Understanding the Furlough Scheme in the UK
Written by: Rinaily Bonifacio
Last updated: 7 June 2023
Table of contents
- What is the furlough scheme?
- Who is eligible for the furlough scheme?
- Untill when is the furlough scheme available?
- How does the furlough scheme work?
- How to apply for the furlough scheme
- Employee rights during a furlough agreement
- Flexible furlough agreement and how it works
- Sickness and furlough
- Holidays and furlough
- The compositional and furlough effects
- Returning to the workplace
- Frequently Asked Questions
What is the furlough scheme?
The furlough scheme, also known as the Coronavirus Job Retention Scheme, was introduced by the UK government in response to the coronavirus pandemic.
The scheme allows employers to claim a subsidy to cover a portion of their employees' wages if they cannot work due to the pandemic. Furloughed employees receive an average pay that varies depending on various factors.
The scheme ended on 30 September 2021, with employer contributions gradually increasing from July onwards.
Who is eligible for the furlough scheme?
Eligibility for the furlough scheme is determined by the individual's employment status and place of work. To be eligible for the scheme, employees must have been on the employer's payroll on or before 30 October 2020 and included in a Real Time Information (RTI) submission to HM Revenue and Customs (HMRC). The scheme is available to employees and specific categories of workers in the United Kingdom who cannot work due to the coronavirus pandemic.
Employees who cannot work due to the pandemic are eligible to be furloughed as long as they were on the employer's payroll on or before 30 October 2020. This means that they must have been issued a payment by their employer on or before this date and included on a Real Time Information (RTI) submission to HM Revenue and Customs (HMRC).
Self-employed workers are not eligible for the scheme as it is designed for employees. However, they may qualify these individuals for support through the self-employment Income Support Scheme (SEISS). This scheme provides grants to the self-employed who have been negatively impacted by the pandemic and cannot work.
Individuals with public funding
Individuals who receive public funding for their wages may be eligible for the scheme if they meet the eligibility criteria for employees. This includes individuals who receive funding from the devolved administrations, local authorities, and the public sector.
Administrators, also known as insolvency practitioners, who are appointed to manage a company during the insolvency process are not eligible for the furlough scheme. However, the company's employees being administered may be suitable for furlough if they meet the eligibility criteria.
Untill when is the furlough scheme available?
The furlough scheme is available until 30 September 2021 and will no longer be available after this date, and employees will need to return to work or be placed on redundancy.
How does the furlough scheme work?
The scheme allows employers to claim a subsidy to cover a portion of their employees' wages if they cannot work due to the pandemic.
The subsidy covers up to 80% of an employee's wages, up to a maximum of £2,500 per month.
How much can be claimed, and how calculations work
The amount that one can claim through the furlough scheme is based on an employee's wage and the number of hours they cannot work due to the pandemic.
Employers can claim the subsidy for the hours an employee would normally have worked and any associated employer National Insurance contributions and minimum automatic enrolment employer pension contributions on those wages.
Through a statutory or contractual notice, employers must determine the employee's reference salary to calculate the amount that one can claim.
This is the employee's salary in the last pay period ending on or before 30 October 2020, as reported on an RTI submission to HMRC. The reference salary is then used to calculate the claim amount for each employee.
For example, if an employee has a reference salary of £1,000 per month and is furloughed for 50% of their normal hours, the employer can claim 50% of the employee's wages, or £500 per month, through the scheme.
This calculation includes any associated employer National Insurance contributions and minimum automatic enrolment employer pension contributions on those wages.
How does employer contribution work?
Employers are required to pay the employee's wages for hours they are not working. The government will cover 80% of the employee's wages, up to a maximum of £2,500 per month. This means that employers will need to contribute the remaining 20% of the employee's wages and any employer NICs and pension contributions.
How to apply for the furlough scheme
To claim the subsidy, employers must first agree with their employees that they will be placed on furlough. The employer must then submit a claim to HMRC through the online portal, providing information about the employees being furloughed, the amount of the claim, and the employer's bank details.
Employers can claim the subsidy for seven calendar days and must make claims in advance. If an employer has multiple payrolls, they must make separate claims for each payroll.
The subsidy is not taxable and does not need to be included in the employee's pay for tax or National Insurance purposes.
Main requirements when applying for the furlough scheme
Employers can claim the subsidy for employees who are unable to work due to the pandemic, including those who are shielding, self-isolating, or caring for others due to the pandemic.
