Coronavirus Job Retention Scheme: How Does it Work, and What Will Change?

how coronavirus furlough scheme works

The Coronavirus Job Retention Scheme opened on 20 April, and the uptake has been huge; at the start of May, claims had been made for a quarter of private sector workers.

Under the scheme, employers can claim 80% of staff wages from the Government, up to a cap of £2,500 per month; they can choose to top up the surplus but do not have to.

On 12 May, the Chancellor announced that the scheme has been extended by four months until the end of October 2020, with certain changes to be made during the latter stages of the scheme.

Claire Woolf, Managing Editor and Lawyer at Sparqa Legal examines how the scheme works now, and what aspects of the scheme are set to change.

1. What are the rules about work during furlough leave at the moment? 

Currently, staff must stop work entirely once furloughed and could not, for example, be asked to work reduced hours or do any business development work. They are allowed to undertake training and do volunteer work, as long as they are not providing services or making money for their employer.

Company directors who have been furloughed can still carry out statutory duties on behalf of the company, as long as this does not amount to providing services on or behalf of the company or generating revenue. It could include, for example, filing annual accounts or confirmation statements on the company’s behalf.

2. Could a staff member carry out work for another employer whilst on furlough leave?

Yes, they could. If the job is pre-existing, the Government has confirmed that each job is separate for the purposes of furlough and a staff member could either carry on work for one employer whilst being furloughed by another, or be furloughed for several jobs at a time.

The wage cap applicable under the scheme applies separately to each job. It has also been confirmed that a staff member can start a new job whilst on furlough leave, provided this is allowed under their employment contract (this may involve you coming to an agreement with your staff member to permit this).

3. Do the Coronavirus Job Retention Scheme grants cover just wages or things like bonus and commission as well?

The grants of 80% of pay (subject to a £2,500 per month cap) cover ‘regular payments’ you are obliged to make to your staff member and will include:

  • Wages;
  • Non-discretionary past overtime; and
  • Non-discretionary fees and compulsory commission payments.

They will not include discretionary bonuses, tips, discretionary commission payments, non-monetary payments including taxable benefits in kind or benefits provided through salary sacrifice. Also excluded are any payments that are conditional on something happening.

4. Can sole traders use the scheme?

If they pay themselves a salary through PAYE then yes, they could theoretically use the scheme to claim 80% of that salary (if they’re a sole director who is mainly paid through dividends, bear in mind that the scheme cannot be used to claim these).

However, the fact that furloughed workers cannot work during their leave means that it may be impractical to use the scheme, as it would mean ceasing operations altogether.

Sole traders may, alternatively, be eligible for the Self-Employment Income Support Scheme, which was set up to provide grants to individuals who are self-employed or who are members of a partnership. The scheme opened for claims on 13 May 2020.

5. Can staff on sick leave be furloughed?

Yes, but the Government has made clear that the Coronavirus Job Retention Scheme is not intended to cover short-term sickness absences where this is the sole reason for furloughing; and bear in mind that staff must remain on furlough leave for a minimum period of 3 weeks.

If there are business reasons to furlough a staff member who is off sick, you should re-classify them as a furloughed worker and start paying them furlough pay rather than sick pay.

A staff member cannot be placed on furlough leave while they are receiving statutory sick pay (SSP) and you will not be able to claim back pay for the staff member under the Coronavirus Job Retention Scheme and under the SSP Rebate scheme at the same time.

Those on long-term sickness absence or who are shielding in line with public health guidance can be furloughed; again, they would need to be classified as furloughed workers and receive furlough pay rather than sick pay.

6. Can staff on maternity leave be furloughed?

Yes, they can remain on maternity leave and be furloughed at the same time.

The Government has stated that employees on maternity leave should continue to take maternity pay whilst on maternity leave and you cannot claim for statutory payments under the Coronavirus Job Retention Scheme.

However, any enhanced maternity pay a business offers could be claimed under the Coronavirus Job Retention Scheme, so you can claim back 80% of any contractual maternity pay you offer (subject to a cap of £2,500 per month).

As with other types of staff, you will have to agree with them that their contract will be amended if you want them to be placed on furlough leave, and ask them to specifically agree to a drop in their contractual maternity pay if you can only pay what you are able to claim under the scheme.

The same applies to staff on other types of family leave, including paternity, adoption and shared parental leave.

7. What happens to annual leave during furlough?

Staff continue to accrue annual leave during furlough leave and can take annual leave during their period of furlough leave. Importantly, they must be paid their normal full rate of pay for that time, in accordance with the Working Time Regulations. This includes pubic and bank holidays if your staff usually take them as holiday.

This means that you must top their pay up to 100% of their usual pay (but you are still able to claim the 80% grant from the Government under the Coronavirus Job Retention Scheme).

8. What changes to the scheme have been announced? 

Whilst the scheme will remain in its current format until the end of July, some important changes after that have been announced. In summary:


From 1-31 August, the Government will continue to pay 80% of a furloughed worker’s wages up to the £2,500 per month cap, but employers must pay the applicable employer NICs and pension contributions for their furloughed staff.


From 1-30 September, the Government will pay 70% of a furloughed worker’s wages, up to a cap of £2,187.50 per month.

Employers will be expected to contribute the applicable employer NICs and pension contributions for their furloughed staff and to pay 10% of their furloughed worker’s wages, to ensure that they receive at least 80% of their normal wages (up to the £2,500 per month cap).


From 1-31 October and for the final month of the scheme, the Government will pay 60% of a furloughed worker’s wages, up to a cap of £1,875 per month.

Employers will be expected to contribute the applicable employer NICs and pension contributions for their furloughed staff and to increase their contribution towards their furloughed worker’s wages to 20%, to ensure that their workers continue to receive at least 80% of their normal wages (up to the £2,500 per month cap).

Throughout the entire period, it remains up to employers to choose whether to top up their furloughed staff members’ pay beyond the amount that the Government pays under the scheme.

In addition, from 1 July, the Government is introducing ‘flexible furloughing’ which allows furloughed workers to remain on furlough leave for some of the time but be brought back to work on a part-time basis, provided they are paid their normal wages during that time. Further detail on how this will work is expected to be published on 12 June.

Importantly, the scheme will be closed to new entrants from 30 June and all those on furlough at that point must have been on leave for a minimum 3 week period; meaning that the last day to add new staff to the scheme is 10 June.

About the author

This guide has been written exclusively for ByteStart by Claire Woolf, of Sparqa Legal, an online platform providing expert legal guidance and autogenerated documents for all businesses. Founded by a team of senior barristers and tech executives, Sparqa Legal is on a mission to make law accessible and recently launched the Sparqa Post to provide free expert advice to SME’s on all their legal needs.

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