Flexible furlough – How does it work?

Following the Chancellor’s further announcement relating to the extended furlough scheme yesterday, to extend this to 30 September 2021 and to increase employer contributions from July 2021 onwards, we have updated our blog on the flexible furlough scheme below.

Changes in contributions

From July 2021 the government will start paying less towards those employees on furlough. They will reduce contributions from 80% up to a cap of £2500 to lower percentages. However importantly employees throughout this time must still receive 80% of their wages up to £2500, for furlough to be valid. In summary:

• From 1 July 2021: The government will pay 70% of wages up to a cap of £2,187.50. The employer will continue to pay employer’s national insurance contributions and pension contributions. However the employer will also have to pay 10% of wages to make up the 80% total up to a cap of £2,500.
• From 1 August 20 2021: The government will pay 60% of wages up to a cap of £1,875. The employer will continue to pay employer’s national insurance contributions and pension contributions. However the employer will also have to pay an additional 20% to top up the 80% total up to a cap of £2,500.

The scheme will close on 30 September 2021 and employers will need to bear all employee costs again.

Flexible furlough scheme details

Under the flexible furlough scheme, employees no longer need to avoid doing any work for the employer, but can work for some of the week and be furloughed for the rest, in proportions decided between employee and employer.

Employers do not need to have previously claimed for an employee to be eligible to furlough them under the extended scheme.

For periods ending on or before 30 April 2021, employers can claim for employees who were employed on 30 October 2020, as long as they have made a PAYE Real Time Information submission to HMRC between the 20 March 2020 and 30 October 2020, notifying a payment of earnings for that employee.

For periods starting on or after 1 May 2021 employers can claim for employees who were employed on 2 March 2021, as long as they have already made a PAYE Real Time Information submission between 20 March 2020 and 2 March 2021.

The government has also updated its guidance documents on the furlough scheme. Links to the various documents can be found here:

• Check if you can claim
• Check which employees you can put on furlough guidance
• Steps to take before calculating your claim using the CJRS
• Calculate how much you should claim
• Claim for your employees’ wages online
• Report a payment in PAYE RTI
• Part-furlough worked example
• Long list of worked examples 

We don’t deal with calculating reference salary in this blog, but please note for employees that have previously been furloughed under the scheme, they will continue to have their reference pay and hours based on the previous furlough calculations. For employees that have not previously been furloughed, they will have a different reference period.

For those who are part-furloughed, the guidance is complicated. However, the worked examples are particularly helpful.

How much can I claim?

In explaining how much you can claim we have used the following examples. These examples relate to the current contribution rate of 80% and therefore should not be used from 1 July 2021 onwards when the rates begin to reduce as set out above.

Example 1

A works for B Ltd, and works a 40 hour week (8 hours per day). His salary is £48,000 and he has been on furlough since 1 April 2020. B Ltd now wants to bring him back to work, and wants him to work 2 days per week (Monday and Tuesday) for the whole of July. Importantly there are 23 working days in total for July 2020 and, for A who is working 8 hours a day, this is 184 working hours. He is on furlough for 15 working days during July, which is 120 hours on furlough. We have used the actual working hours in the month of July 2020 to complete the calculations below, but the government use a formula using weekly hours multiplied by calendar days. We think the actual working days are clearer for the purposes of explaining the methodology, but the government’s formula is a valid alternative.

The amount you can claim is calculated as follows:

• Step 1. Calculate the maximum wage amount. The maximum wage amount is £2,500 per month.
• Step 2. Calculate 80% of the employee’s usual wage. To calculate 80% of the employee’s usual wage the calculation is:
  • [Salary] divided by [total number of days in pay period] x [number of furlough days in pay period]

A furlough day is, somewhat confusingly, a day during which an employee is either fully furloughed, or under a flexible working arrangement. So if the employee is on furlough for the whole month (which the government define as ‘fully furloughed’), then this will be the same as the number of days in the pay period.

So, in our example it is £4,000 divided by 31 multiplied by 31, so £4,000.

80% of this figure is then £3,200.

If you have an employee whose pay varies, then, as before, you use the higher of the pay in the corresponding pay period for last year (so the pay in July 2019) or the average for the 2019/2020 tax year.

• Step 3. Calculate your employee’s minimum furlough pay. This is the lesser of:
  • 80% of their usual wage and
  • the maximum wage amount

In our example 80% of the usual wage is £3,200, and the maximum wage amount is £2,500, so the maximum wage amount is less.

You therefore use the maximum wage amount to calculate the minimum furlough pay. To calculate the minimum furlough pay you multiply this figure by the employee’s furlough hours, and divide by the employee’s usual hours.

Therefore in our example, the calculation is £2,500 multiplied by 120, divided by 184, or £1,630.43.

Therefore, for A the minimum furlough pay is £1,630.43.

• Step 4. Calculate how much you can claim for your employee’s furlough pay. For July you can claim the full amount of the minimum furlough pay, so in our example £1,630.43.

However, this will change in September and October, and in September the amount of the grant is reduced from 80% to 70%, and it further reduces to 60% in October.

Therefore the maximum amount which can be claimed will reduce to:

• £1,426.63 in September; and
• £1,222.82 in October

The above assumes, for illustration purposes, the same figure for minimum furlough pay. However, a separate calculation will need to be done for each month, as the number of calendar days, and working days, will vary from month to month.

B Ltd will then need to top up in September and October, to pay the difference between the minimum furlough pay and the maximum grant amount (i.e. the difference between the figures at step 3 and step 4).