To be eligible for the scheme, employees must have been on the employer's payroll on or before 30 October 2020 and included in a Real Time Information (RTI) submission to HMRC.
Employees who are on furlough cannot work for their employer while they are on furlough. Still, they can undertake training and volunteer work as long as it does not provide services to or generate revenue for the employer.
Employers can claim the subsidy for seven calendar days, and one must make claims in advance. If an employer has multiple payrolls, they must make separate claims for each payroll.
Employers are responsible for paying the subsidy to their employees and must report any changes in the employee's circumstances to HMRC.
It is important to note that the furlough scheme constantly evolves, and the details may change over time. Employers should stay up-to-date on the latest developments and guidance from the government and HMRC to ensure compliance with the scheme.
Employee rights during a furlough agreement
When deciding to furlough employees, it is important for employers to remember that employees retain certain rights while they being on furlough.
These included the right not to be subjected to unfair treatment or discrimination, the right to reasonable notice of termination of employment, the right not to have wages withheld without prior agreement, the right not to be dismissed or subject to a detriment because of any protected characteristics (e.g. age, race), and the right not to have holidays cancelled without prior agreement.
Employers were required to follow all legal obligations when agreeing to furlough with their employees and ensure that all terms and conditions were fair and reasonable for everyone involved. Employers also had to contribute towards statutory payments such as Statutory Sick Pay (SSP) where applicable, even if an employee had been placed on furlough leave.
Transparency of a furlough agreement
When agreeing on terms of furlough with an employee, it was important for both parties to be clear about what would be included in the arrangement.
This included ensuring that both parties understood how long the arrangement would last, what type of working hours would be expected from either side during this period, what salary/wages might look like for each party during this period (if any), and any other necessary details regarding leave days or holidays during this period.
It was also essential that both parties understood the consequences if either one decided not to abide by these terms as agreed upon.
In addition to these considerations, it was also important for employers to be transparent with their employees about the financial impact of furlough on the company, as well as the plans for the company's future and the employees' roles within it.
This could help to foster trust and understanding between the employer and employees, which could be especially important during times of uncertainty.
Flexible furlough agreement and how it works
Flexible furloughing is a government-supported scheme that allows employers to temporarily reduce their workers' hours and claim back a portion of their wages through the Coronavirus Job Retention Scheme.
The scheme was introduced in the United Kingdom in response to the COVID-19 pandemic and allows employers to bring back furloughed employees on a part-time basis while still being able to claim the Job Retention Scheme grant for the hours that they are not working.
Under the scheme, employees can be furloughed for any time and work pattern. This means that employers can bring back furloughed employees for a few hours a week or a few days a month, depending on the needs of the business.
The Coronavirus Job Retention Scheme grant covers 80% of employees' wages, up to £2,500 per month.
Employers must pay at least 80% of an employee's wages, up to a maximum of £2,500 per month, while one can claim the remainder through the grant. Employers also have the option to top up an employee's wages above the 80% threshold if they choose to do so.
The flexible furlough scheme ended on September 30, 2021. After this date, employers will no longer be able to claim the Job Retention Scheme grant for furloughed employees. However, the government has stated that it will continue to review the situation and may extend the scheme if necessary.
Employee pay during flexible furlough
Under the flexible scheme, employees are entitled to receive their normal pay for their work hours. This means that if an employee on a flexible furlough works half their normal hours, they should receive half their normal pay.
The Job Retention Scheme grant covers 80% of an employee's wages, up to a maximum of £2,500 per month. If an employee's normal pay is more than £2,500 per month, their employer will have to pay the additional amount. Employers also have the option to top up an employee's wages above the 80% threshold if they choose to do so.
It's important to note that the Job Retention Scheme grant is only available for the hours that an employee is not working. This means that if an employee on flexible furlough works any hours, their employer will have to pay their full wage for those hours, regardless of the grant amount.
Employee rights during flexible furlough
e their normal pay for their work hours and the right to accrue holiday pay. They also have the right to take holiday leave during their furlough period, and their holiday pay will be based on their full pay, not the reduced furlough pay.
Employees on flexible furlough also have the right to request training, and their employer must consider this request the same way they would for an employee not on furlough. If an employee's training request is approved, their employer must pay for the training, just as they would for an employee not on furlough.
