In the current COVID-19 pandemic that is affecting individuals and employers worldwide, Cintra has put together this document to enable the payroll profession to understand the new terminology that is set to become common in the payroll lexicon – that of furloughed employees going on furloughed leave.

Where does the term ‘furlough’ come from?

Not a term used in the UK but more in the United States, a furlough is derived from the Dutch ‘verlof’ meaning a temporary leave of absence due to the needs of the company.

That is how it should be regarded with the introduction of furloughed employees that are put into furlough leave.

The announcement

The economic crisis that will affect employees and employers was addressed in a speech on 20 March 2020 by the Chancellor of the Exchequer Rishi Sunak. As part of the UK Government’s ‘Plan for People’s Jobs and Incomes’ he made two announcements:

  1. Government grants will cover 80% of the salary of retained workers up to a total of £2,500 a month
  2. The Coronavirus Job Retention Scheme will cover the cost of wages backdated to 01 March 2020

Point 1 is not the way that this is outlined in the UK Government’s guidance, issued by the Department of Business, Energy and Industrial Strategy (BEIS) and Public Health England (PHE).  When it was originally published, this said:

HMRC will reimburse 80% of furloughed workers wage costs, up to a cap of £2,500 per month. HMRC are working urgently to set up a system for reimbursement. 

Although, it now says:

HMRC will reimburse 80% of their wages, up to £2,500 per month. This is to safeguard workers from being made redundant.

‘Wages’ and ‘cost of wages’ are two very different things.  We will have to wait and see what the legislation says, however, we interpret wage costs to mean that cost of employing someone. This brings in not only the cost of the salary but the cost of employer National Insurance Contributions, pension contributions and Apprenticeship Levy.  All as long as the cost is less than or equal to £2,500 per month per furloughed employee.


It is absolutely vital to understand and remember the UK Government’s intention at this time. With workers being laid off or under the threat of being laid off in all sectors, the UK Government wants to do all it can to mitigate these circumstances and the ultimate one where employers are forced to make staff redundant.

Therefore, the overall intention is to protect employees’ jobs whilst, at the same time, recognising that employers will have significant costs.  It’s about supporting employees and employers.

How long?

Mr Sunak said the Coronavirus Job Retention Scheme (CJRS) will be open for a period of 3 months, i.e. from the start of March to the end of May 2020.  However, he has pledged to extend the scheme, if necessary.


Whilst we are waiting for guidance and, indeed, the legislation, our interpretation and understanding of all of the announcements is that the employer will be able to access the CJRS and receive a grant directly from HMRC.  This grant (that is not a loan which has to be repaid) will be via a manual online claim facility using a system which has yet to be built.  So:

  • The employer will retain the employee, however, reclassify them as a furloughed employee and place them on furloughed leave
  • The employer will pay the furloughed employee on the payroll (as now)
  • They will make the deductions for things like Income Tax and National Insurance (as now)
  • They will pay the net pay to the furloughed employee (as now)
  • They will return the information to HMRC via Real Time Information on the Full Payment Submission (as now)
  • They will remit their liabilities to HMRC and continue to submit the Employer Payment Summary (as now)
  • Then, via a portal yet to be designed, they will request the CJRS grant from HMRC for the furloughed employees that they have paid
Which employers?

The Gov.UK guidance says that the Coronavirus Job Retention Scheme (CJRS) will support all UK employers, enabling them to retain and pay staff that would otherwise have been laid off.

His speech (also on Gov.UK) says:

‘Any employer in the country – small or large, charitable or non-profit – will be eligible for the scheme.’

Which employees?

Although we are awaiting the legislation, it seems clear that we are looking at employees that were employed under a contract of employment on or after 01 March 2020.  They must also be employees that the employer might have laid off / made redundant as a result of them not having any duties to perform under their contract of employment.

For example

On 18 March 2020, the Prime Minister advised the avoidance of unnecessary gatherings (in places such as restaurants).  Many restaurants decided to close, adhering to this advice.  An employee working in a restaurant that closed, employed to wait on tables would not have been able to perform these duties.

What about starters after 01 March 2020?

There seems to be absolutely no reason to assume that starters after 01 March 2020 could not be moved from being an employee to a furloughed employee.

For example

A waiter in the above restaurant may have been employed on 17 March 2020, only to find out the next day that the restaurant was closing.  Therefore, legislation will have to make provision for employees that started after 01 March 2020.  Further, the legislation will have to state a calculation formulae as, in all probability, the employee will not have been paid.  Do we look at anticipated future earnings?

What about leavers?

If an employee left the employment of their own volition, the indications are that these employees would not be covered.  For example, a waiter in the above restaurant who left on 16 March 2020 to take employment at another restaurant.  This employee left the employment through choice and would not have been laid off with the potential for redundancy – employers only lay off or select for redundancy the employees that are actually employed.