B Ltd will therefore have to top up by the following amounts:

• £203.80 in September; and
• £407.61 in October

In addition, B Ltd will need to pay the employee as normal for the days which are worked, so the 8 days in July. Salaries will generally accrue on the basis of calendar days, so 8 days’ pay will be £48,000 divided by 365 multiplied by 8, or £1,052.05.

Following the update on the extended furlough scheme on 5 November 2020, the employer will now again be able to claim the full amount of the minimum furlough pay like they could in July, so in our example £1,630.43. The employer is no longer required to top any payment up.

Example 2

For example 2, the facts will be the same as for example 1, but the salary for A will be £24,000.

Therefore the facts are that A works for B Ltd, and works a 40 hour week (8 hours per day). His salary is £24,000 and he has been on furlough since 1 April 2020. B Ltd now wants to bring him back to work, and wants him to work 2 days per week (Monday and Tuesday). For July A will therefore work 8 days, and be on furlough for 23 days.

• Step 1. The maximum wage amount is £2,500
• Step 2. Calculate 80% of the employee’s usual wage. 80% of the employee’s usual wage is £1,600
• Step 3. Calculate your employee’s minimum furlough pay.

This is based upon the lesser of 80% of their usual wage and the maximum wage amount. The minimum furlough pay is therefore based upon £1,600.

The calculation is then the above figure multiplied by the employee’s furlough hours, and divided by the employee’s usual hours, and so is £1,600 multiplied by 120, divided by 184, or £1,043.48.

• Step 4. For July you can recover the full amount of the furlough pay, so £1,043.48.

Example 3

For example 3, the facts are the same as example 2, and so the employee returns to work 2 days per week on 1 July 2020, but returns full time on 15 July 2020.

Therefore, the facts are that A works for B Ltd, and works a 40 hour week (8 hours per day). His salary is £24,000 and he has been on furlough since 1 April 2020. He returns to work flexibly with effect from 1 July 2020, working Mondays and Tuesdays, before returning to full pay with effect from 16 July.

• Step 1. The maximum wage amount is £2,500
• Step 2. Calculate 80% of the employee’s usual wage for the furloughed period

The first calculation is:- [Salary] divided by [total number of days in pay period] x [number of furlough days in pay period]

So, in our example its £2,000 divided by 31 multiplied by 15 (being the period for which is the employee is under a flexible furlough arrangement), so £967.74

80% of this figure is £774.19.

• Step 3. Calculate your employee’s minimum furlough pay.

This is based upon the lesser of 80% of their usual wage and the maximum wage amount. The minimum furlough pay is therefore based on £774.19.

The employee will have 11 working days whilst under a furlough arrangement, and will work 4 of those days, or 32 hours (being the Mondays and Tuesdays). The usual hours are therefore 88 hours (11 days) and the furlough hours are 56 hours (or 7 days).

The calculation is then the above figure multiplied by the employee’s furlough hours, and divided by the employee’s usual hours, and so is £774.19 multiplied by 56, divided by 88, or £492.66.

• Step 4. For July you can recover the full amount of the furlough pay, so £492.66

Example 4

For example 4, the facts are the same as example 3, but the employee works part time, working Mondays, Tuesdays and Wednesdays.

Their salary is £14,400 (full time equivalent £24,000). They will return flexibly with effect from 1 July 2020, working 1 day per week (Mondays) for the whole of July.

• Step 1. The maximum wage amount is £2,500.
• Step 2. Calculate 80% of the employee’s usual wage. 80% of the employee’s usual wage is £960 (80% of the monthly wage of £1,200).
• Step 3. Calculate your employee’s minimum furlough pay.

This is based upon the lesser of 80% of their usual wage and the maximum wage amount. The minimum furlough pay is therefore based upon £960.

For July, the employee would have normally worked 13 days (there being 13 Mondays, Tuesdays and Wednesdays in July), so the normal working hours would have been 104 hours. The employee will then work 4 days (there being 4 Mondays) or 32 hours, and will have 9 furlough days, or 72 hours.

The calculation is then the above figure multiplied by the employee’s furlough hours, and divided by the employee’s usual hours, and so is £960 multiplied by 72, divided by 104, or £664.62.

• Step 4. For July you can recover the full amount of the furlough pay, so £664.62.

What about employer NI contributions?

Employers have been obliged to cover the cost of employer NI insurance contributions since 1 August 2020 and this will continue under the extended furlough scheme until this comes to an end on 30 September 2021.

What about employer’s pension contributions?

Employers were previously able to claim back the amount of the minimum employer auto-enrolment contributions on the sums claimed back from the government.

However, from 1 August 2020 employers have been no longer able to claim back even the auto enrolment contributions. Following the government update on 3 March 2021, employers will continue to be asked to cover employer pension contributions for the remainder of the extended furlough scheme.

What records do I have to keep?

The record keeping requirements are broadly the same as before, just updated to reflect flexible working. Therefore you should keep, for 6 years, records of:

• The amount claimed and the claim period for each employee;
• The claim reference number;
• Your calculation of the figures claimed;
• Usual working hours;
• Actual working hours for employees flexibly furloughed.

The government have provided an online furlough calculator. We would suggest you use this calculator to confirm your figures and for record keeping save a copy of the online calculator on to the employee’s personnel record.

If you would like to discuss anything relating to flexible furlough please contact a member of the employment team.

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