It's important to note that while employees on flexible furlough are entitled to their normal pay for the hours they work, they may not necessarily be entitled to the same benefits as they were before being placed on furlough. For example, if an employee was receiving a company car or other benefits before being placed
Sickness and furlough
Employees who are sick or unable to work due to COVID-19 may be eligible for sick pay or other benefits. In this case, the employee should not be placed on furlough. Employees may be entitled to sick pay as usual if they become sick while on furlough.
Holidays and furlough
If an employee is on furlough, they are entitled to take a holiday as usual. However, the furlough period does not count towards an employee's statutory holiday entitlement. If an employee takes a holiday while on furlough, they will still have the same amount of statutory holiday entitlement when they return to work.
The compositional and furlough effects
The COVID-19 pandemic has significantly impacted the labour market, leading to significant changes in employment and earnings. Two factors contributing to these changes are the compositional and furlough effect. Understanding these effects is important for policymakers, as they can help inform decisions about how to support workers and businesses during economic disruption.
What are the compositional and furlough effects?
The compositional effect refers to how changes in the composition of the workforce can impact overall employment and earnings trends. For example, suppose a disproportionate number of low-wage workers lose their jobs during a recession. In that case, the average wage may decline even if theremaining workers' wagess remain unchanged.
On the other hand, the furlough effect refers to the impact of temporary layoffs on employment and earnings. Furloughs can occur when businesses cannot operate fully due to economic downturns or other external factors. F furloughed workers may receive some or all of their pay during the period of reduced work, but they are not considered fully employed.
How do we measure the compositional and furlough effects?
There are several ways to measure the compositional and furlough effects, including labour market indicators such as the unemployment rate and the employment-to-population ratio. These indicators can provide a broad overview of the state of the labour market, but they do not capture the nuances of the compositional and furlough effects.
To more accurately measure these effects, economists and policymakers often rely on data from household surveys, such as the Current Population Survey (CPS) in the United States.
These surveys ask respondents about their employment status, hours worked, and wages, allowing for a more detailed analysis of the labour market.
The compositional effect during the pandemic
During the COVID-19 pandemic, the compositional effect has significantly shaped employment and earnings trends. One notable aspect of the compositional effect during the pandemic has been the disproportionate impact on certain sectors and occupations.
For example, the leisure and hospitality industry has been hard hit by the pandemic, with employment in this sector falling by over half from February to April 2020. Many low-wage workers in this industry, such as servers and hotel workers, lost their jobs due to the widespread closures of restaurants, bars, and hotels.
Other sectors that experienced high job loss levels during the pandemic include retail, manufacturing, and education. Many of the jobs lost in these sectors were also low-wage positions, contributing to a decline in the average wage.
The impact of furlough on earnings growth during the pandemic
In addition to the compositional effect, the furlough effect has also shaped employment and earnings trends during the pandemic. Many businesses have implemented furloughs to reduce costs and weather the economic downturn caused by the pandemic.
Furloughs can significantly impact workers' earnings, as they are typically paid less during the period of reduced work. In some cases, workers may not receive any pay at all during a furlough.
This can lead to a decline in overall earnings growth, as furloughed workers are not contributing as much to overall wage growth as they would if they were fully employed.
In summary, compositional and furlough effects significantly impacted employment and earnings during the COVID-19 pandemic.
Understanding these effects is important for policymakers and others seeking to support workers and businesses during economic hardship.
By measuring and analyzing the compositional and furlough effects, it is possible to understand better how changes in the labour market can affect wages and overall economic growth.
one can use this information to inform policies that are aimed at mitigating the negative impacts of these phenomena.
Employee scheduling and Time-tracking software!
- Easy Employee scheduling
- Clear time-tracking
- Simple absence management
Returning to the workplace
As the COVID-19 pandemic ends and businesses reopen, they may need to decide which employees will return to work and when. This process can be challenging, as employers must consider the business's needs, their employees' preferences, and any government guidelines that may be in place.
One important factor is the staffing levels needed as the business reopens. Employers may need to bring back more employees than they had before the pandemic, or they may need to reduce their staffing levels better to match the demand for their products or services.
It's important to carefully assess the needs of the business and make decisions based on those needs rather than simply bringing back all employees at once.
Another important factor to consider is the pay and benefits offered to return employees. In some cases, employers may need to offer reduced pay or benefits to remain financially viable. This can be a difficult decision, but it's important to communicate openly with employees and explain the reasoning behind any changes.
