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Coronavirus Job Retention Scheme - 80% of salary for furloughed employees

Updated: 2 days ago



Directors of their own limited companies are not self employed. They are employees.


This scheme does not apply to the self-employed. They have their own scheme.


The government has announced unprecedented measures to fight the coronavirus pandemic including ordering pubs, restaurants, shops and clubs to close down.

The government has announced that it will pay 80% of wages and salaries of furloughed employees, up to a maximum of £2,500 a month provided they keep the worker employed. The scheme will also be backdated to 1 March and open initially for ‘at least’ three months.

Overview of the new scheme

Under the Coronavirus Job Retention Scheme (CJRS), all employers will be able to access support to continue paying part of their employees’ salaries for those employees that would otherwise have been laid off during this crisis. The scheme will be in place for three months initially and all businesses are eligible.

A furloughed worker will remain on payroll, be paid as normal but temporarily not be working during the coronavirus outbreak.

Employers will have to make initially pay their employees and then claim reimbursed under the CJRS.

Employers can choose to top-up wages and salaries, either for the unfunded 20% of pay or the amount above £2,500 for higher earners. However, this will not be a legal requirement to obtain access to the scheme.

The scheme will be backdated to 1 March and open initially for at least three months but extended ‘for longer if necessary’. However, a claim under the CJRS can only be made from the date that an employee is actually furloughed. It does not mean that all employers can claim under the scheme from 1 March. The 1 March date should only be used to claim a grant under the CJRS if the employee and employer had already agreed a change in employment status on 1 March and had 'furloughed' (laid-off) the employee by1 March. Most employers will therefore only be able to claim from a later date, possibly two or three weeks after 1 March, when the government stepped up quarantine and self-isolation rules.

Where a business can carry on without those physical interactions, for instance by working remotely, it should be business as usual and the new scheme doesn’t appear to be designed as a catch all wage subsidy for the UK workforce.

Even in the face of this unprecedented global Covid-19 crisis, there will have to be tight controls to avoid abuse by unscrupulous employers who could see it as a way to simply lay off staff with no intention of rehiring them and creating ghost staff.

There has been criticism that the scheme takes controls away from businesses who could put staff on half time and equally employees could have found other jobs in critical areas where there is real need at the moment.

While it is not compulsory to use this scheme, it can serve as an alternative to a lay-off situation while helping employees to cover their on-going costs.

HMRC and their IT contractors are working night and day to create the infrastructure to deal with the repayments for employers. It is expected to take until at least late April to complete.


Example of how the scheme will work


Bob is normally paid a monthly gross salary of £3,000. His employer has agreed to continue to pay him that amount. Bob is a member of the company’s pension scheme to which the employer pays 10% of salary. The employer’s pension contribution therefore amounts to £300 pm.

The employer’s National Insurance on Bob’s gross salary is £314.78.

Under the CJRS, Bob’s employer can claim for £2,500 [maximum amount] together with £245.78 (i.e. £2,500 less the £512 starting NI threshold x 13.8%) of employer’s National Insurance and £59.64 of employer’s pension contributions (i.e. £2,500 less £512 qualifying earnings threshold x the 3% minimum employer Auto-Enrolment rate).

This example uses the National Insurance rates for the 2019-20 tax year.

New word to learn

I think that a new word may have been invented on Friday 13 March. However, I would be wrong. Furlough (a noun pronounced as ‘fur low’) is not a new word.

People often encounter the word furlough during government shutdowns, in which nonessential public employees are told not to go to work. Private companies, however, also furlough employees e.g. due to special needs of a company. These involuntary furloughs may be short or long term, and many of those affected may seek other temporary employment during that time.

In this case furlough means anyone asked to stop working during the coronavirus pandemic but not made redundant. If an employee and employer both agree, the employer may be able to keep the employee on the payroll if the employer is unable to operate or has no work for its employee because of coronavirus (COVID-19). This is known as being ‘furloughed’.

Layoffs, by contrast, are when an employer dismisses employees e.g. through redundancy as there is no longer any job to keep the employee within.

Employee furloughs are a temporary unpaid leave from work, used by companies as a cost-cutting measure. People who get furloughed usually get to return to their job after a furlough, unlike those made redundant.

In general, people are not paid during furloughs but they do keep employment benefits, such as health insurance. Furloughs are mandatory. Workers are ordered not to do anything work-related while they are on furlough.

Can you work while on furlough?

No. A furloughed employee cannot so much as take a phone call or answer e-mails. If a salaried employee does any work while on furlough the employer must pay them the equivalent of their salary for the entire day. If an hourly employee works while on furlough the employer must pay them for the time worked

Employment law


The CJRS doesn’t override employment law. The employer must mutually agree with an employee, ideally in writing as it is a employment contract change, that the employer is designating them as furloughed (i.e. there is no work for them to do due to Covid-19) and what the employer is planning to pay them whilst furloughed.

Being a director does not mean that you are an employee. A director is an officer of the company and may be entitled to director’s fees for being an officer of the company only.

Some directors of companies have an executive role e.g. managing director, finance director, marketing director, sales director etc. This means that they will have a formal contract of employment.

We suspect that very few, if any, of our clients where we run their company payroll will have any employment contract between themselves and their limited company.

Some employment and payroll legislation treats a director as an employee. We are aware for redundancy pay purposes that unless a director has a contract of employment that they are not entitled to any Statutory Redundancy Pay.