If the restaurant terminated the employment, however, this would be a different matter IF the reason for terminating the employment was because there was no work to perform under the contract of employment.

For example

A restaurant decided to close on 18 March 2020 and lay off / terminate the employment of an employee, simply as a result of the fact that there was no work to perform under their contract.  In this situation, it is reasonable to assume that had the restaurant not closed then the employee would have been retained.  As the employee was a leaver before 20 March 2020 when Mr Sunak made his announcement about the CJRS, it is more than likely that this employee will be eligible to resume his employment, i.e. the fact that he was a leaver would be ignored.  However, on resuming employment, the employer would immediately have to enter into a contractual agreement to make the individual a furloughed employee and place them on immediate furlough leave.

What about Agency workers?

In the absence of legislation, we can only assume that agency workers could contractually change to be a furloughed employee and placed on furlough leave.  Where the CJRS grant would be paid by HMRC depends on who the actual employer is – maybe they are employed through an agency, in which case, that agency is the employer.

What about Fixed Term Contract (FTC) Workers?

The policy intention is to retain and pay staff that would otherwise have been laid off or made redundant.  A FTC is in a slightly different situation you would imagine.  By nature of the contract, they are employed for a fixed term, at the end of which there is no employment.  For the time that they are under the FTC, we do not see why they cannot be made a furloughed employee and placed on furlough leave.  However, at the end of the contract (which would have ended anyway), we do not see how HMRC can issue a grant for someone who wouldn’t have normally been employed anyway.

For example

An employee was employed on a FTC from 01 January to 31 March 2020.  On 18 March 2020, the restaurant closes as a result of UK Government advice.  Our opinion is that for the remainder of the FTC up to and including 31 March 2020, they can enter into a contractual agreement to be classed as a furloughed employee and then placed on furlough leave.  However, furloughed employment cannot continue beyond 31 March 2020

What about part-time / variably paid employees?

There is no reason to assume that part-time / variably paid employees are not included in the CJRS.  After all, it would be discriminatory to exclude them.

Again, we await the legislation that tells us how employers are supposed to determine an earnings period.  We assume that we are looking at a reference period, perhaps an average weekly earnings period based on the last x months of employment or some other earnings period.

The CJRS intention has to be to pay employees what they would normally have expected to receive in this time and compensate employers accordingly.  This will be interesting.

What about deemed employees?

Again, we will have to wait for the legislation to see if these individuals are bought into the scope (off-payroll workers in the public sector).  However, with limited guidance, we assume that they will not be within scope.  Only employees can become furloughed employees – and deemed employees are not employees.

 Employment law considerations

Employers very much need to consider that they may have two different sets of employees in their workforce and on their payroll.  We have tried to demonstrate the important difference, however, note that there is no difference with regards treatment in respect of terms and conditions, accrual of holiday pay, pension rights etc.  A furloughed employee is simply one that is temporarily on a paid leave of absence due to the fact that their services are not required given the current COVID-19 pandemic:


These are people who are performing the work that is required under their contract of employment.  The CJRS is not available to employees.

Furloughed employees

These are people who are not performing work under their contact of employment.  For example, the waiter that is unable to wait on tables because the restaurant has been advised to close.  The CJRS is available to the employers of furloughed employees.

In most organisations, increasingly, we will see our workforce made-up of these two sets of employees.  Therefore, organisations are going to have to decide how they are going to differentiate between the two – maybe a manual spreadsheet, maybe a new cost code etc.

  • HMRC’s grant will only be paid to employers who are contracted as furloughed employees, i.e. employees that they would normally have laid off because there is no work under their contract of employment
  • It is more than probable that an employer will have employees and furloughed employees on their payroll
  • Just because an employee is furloughed in one employment does not mean that they cannot undertake work elsewhere under another contract of employment, for example the waiter may decide whilst they are on furlough leave from the restaurant to work for a supermarket.  This is only the same as an employee having a second job

However, employers need to very much consider that they cannot impose a contract change on an employee.  Most employment contracts do not contain the necessary permission for an employer to change employment status and / or potentially reduce pay. This has to be mutually-agreed.  There are also considerations of the Trade Union and Labour Relations (Consolidation) Act 1992 which require employers to consult the appropriate employee representatives and notify the Secretary of State using form HR1 in certain circumstances.

  • Employers need to assess their workforce and decide which employees they can no longer provide work under the contract of employment – though maybe the work under the contract can be changed, though this has to be by mutual consent
  • Employers need to explain what a change from employee to furloughed employee means in reality and
  • Employers need to get mutual consent to amend their employment status.  Preferably, this should be in writing

Then, whilst employed (or furlough employed), no work should be done for that employer.  It can be likened very much with garden leave, the practice where an employer asks the employee to stay at home whilst they are still paid a wage.  The differences are that only employees can be placed on garden leave and HMRC will not issue a grant under the CJRS for employees.

