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25 March 2020: the following is our understanding of this policy and how this will work based on the information published so far. It should not be relied on for advice at this stage but is intended to give an indication of how the scheme will work.

Q: What has the government launched to support businesses where there is no work for employees to do?

A: The Coronavirus Job Retention Scheme was announced on Friday 20th March.

It will reimburse employers up to 80{f5c46dbfd7a370437117a81398f3ac99c38e148024d17c03e20eb6cfc854a7af} of wages for employees they have to lay off temporarily due to the business conditions caused by the coronavirus.

Key policy objectives of the scheme

Overall objective is to keep people at home while enabling employers to retain staff who will be needed when they begin to rebuild their businesses in the future. This will enable work to begin again with a critical core who have the necessary knowledge.

Q: What businesses can apply?

A: All businesses can apply ‘any employer on the country, small or large, charitable or non-profit’. The scheme will be particularly relevant to businesses in the sectors ordered to close (principally hospitality and leisure).

It is available to employees on the payroll at 28 February 2020.

Q: Is it effective immediately?

A: Yes, and it’s also backdated to 1st March. Employers who have temporarily laid employees off since 1st March should, therefore, be eligible. Furlough is from 1 March 2020, so is to be backdated. It will last for at least 3 months and will be extended if necessary.

Note that while the scheme is backdated to the beginning of March as it is intended to support all those employed then, a firm will only be eligible to claim the grant once they have agreed the furlough with their staff and staff have stopped working for the employer. This will of course be subject to employment law in the usual way.

Q: How will employees receive their money?

A: They will receive wages through your normal payroll arrangements, subject to the usual deductions.

The employer is reimbursed via HMRC. The scheme pays a grant (not a loan) to the employer.

Q: How quickly will grants be available?

A; Grants should be available “within weeks” and the scheme will be up and running by the end of April. HMRC has to design the portal.

Q: How can we afford to pay our people in the meantime?

A: The government has made clear that the intention of the scheme is to save jobs and ensure employees retain an income. Zero interest loans are available through the Business Interruption Loan Scheme. VAT has also been deferred and grants are available for certain sectors, which should help with cashflow.

Q: Do I just pay employees 80{f5c46dbfd7a370437117a81398f3ac99c38e148024d17c03e20eb6cfc854a7af} of their normal pay?

A: Under the scheme, the employer would still be liable for 100{f5c46dbfd7a370437117a81398f3ac99c38e148024d17c03e20eb6cfc854a7af} of wages, with 80{f5c46dbfd7a370437117a81398f3ac99c38e148024d17c03e20eb6cfc854a7af} made up by the government. This is because the employer retains the employment relationship.

If an employer cannot afford to make up the difference it may be possible to renegotiate the employment contract to allow for a temporary reduction of pay to 80{f5c46dbfd7a370437117a81398f3ac99c38e148024d17c03e20eb6cfc854a7af}. Employers should take advice before seeking to impose such a reduction.

Maximum grant will be calculated per employee and is the lower of:

  • 80{f5c46dbfd7a370437117a81398f3ac99c38e148024d17c03e20eb6cfc854a7af} of ‘wages’. The notes published so far, use the phrase ‘wage for all employment costs up to a cap of £2,500 per month’. It is our understanding that this includes employers’ NIC and pension contributions. Wages will be determined by reference to a defined period (yet to be announced).
  • £2,500 per month.


X Ltd employs Mr A at an annual salary of £24,000, so £2,000 per month. Mr A has opted out of auto enrolment. Each month, Mr A currently receives net pay of £1,665 which is after deducting PAYE of £191 and employees NIC of £144. On this salary, the employer pays employers’ NIC of £174.

The available grant for the employer is the lower of

  1. 80{f5c46dbfd7a370437117a81398f3ac99c38e148024d17c03e20eb6cfc854a7af} of (£2,000 + £174), and
  2. £2,500

So a grant of £1,739.

The cash required by X Ltd to furlough based on maintaining the existing salary is £435 per month. It is a matter for employment law whether the employer is required to pay this top up. Discussions with employees may have agreed that the employee has agreed to a different arrangement during their furlough.


