The Job Retention Scheme (furlough) was once again extended in the Budget on 3rd of March to September 2021. The Government will continue to pay 80% of employees’ wages until July 2021. Employers will then be expected to pay 10% towards the hours their staff do not work in July, increasing to 20% in August and September, as the economy reopens.

This gives many a light at the end of the tunnel with the challenging months ahead, to go alongside the roadmap for reopening.

Who to furlough?

When deciding who to furlough it is important to consider who is eligible. The updated guidance for the November extension states that employees who were on a payroll submission filed with HMRC by midnight on the 30 October 2020 are covered by the legislation. So if you took on summer staff in 2020, these people can be included on a Furlough claim up to the end of the scheme in September 2021.

This means that unless you took on a new employee in October that wasn’t included on a payroll run on or before Friday 30 October all PAYE staff could be furloughed. This is the first time the cut off date for eligible employees has changed since the scheme was launched in March 2020.

The guidance originally stated that staff who are furloughed must do no work and provide no services for the organisation that furloughs them.  From the 1 July furloughed staff can do productive work for their employers whilst furloughed in what is being called “Flexi-furlough” where staff can effectively be paid full pay for hours worked on a part time basis, and time not worked will be paid at 80% subject to the monthly cap.

Directors can be furloughed but must not do anything other than essential maintenance or admin for the business.  A furloughed director couldn’t, for example, be involved in maintaining sales contacts, or managing staff etc.

How much to pay, and how much to claim

Up to July

If you have an employee earning £37,500 or less per year (i.e. their gross basic pay in October 2020 was £3,125 or less) then the grant will cover 80% of their normal salary while they are furloughed.

If they earned more than this, then the grant will only cover the first £2,500 of what you pay them when they are furloughed.

The grant will not cover the costs of the Employers National Insurance and Employers Auto Enrolment Pension contributions, so you as the employer will have the fund this.

Our advice is to write to any staff that you are furloughing confirming what they will be paid, which in most cases will either be 80% of the normal monthly pay or £2,500. You can pay them their normal rate if you want to and if cashflow will allow but the grant will not cover anything above the amounts stated above.

For example:

  • If you have an employee earning £1,500 per month and you furlough them for a whole month then you would write to them and explain their pay will be reduced to £1,200 less taxes per month on furlough, equivalent to 80% of their normal pay.
  • If you have an employee earning £3,200 per month then you should write to them to confirm that they will receive £2,500 less taxes per month while furloughed.

As you can see, you may need to be prepared for a harder conversation for employees earning more than £3,125 per month as the reduction in earnings for them will be bigger in percentage terms. As people naturally have monthly costs to match their income just because these are higher earners doesn’t mean that it will be easier for them to cope on a much-reduced salary.

Employees with variable pay

For employees that have variable pay, where their gross pay varies week on week or month on month, we currently assume that HMRC will apply the averaging method again.

Previously this was based on average earnings from 1 April 2019 to 28 February 2020, given that staff are eligible who may not have been employed in that time period it may now be that the period of average is extended to 30 October, but we await more information from HMRC on this point.

Employees who will work some hours

If you are furloughing an employee, but they are also doing some work for you, you will need to ensure the hours worked are recorded and then paid to the employee in full as gross pay on their next payslip.

The amount of furlough pay is then reduced as a proportion of normal working hours in the month so that the furlough pay excludes hours worked.

This calculation is based on total “normal” working hours expected in a period of furlough less the actual hours worked. The remaining hours are then used as a proportion for furlough.

For example:

If an employee who is paid the furlough cap of £2,500 per month and usually works 172.5 hours in July and is furloughed for the whole month, but they end up working one whole day of 7.5 hours then the furlough pay is calculated as:

(172.5 – 7.5) / 172.5

This means the furlough pay is limited to £2,391.30 in this case. The 7.5 hours that they actually worked is paid at their full rate or pay.

If you have apprentices who are continuing to train while furloughed, then you a few additional things to consider. See our article here with details and guidance on what you need to do.

With the flexibility introduced to the system from 1 July, calculating your furlough claim can get a little confusing. We recommend that payroll figures are calculated and passed to your payroll team as early as possible.


Employees will still need to receive 80% of their earnings, but you as the employer will have to pay 10% of this, including national insurance and employers pension contributions.

This means for an employee earning the maximum of £2,500 per month under the furlough scheme the employer will have to pay £312.50 plus National Insurance of £244 and Employers Pension Contribution of £60 in July.

August and September 

In August and September, employers will need to contribute to 20%, including national insurance and employers pension contributions.

For an employee earning the maximum of £2,500 per month, the cost to the employer would be £625 plus National Insurance of £244 and Employers Pension Contribution of £60.

Cashflow will be impacted

Although the system has been running for a long time the updates needed for the extension mean applications in November may not be possible ahead of paying your staff their Net Pay. The HMRC guidance says that this will be open for application in late November and that if there are subsequent extensions then the system will be ready for applications to be made ahead of the payroll run as before.

This means that your November grant may come in after you have passed the date at which you need to pay your staff. As you can see the problem here is that as the employer you pay the employee and then must wait while HMRC process your grant.

There is going to be a period where your cashflow is funding the wages due to this, and if you have a large number of staff on furlough then you could actually be using a lot of cash to pay the furloughed net wages.