Similar but not when it comes to employer costs
What if an employee requests for furloughed leave?

It is possible that employees faced with being laid off and / or redundancy will make a request to be placed on furloughed leave.  Furloughed leave only applies to furloughed employees, therefore, they will have to change their employment status.

Importantly, employment law says that any contractual change must be mutually agreed.  So, whilst the employee may request it, the employer does not have to grant it.

However, remember the UK Government’s intention is to save the number of people being laid off and / or made redundant.  Therefore, given the CJRS incentive, hopefully employers will see the benefits and grant the employee’s request to be changed to furloughed and put on furloughed leave.

 Payroll considerations

As a reminder, the BEIS and PHE guidance says:

HMRC will reimburse 80% of their wages, up to £2,500 per month

Employers and payroll departments need more explanation of this statement (remembering that it previously said ‘wage costs’).  The common queries that Cintra is receiving are as follows:

What does £2,500 and ‘wage costs’ mean?

If an employee contractually to become a furloughed employee, the Coronavirus Job Retention Scheme (CJRS) actually offers a lot of support for employers.  In other guidance issued by BEIS and PHE comes the statement that the CJRS will ‘allow your employer to claim a grant of up to 80% of your wage for all employment costs, up to a cap of £2,500 per month’.

This is not clear at all, however, I am looking at the particular words that say ‘all employment costs’.  An employer’s cost of employing someone is more than just the cost of their salary / wage.  There are significant on-costs, for example:

  • Employer’s National Insurance Contributions
  • Employer’s pension contributions and
  • Apprenticeship Levy

These are all costs that the employer has to meet as a result of employing someone – and costs that they will continue to meet if the employee agrees to become a furloughed employee.  Again, we will have to wait for the legislation, however, our understanding is that all costs associated with retaining a furloughed employee will be included in the CJRS, up to a monthly cap of £2,500 per employee.

For example

Joe is employed as a waiter at a restaurant that has closed as a result of guidance.  His gross pay is £1,000 per month, on which the employer will pay NICs of £38.78.  Whilst the employer calculates the Apprenticeship Levy every month, the paybill is small so no Levy is ever actually paid.  The employer’s cost of retaining Joe as a furloughed employee is £1,000 + £38.78 = £1,038.78.  The CJRS, as we understand it, will grant 80% of employment costs up to a cap of £2,500 per month.

Assuming that this is for a full month, the employer will be able to reclaim for Joe £831.02.

Of course, the calculation is trickier when Joe is an employee for part of the month and a furloughed employee for the remainder.  However, the above is a simple demonstration of how it could work.  Plus, another complication is the impact of the Employment Allowance and how this offsets the employer’s liability to pay the full NICs.

Hopefully, all of this will be detailed and explained in legislation.

What about owner / managed companies?

In these organisations, the directors often pay small salaries to themselves with the remainder in dividends.  My understanding is that the CJRS will only extend to the costs of employment and the dividend payment looks to fall outside of scope.

Can employers only pay 80% of salary then?

This is a tricky one.  In practice, unless the employment contract allows, employers cannot just reduce the salary that is paid.  However, they can mutually agree with the furloughed employee that whilst on furlough leave they will be paid less than they received as an employee.

What the employer has to remember here is that the CJRS only reimburses 80% of employment costs.  Therefore, if the salary / wage is reduced, employment costs are similarly reduced.  The employer will be able to reclaim 80% of the reduced employment costs.

We need to see what the legislation says on this.  We do not believe that there was ever an intention for the Government and the furloughed employee to meet 100% of the cost of employment.

Making the reclaim through the Coronavirus Job Retention Scheme (CJRS) in practice

From all that we have outlined, it is our understanding that the employer agrees the employment status change with the employee and then pays the furloughed employee as normal.  Then, a manual process will be in place (probably mid to late April 2020) to make the reclaim which will be issued as a grant by HMRC, essentially a refund to the employer.

Gov.UK guidance ‘how to access the scheme’ previously advised:

HMRC are working urgently to set up a system for reimbursement. Existing systems are not set up to facilitate payments to employers

Watch this space!  The emphasis, again understandably, is on retaining staff who might otherwise have to rely on the benefits system.  So, payment first, reclaim at a later date by a mechanism to be outlined at a later date.

What about employers who cannot afford to pay?

There will be companies whose cash flow will not allow the retention of and payment to employees, contractually changed to furloughed employees.  After all, income streams will be affected badly.

The UK Government has addressed this point by establishing the Coronavirus Business Interruption Loan Scheme.  Employers are advised to look at details of this, particularly eligibility for the Scheme.


I have pointed to the guidance that is currently available, however, would like to summarise this:

Cintra Support

In this ever-changing environment, Cintra wants to provide as much support as possible.  Therefore, once we have guidance and / or legislation, we will send out another bulletin as soon as we are able to relate how this will work in practice and how Cintra is able to help.


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