employees that need to look after children who are at home, or if they are caring for a vulnerable individual in their household.  

A new employer is eligible to claim in respect of employees of a previous business, provided the employees in question were employed by their previous employer on or before 30 October 2020 and transferred to their new employer on or after 1 September 2020. 

What is “flexible furlough”? 

Employers can furlough employees for any amount of time and any work pattern, while still being able to claim the grant for hours not worked.  Employers are responsible for paying those hours which are worked.   

There is no minimum furlough period; agreed flexible furlough agreements can be for any duration and employees can enter into a flexible agreement more than once.   Although flexible furlough agreements can last for any duration, unless otherwise specified the period claimed for must be for a minimum claim period of 7 calendar days.

Is the cap of £2,500 pounds inclusive of wage costs such as pension contributions? 

The reimbursement covers 80% of usual monthly wage costs to a cap of £2,500 per employee.  Employers are currently liable for the associated employer National Insurance contributions and minimum auto-enrolment employer pension contributions (up to 3%).   

Regular payments which the employer is obliged to make, for example non-discretionary overtime or non-discretionary commission payments can be included in the calculation of wages.  

Any discretionary payments where there is no contractual obligation to pay them, such as tips or discretionary bonuses, should be excluded. 

The sum paid to the employee will remain subject to income tax and National Insurance in the usual way.

Changes to the level of grant from 1 July 2021 

From 1 July 2021, the level of grant will be reduced and you will be asked to contribute towards the cost of your furloughed employees’ wages. To be eligible for the grant you must continue to pay your furloughed employees 80% of their wages, up to a cap of £2,500 per month for the time they spend on furlough. 

The table below shows the level of government contribution available in the coming months, the required employer contribution and the amount that the employee receives per month where the employee is furloughed 100% of the time. 

Wage caps are proportional to the hours not worked.

  May  June  July  August  September 
Government contribution: wages for hours not worked  80% up to £2,500  80% up to £2,500  70% up to £2,187.50  60% up to £1,875  60% up to £1,875 
Employer contribution: employer National Insurance contributions and pension contributions  Yes  Yes  Yes  Yes  Yes 
Employer contribution wages for hours not worked  No  No  10% up to £312.50  20% up to £625  20% up to £625 
For hours not worked employee receives  80% up to £2,500 per month  80% up to £2,500 per month  80% up to £2,500 per month  80% up to £2,500 per month  80% up to £2,500 per month 

Do I have to top up the remaining 20%? 

No, there is no obligation on an employer to top up the remaining 20% and they can choose whether or not they wish to do so. 

If however you are not going to top up the payments, you will require the employee’s consent in order to avoid a claim of breach of contract and unlawful deduction of wages.  If you do top up payments, the Scheme will not cover the cost of any employer NICs or pension contributions in respect of the top up.

Do employees have to be at risk of redundancy to be placed on the scheme? 

The purpose of the Coronavirus Job Retention Scheme is to protect jobs which have been affected by the pandemic. HMRC retain the right to retrospectively audit all aspects of the scheme to enable them to claim back for fraudulent or erroneous claims and we recommend taking advice as to whether furlough is the best course of action in your particular circumstances.

Can I put an employee on long-term sick on furlough leave? 

The government guidance suggests that employees on sick leave or who are self-isolating should receive statutory sick pay (subject to any contractual entitlement to company pay), but they can be placed on furlough once they have recovered or no longer need to self-isolate. 

The government guidance confirmed that employees who are on long term sick are eligible to be furloughed.  Our view is that this sits uncomfortably with the Treasury Direction of 15 April 2020 and it seems logical that where these employees remain unfit to work due to a non-COVID reason, they would not qualify until such time as they were fit to work.

What do I do where an employee is self-isolating or on sick leave?  

The minimum length of time for which an employee can be furloughed is 3 weeks and the scheme is not intended to cover short-term absences.  Where an employee is self-isolating or on sick leave as a result of Coronavirus, they will be entitled to Statutory Sick Pay.  Whether they are entitled to enhanced contractual sick pay will be governed by their employment contract and / or any company sickness absence policy. 