Government guidance suggests taking out a Coronavirus Interruption Loan to cover this period, but so far it has proved difficult to gain this finance from the banks. You may however want to discuss the situation with your employees to arrange a staggered payment of their net wages that is going to work for both them and you – so they get key bills covered and that you can afford the cash outflow, with any balance being paid up on receipt of the grant. Not a comfortable arrangement but one of practicality.


Guidance from ACAS stated that holiday will continue to accrue while a member of staff is furloughed. As frustrating as this is as an employer it lays rule that we must abide by and plan around this.

One thing that ACAS have detailed is that holiday carry over will be extended for two years, giving a little more power to employers to work with staff about holiday planning so that staff take holiday in a way that does not leave the business understaffed in the short term.

We have a more detailed article here written by our HR manager, Donna Bygrave, which gives a lot more detail on this contentious issue.

Read more details on holiday and furloughing

Our guidance on holiday

The updated guidance from ACAS does not rule out requesting staff take holiday while furloughed.  

You can therefore give notice to an employee to take time as holiday. You could put in place a policy that every 16th day (based on a five-day working week) is to be taken as a day of holiday. Holiday will be paid as part of the furlough and will be covered by the furlough grant for the employer. Not the neatest solution but hopefully something workable to solve the issues involved. As you can read in our analysis of the ACAS guidance you have to give adequate notice to a member of staff to request that they take holiday.

The possible risks are:

  • On average an employee accrues 1.3 days holiday every 3 weeks. So, if the period of furlough lasts for a protracted time the staff member will still have accrued some holiday time to take off when back at work.
  • Once the crisis is over it is possible that under legal process it could be judged that holiday taken on furlough would have to be paid at 100% salary not the reduced 80% salary, in which case the employer may have to top up for those specific days.

Other items to consider:

You may need to update employment contracts or policies so that it gives clarity to staff on issues surrounding holiday pay including the following:

  • A statement that under employment law the employer can give notice to an employee to utilise annual leave at the employers discretion
  • The employer has the right to reject applications for annual leave provided there are alternative dates of leave the employer can approve at a later date
  • That a temporary extension to holiday allowances will allow holiday unused at the year end to be carried over for two years
  • That holiday for non-furloughed workers will be prioritised for annual leave  in the interests of employee welfare

We are not employment lawyers and make the above suggestion to allow our clients to put a policy in place and move forward with decision making. It is possible that as details emerge this policy may have to be altered and updated.  We will keep you posted but hope that at least making this suggestion allows you to resolve these issues for now.

What if I get my furlough calculation wrong?

With such complex issues while trying to balance the needs of furloughed staff, working staff and the business as whole the likelihood of getting something wrong in these furlough calculations is high.

From information currently available it seems likely that HMRC will investigate after the event where they suspect something has been reported incorrectly and the grant given therefore being wrong.

At the moment there is no suggestion of penalties or fines, although one would expect that if they found clear evidence of fraud then they would impose some sort of punishment. For genuine error it appears that there is acceptance that this is all new and complicated and decision have to be made without the full facts being available therefore such errors would result in a repayment of any grant money incorrectly without any risk to penalty or a wrap on the wrist from HMRC.

In summary it would appear they intend to be fair and not heavy handed in dealing with genuine slip ups. There is no published guidance to confirm this though but hopefully “we’re all in this together” will create a lot of goodwill on the issue.

How to apply

On Monday 20th April, the HMRC gateway opened for applications to get the Coronavirus Job Retention Scheme (CJRS) or the furlough grants.

How to furlough your employees

Planning points

One big criticisms of the Furlough Scheme is that it just delays reaction to the new way of life we have now that could be with us for a number of year if some experts are proved right.

How do you as a business owner manage this uncertainty? Given that the wages bill is the largest expense for most businesses we recommend that you use furlough as a tool in your planning, not a reason to delay planning.

Planning ahead for the best and worst case scenarios for your business is very important. These different projections and perspectives may then help inform your decisions of how to you move beyond the furlough scheme.  For each employee you are ultimately left with four options:

  • Return staff member to work
  • Return to work under reduced hours
  • Switch staff to being “laid off” *
  • Make staff redundant

How does each option fit with your best and worst case business plans?

Staff on the furlough scheme can be made redundant while continuing to receive the furlough pay, this can soften the cost of the employees notice period (see our article here on redundancies).

You may benefit from talking to Donna, our head of HR, who can help with contractual and legal issues surrounding bringing staff back on reduced hours or the scarier options of layoffs and redundancies. Email her at or call 01474 853 856.

Final thoughts

Whilst the scheme continues to September 2021, future staffing levels most likely need reviewing now to make sure that these schemes aren’t just delaying an inevitable crunch point for your businesses cashflow and longer-term profitability.

Our Principal Advisers and Client Managers have been working diligently to help businesses get to grips with the numbers and draw up workable projections to help make decisions.

If you need to have someone to discuss thoughts and ideas as you move forwards then please get in touch with your Client Manager or Principal Adviser, call 01474 853 856 or email

As more updates are announced, we will be sifting through them and bringing you easy to understand guidance via our emails. If you’re not already signed up to our daily updates, sign up here

Share this article