  1. If Mr A had not opted out of auto enrolment, X Ltd would also be making pension contributions on his behalf. If so, the available grant is based on 80{f5c46dbfd7a370437117a81398f3ac99c38e148024d17c03e20eb6cfc854a7af} of (gross salary + Employers’ NIC + employers pension contributions paid), subject to the monthly cap of £2,500.
  2. We understand that the rules for the scheme are being designed with underlying reference to employment law. If the individual is still under contract, Mr A can expect to receive his salary in full. The £1,739 grant paid to X Ltd should not be taken as the new maximum cost of employment to the employer unless the contract has been redrafted.
  3. Subject to the employment contract and any amendment, the salary which the employer actually pays the employee during the furlough period may be different to the pay paid used as the reference period and upon which the grant figure is based.

Q: Can Directors and owners will get the 80{f5c46dbfd7a370437117a81398f3ac99c38e148024d17c03e20eb6cfc854a7af}?

Illustration PubCo

In the following illustration, the business has already closed as instructed by the government. We have had a number of enquiries along similar lines and are seeking clarification of our understanding of the rules apply.

Mr & Mrs Fuller are the tenants of a pub. They have a substantial wet and food trade as the pub is in a coastal location and does good trade over the Summer. The pub is open all year round.

Mr & Mrs Fuller operate the pub through a limited company (Pubco). They take salaries of £8,600 each and withdraw profits of £30,000 each in the form of dividends. They live above the pub and work long hours being in the pub every day.

Pubco employs three permanent staff supplemented by extra seasonal staff in the Summer months and at Christmas.

The pub closed on 20 March as instructed by the Prime Minister. and following the Chancellor’s announcement on 20 March, Pubco has furloughed its staff other than Mr & Mrs Fuller who are still living above the pub and dealing with the company administration. The contracts of employment of the other staff have been varied to permit furloughing and the three permanent staff members have agreed to accept a pay reduction to 80{f5c46dbfd7a370437117a81398f3ac99c38e148024d17c03e20eb6cfc854a7af} of the previous level. The seasonal staff for this year have not yet been hired.

Our understanding is that Pubco will be eligible to receive the government grant support under the Coronavirus Job Retention Scheme for the monthly wages of the 3 permanent staff members. No grant support is available to support the living costs of Mr & Mrs Fuller.

Mr & Mrs Fuller will need to look for alternative support while the pub remains closed.

Q: Can we backdate payments for workers put on short time working or lay off since 1st March?

A: Very probably. Details are not available but it seems likely that the scheme will be designed to cover these workers. We suggest employers notify employees who are currently temporarily laid off to let them know the business is investigating this.

We have had many questions asking if workers can be moved in and out of being furloughed if work becomes available to an employer and then ceases again?

This has yet to be clarified, but we consider it very likely that they will. The scheme is being designed to allow for flexibility so that furloughed staff can be brought back to work to replace those still working who later become sick.

We anticipate that this will be seen as difficult to regulate an anticipate that a minimum period of furlough leave may be built in as a requirement before the person can return to work. So we anticipate that the rules will specifically make provision for:

  1. Sickness cover where a continuing employee is now off sick and a furloughed worker can provide cover.
  2. Where employees agree to share shifts to enable more of them to continue to be paid.

This will again depend on the employment contracts of those affected.

Q: If an employee works variable hours, how are normal hours calculated?

A: This is to be confirmed, but we understand the government intends to use pay data based on February’s earnings.

Q: Does it apply to employees who are taking leave due to school closures?

A: Probably not, if work is available for them to do. We will check this as further details of the scheme are released.

Q: What about people who have already been dismissed or made redundant but have not found other work?

A: The position is not clear at this time.

Q: What about employees who have been laid off but have now found other employment?

A: The position is not clear at this time, but the aim is to retain people in employment, so it seems unlikely that it will apply to people who have already found alternative employment.

Q: Will it apply to vulnerable workers who are following government advice to self-isolate at home?

A: The position is not clear at this time. An employee does not have to accept furlough if offered, but the employer could then make the employee redundant instead using the usual employment law procedure.

Q: Can Employees work for another employer during furlough leave ?

A: The position is not clear at this time. We understand that staff can study while they are being furloughed. It is a condition of the scheme that the employee must do no work at all during the furlough period. The intention of the scheme is to allow employers to pay staff who are without work.  HMRC will of course have visibility of pay records.

While we understand that an employee who is furloughed can do no work at all, our current understanding is that the employee can hold a separate employment with a different and unconnected employer which will be unaffected.

Q: Where can I find further information?

A: https://www.gov.uk/government/publications/guidance-to-employers-and-businesses-about-covid-19/covid-19-support-for-businesses

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