Who comes back to work, and what pay
There are several factors to consider when deciding who will return to work and what pay they will receive. Here is a list of factors to consider when deciding who comes back to work and what pay to offer:
The business needs
One of the primary factors to consider when deciding who comes back to work and what pay they will receive is the business needs. Many employers know they will not be able to operate at full capacity and may need to reduce their staffing levels or offer reduced pay or benefits.
It is important to ensure that employees are comfortable with the decisions. Employers should consider their employees' preferences when deciding who returns to work and what pay they will receive. Some employees may prefer to return to work sooner rather than later, while others may prefer to wait until it is safer.
Employers will need to follow any government guidance and guidelines that may be in place, such as restrictions on the number of employees that can be on-site at any given time. By now, several countries have issued guidelines on implementing social distancing measures in the workplace.
Employers must ensure they follow these guidelines when deciding who returns to work, what pay they will receive, and if they will issue any redundancy payments.
Another factor to consider is the performance of each employee. Employers may want to bring back employees who have proven reliable and productive, as these employees will likely make a positive contribution to the business. Although they must take caution and act within the laws and employment contracts.
Businesses may need to offer reduced pay or benefits to remain financially viable. This can be a difficult decision, but it's important to communicate openly with employees and explain the reasoning behind any changes.
Employee rights: Employers should be aware of the rights of their employees, including the right to receive their normal pay for the hours they work, the right to accrue holiday pay, and the right to request training.
Paying employee taxes and pension contributions
When deciding who comes back to work and what pay they will receive, employers should be aware of their obligations regarding employment taxes and pension contributions. Employers must ensure they meet their legal requirements when deciding who returns to work and what pay they will receive.
There are rules when deciding who returns to work and what pay they will receive. Employers must consider various factors, including business needs, employee preferences, government guidelines, and financial viability.
It is also important to ensure that employees know their rights and that employers meet their legal obligations regarding taxes and pension contributions.
The UK furlough scheme has been instrumental in helping businesses and workers weather the economic downturn caused by COVID-19. Understanding how this program works and its potential impacts on wages and employment groware is essential for those seeking to support business owners and employees during times of hardship.
Though it ended on 30 September 2021, the furlough scheme has significantly shaped employment and earnings trends during the pandemic. By measuring and analyzing the compositional and furlough effects, it is possible to understand better how labour market changes can affect wages and overall economic growth.
Frequently Asked Questions
The UK furlough scheme, also known as the Coronavirus Job Retention Scheme, was a government program introduced in response to the COVID-19 pandemic. The scheme allowed businesses to lay off or furlough workers temporarily and have a portion of their wages covered by the government. The scheme's purpose was to help businesses retain their employees and avoid layoffs during the economic downturn caused by the pandemic.
Furlough refers to a temporary leave of absence from work. It is typically used when a business cannot operate at full capacity due to economic downturns or other external factors. Furloughed workers may receive some or all of their pay during the period of reduced work, but they are not considered fully employed.
The terms of furlough may vary depending on the specific circumstances and the agreements made between the employer and the employee. In some cases, furloughed workers may be required to pay back a portion of the wages they received during the furlough period. However, this is not always the case, and workers need to understand the terms of their furlough arrangement.
Another common question about the UK furlough scheme is whether self-employed people are eligible. The answer to this question is no - the UK government introduced a Self-Employed Income Support Scheme (SEISS) which provides support to self-employed individuals affected by the COVID-19 pandemic. This scheme allows self-employed people to claim a grant which covers up to 80% of their average monthly trading profit, up to a maximum of £2,500 per month.
They originally set the UK furlough scheme to expire in October 2020, but it has been extended several times. It officially ended on 30 September 2021, bringing to an end a scheme that benefited businesses impacted by the COVID-19 pandemic.
Rinaily is a renowned expert in the field of human resources with years of industry experience. With a passion for writing high-quality HR content, Rinaily brings a unique perspective to the challenges and opportunities of the modern workplace. As an experienced HR professional and content writer, She has contributed to leading publications in the field of HR.
Please note that the information on our website is intended for general informational purposes and not as binding advice. The information on our website cannot be considered a substitute for legal and binding advice for any specific situation. While we strive to provide up-to-date and accurate information, we do not guarantee the accuracy, completeness and timeliness of the information on our website for any purpose. We are not liable for any damage or loss arising from the use of the information on our website.
Save time and money
Workforce management software from ShiftbaseTry for free