More details

The government has provided information on how the CJRS will work.

  • Employers must receive agreement from their employees to designate them as furloughed workers and then reduce their salary to 80% which under the scheme is capped at £2,500 pm

  • Employers can designate employees as furloughed if they are paid under a PAYE scheme and were employed by them on 28 February 2020

  • The CJRS applies to all types of employees and employment contract including full time, part time, zero hours and variable hours contracts

  • Once employees have recovered from being sick leave or have self-isolated they can then be furloughed

  • The scheme is open to all employers with a PAYE payroll scheme that was created and started on or before 28 February 2020. This is to stop artificial schemes being created following the CJRS.

  • Any employee made redundant from 28 February 2020 can agree to be brought back to the employer and placed on furlough

  • A furlough must be for a minimum of 3 weeks though an employee can be placed on furlough leave more than once and the period can therefore extended indefinitely

  • Employees cannot apply for the CJRS. It is a jointly negotiated decision between employer and employee as it relates to a change in employment contract terms and conditions. Once agreed, the employer must write to its employee and receive confirmation from them to be furloughed and eligible to claim.

  • Wages and salaries must first be paid to an employee before the employer can reclaim 80% of those wage costs through an online portal from HMRC.

  • Wages and salaries paid to employees by their employer will be subject to the normal PAYE scheme and therefore pay income tax, National Insurance and student loan repayments as normal.


The grant will cover 80% of furloughed employees' wages and salaries, and will permit the recovery of up £2,500 of salary per month. In addition, the grant will repay the associated Employer’s National Insurance and the minimum employer’s automatic enrolment pension. If an employer pays more than the 3% statutory minimum, based on pensionable qualifying earning over £6,240 (2020-21 rates), on those wages and salaries then the excess will not be refunded under the scheme. The 80% grant is not a loan and it is not repayable to HMRC.

Employers will be able to claim the higher of either:

  • the amount an employee earned in the same month last year

  • the average of an employee’s monthly earnings from the last year.


If an employee is employed for less than a year, employers will claim for an average of an employee’s monthly earnings since they started work. The same arrangements apply if an employee’s monthly pay varies such as if they are on a zero-hour contract.

If an employee started work in February 2020 the employer will pro-rata their earnings from that month.

Bonuses, commissions and fees are not included as part of your monthly earnings.

What should directors do?

It is also not clear whether directors and shareholders of owner managed companies can put themselves 'on furlough'. See our blog on what are freelance worker entitled to for more information on directors of their own limited companies.

Our concern for directors though is that the amount available under CJRS is likely to be limited to 80% of payments made through PAYE only i.e. no account for the dividends a director might take to supplement their salary.

We are sure that directors will wonder if they should increase their company salary to take advantage of the £2,500 pm. Under the scheme, any salary increase after 1 March 2020 will be ignored. This is to stop abuse by unscrupulous directors

Even in the face of this unprecedented global Covid-19 crisis, there will be tight controls on the job subsidy to avoid abuse by employers who could see it as a way to simply lay off staff with no intention of rehiring them and creating ghost staff.

It is quite clear that the government and HMRC do not have any system in place to deal with this at the moment. It may take several weeks or over a month before the system is in place to reclaim a grant towards wages and salaries paid to employees.

There will also be strict record keeping measures to stop abuse of the system by unscrupulous employers taking advantage of the refund system.

What if you currently have more than one employer?

An employee can be furloughed by one employer and continue to work for another.

If an employee is furloughed by more than one employer, they will receive separate payments from each employer. The 80% of normal wages and salaries, up to a £2,500 pm, applies to each job.

What if the employee is on maternity or paternity leave, receiving adoption pay or shared parental pay?

The employee must complete their agreed minimum period of leave. Only after that period has the come to an end can they be furloughed.

A waiting game

Employees will be are entitled to Statutory Sick Pay (SSP), so long as they meet the eligibility criteria e.g. earning are more than £118 pw in 2019-20. If the SSP is paid because of, or self isolation from, Covid-19 then the employee does not have to wait to receive SSP. The employee can receive SSP from day one, rather than having to wait until the usual day four of sickness. SSP can be paid up to 28 weeks.

It was announced that employers will be able to recover the new style Covid-19 SSP paid to their employees for a maximum period of 14 days. Employers can only claim for this type of SSP if their employee has or is self isolating because of Covid-19. This provision still applies to employers that have not furloughed their workforce and where only selected employees are sick or need to self-isolate.

While SSP is payable by an employer to an employee for up to 28 weeks, only 14 days of SSP can currently be recovered by the employer from HMRC and only is it is Covid-19 related. If an employee is sick for any other reason they must wait until day four of sickness to receive SSP. Furthermore, an employer cannot claim the 14 days of SSP paid to the employee unless it is because of Covid-19, either through sickness with it or isolating because of it.

Once full eligibility criteria are confirmed, the SSP refund will be backdated to 13 March 2020. Currently, there is no system for employers to claim for a refund of Covid-19 related SSP from HMRC. This is expected in late April 2020.

See also UK practical business advice: COVID-19 and Budget 2020


Chancellor announced measures to support people and businesses through this period of disruption caused by COVID-19.

Updated guidance for employers, businesses and employees is available at:


Take care and stay safe.

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