Although short-term illness or isolation shouldn’t be a decision in deciding whether to furlough an employee, these employees can still be furloughed for business reasons.

I have several employees who are shielding.  Can they be furloughed? 

Employees who are shielding, or who live with someone who is shielding, can be furloughed. Employers can decide whether or not to furlough these employees.

What steps do I need to take to place employees on furlough leave? 

Placing someone on furlough involves a change in their terms and conditions and you need their agreement. The proposal to place an employee on furlough leave needs to be discussed with them and their agreement to the change to be obtained. Where an employee agrees to be placed on furlough leave this needs to be confirmed to them in writing.  This applies both where they are fully furloughed and flexibly furloughed. 

If you intend to put 20 or more employees on furlough leave, you may wish to take advice on your collective consultation obligations.

How do I select who to place on furlough leave? 

This will in large part be driven by the needs of your business and which areas require a reduced workforce or will be subject to a temporary closure. It is possible to ask for volunteers in the first instance, although there is a risk that you may receive requests from more employees than you wish to furlough leaving you in a situation where you have to follow some form of selection exercise in any event. 

One approach may be to draw up an objective selection criteria such as would be used in a redundancy scoring exercise. 

The decision must not based on any discriminatory criteria, unless such discrimination is likely to be justified. For example, it may be possible to justify choosing to use age as a criterion in circumstances where people over 70 are understood to be at higher risk of serious illness. 

Can I rotate furlough leave between my employees? 

The minimum length of time somebody can be placed on furlough is currently set at three weeks. There doesn’t seem to be any reason why you could not move employees on and off furlough leave subject to that three week period. 

An employee has asked to be put on furlough leave.  Do I have to agree? 

There is nothing to stop an employee from asking to be placed on furlough leave however you are under no obligation to agree. Whether or not to furlough employees ultimately remains a business decision. 

You should however be wary of jumping straight to a refusal where the alternative is redundancy in case the employee subsequently sought to argue that the decision to dismiss was unreasonable in the circumstances.  

What can employees do whilst on furlough leave? 

The main thing to remember is that an employee cannot do any work for your business, or any linked or associated business, whilst on furlough leave. 

Where an employee has more than one employer, each is treated separately for the purposes of the Scheme.  

There is nothing in the guidance to suggest that an employee cannot work for another employer, although this would remain subject to any restrictions in their employment contract or as may be agreed when placing them on furlough leave. 

Employees on furlough leave are able to do volunteer work as long as it is for another employer or organisation and indeed a number of businesses are actively encouraging such activity.  They can also undertake training, as long as in doing so they don’t provide services to, or generate revenue for your business or any linked or associated business.   

The government guidance also confirms that an employee can still carry out training whilst on furlough and where this is agreed in advance with their employer, but they must be paid the national minimum wage in respect of the training period, even if takes them above the 80% they would otherwise receive. 

How do I make the claim to HMRC for reimbursement? 

The online claims service has been live since 20 April 2020.  You should receive payment within six working days of submitting an application. 

Guidance on the process for making a claim and the information you need to provide can be found at:

Can an employee take holiday whilst on furlough? 

Yes.  Employees will continue to accrue holiday whilst on furlough and can take holiday during this time.  If they are flexibly furloughed, then any holiday hours taken during the claim period should be counted as furloughed hours rather than working hours.  Employees are entitled to be paid at their usual rate of pay when taking holiday, rather than at 80%.  

Can I make someone redundant whilst on furlough leave? 

An employer can make somebody redundant when they are on furlough or afterwards.  However, whereas previously the guidance made clear that employers could continue to claim under the scheme for an employee who was working their notice, this has now changed.  Employers will not be able to claim for employees who are serving contractual or statutory notice for claim periods on or after 1 December 2020.  

Grants cannot be used to substitute redundancy payments.

This page was last updated on 3 March 2021.  Whilst these FAQs are intended to provide guidance on the employment law implications of the Job Retention Scheme, they do not constitute legal advice and should not be relied upon as such.  The guidance and information around the scheme is constantly evolving and if you wish to discuss your specific situation, please contact  Natalie on  or 0115 910 6237. 

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