Employment and Labor Law

What Are the Changes to the UK Furlough Scheme from July 2020?

This article was first written on 1 June and updated on 15 June.

It was on 20 March that the Chancellor announced the temporary introduction of the Coronavirus Job Retention Scheme, more commonly known as the furlough scheme. The practical implications of this unprecedented measure have been debated constantly ever since. That debate will continue now that the finer details of the significant changes to the scheme from 1 July onwards were published last Friday, 12 June. These changes will have considerable implications for employers and their staff and current furlough agreements.

By way of a reminder, if employers cannot maintain their current workforce because their operations have been severely affected by coronavirus, they can furlough workers and apply for the grant from HMRC as mentioned above. An employer can choose to top up a worker's salary beyond the 80% but is not obliged to do so, although it is important that employers have the agreement of furloughed staff to a reduction in pay if they are not topping up. For furlough before 1 July, it is a key principle of the scheme that workers could not do any work for their employer, although in certain circumstances they could take part in volunteer work, study or training.

On Friday, it was announced that more than one in four UK workers - some 8.9 million - are now on the Government's furlough scheme. The scheme has cost £19.6bn so far, while the similar programme for self-employed workers has seen 2.6 million claims made worth £7.5bn. Clearly, the ongoing cost of the scheme is not sustainable in the long-term and it was inevitable that, with a four-month extension of the scheme to the end of October announced on 12 May, changes had to be made. The Chancellor stated that he wanted "to avoid a cliff edge and get people back to work in a measured way". Headlines of this were announced on 29 May, and on 12 June, HMRC published numerous updated Government Guidance documents on its websites with further details.

Headline changes from July

  • As we know, the scheme will remain in place for all sectors and regions of the UK, although in the updated Guidance published on 12 June, employers were reminded that if they have staff costs that are publicly funded (even if the employer is not in the public sector), the employer should use that money to continue paying their staff, and not furlough them.
  • There will be no change in how the scheme operates until the end of July in relation to any employer contribution. This means that the Government will continue to reimburse employers for 80% of furloughed workers' wages up to a maximum of £2,500, minimum automatic enrolment employer pension contributions and employer National Insurance contributions (NICs) on behalf of their furloughed workers.
  • The scheme will be closed to new entrants from 30 June and accordingly, new staff being placed on furlough for the first time had to be furloughed by 10 June to satisfy the minimum period of furlough of 21 days. However, late on 9 June, the Government announced that the cut-off date of 10 June does not apply to those returning from maternity, paternity, adoption, shared parental or parental bereavement leave, providing the employer has previously furloughed some employees.
  • It had been widely reported that from 1 August, employers would be required to contribute 20% to the level of wages paid by the Government. Instead, the Chancellor announced that employers will have to pay employer NICs and pension contributions from that date. For the average claim, this represents 5% of the gross employment costs the employer would have incurred had the employee not been furloughed. The Government will still pay 80% of wages.
  • From September, the Government contribution will be 70% of wages and employers will have to pay the NICs and pension contributions and 10% of wages to make up the 80% total up to a cap of £2,500. From October, the Government contribution will be cut to 60% of wages and the employer element will increase to 20% in addition to NICs and pension contributions.
  • The revised scheme will allow furloughed workers to work part-time. This was expected to start on 1 August but has been brought forward to 1 July, in recognition of employer support for partial furlough. Employers will of course need to pay their employees at their usual rate of pay for the days worked and the remaining days will be paid under the scheme. Guidance on flexible furloughing, how the scheme will operate going forward, and how employers should calculate claims was published on 12 June – see further below.
  • Under the new scheme, (i.e. from 1 July), the maximum number of employees that the employer can claim for at any one time cannot be more than the maximum number of employees previously claimed for in a claim period. This will have an impact on how many employees an employer can put on partial furlough at the same time – see further below.

Detailed Guidance published on 12 June

The details of how flexible furloughing, and the furlough scheme in general, would continue from 1 July is now set out in the various updated Government websites. Important points to note from the updated Guidance are that:

  • Previously furloughed employees includes anyone furloughed for at least three consecutive weeks between 1 March and 30 June. This removes the previous concern of some employers that it might only apply to those actually on furlough on 30 June.
  • Staff can still be on full furlough – whilst the focus is on a return to work and partial furlough, the scheme will not be limited to part time working after 1 July. This is of course very important to certain sectors, particularly, for example, the hospitality, leisure and entertainment sectors, where many staff may have to remain on furlough for some time to come.
  • Importantly, the updated Guidance has slightly different wording about an employee's agreement to flexible furloughing. For previously furloughed employees the updated guidance says: "Employers should discuss with their staff and make any changes to the employment contract by agreement…To be eligible for the grant, employers must have confirmed to their employee (or reached collective agreement with a trade union) in writing that they have been furloughed…The employee does not have to provide a written response". For the new flexible furlough scheme, the wording says: "If you flexibly furlough employees, you’ll need to agree this with the employee (or reach collective agreement with a trade union) and keep a new written agreement that confirms the new furlough arrangement."Is this an intentional difference? The safest course is to view it as intentional, firstly because there is currently no corresponding wording about the employee not having to provide a written response, and secondly because if an employee is working part time hours it makes sense that it must be completely agreed and recorded between the parties. In other words, for flexible furloughing, employees must sign a new agreement/letter in writing setting out the terms. See "Furlough agreements" below. (In reality, regardless of what is required to claim under the furlough scheme, previously furloughed staff should have signed a written agreement as well to avoid potential claims of unlawful deduction from wages where salary has been reduced to less than 100% of pay.)
  • The Guidance gives a clear example of the maximum staff on furlough in any one claim period: "For example, an employer had previously submitted three claims between 1 March 2020 and 30 June, in which the total number employees furloughed in each respective claim was 30, 20 and 50 employees. Then the maximum number of employees that employer could furlough in any single claim starting on or after 1 July would be 50." However, note that those furloughed for the first time since 10 June because they were on family friendly leave can be added to the maximum claim number.
  • Previously furloughed staff who are put on furlough in June from now must still be furloughed for a minimum of 3 weeks even though this will now take them past 1 July. It's only those put back on furlough starting from 1 July who can have a shorter furlough period. In addition, claims for periods after 30 June can only be made from 1 July.
  • The claim period will be a minimum of 1 week. Employers can only claim for less than 7 days where it includes the first or last day of a calendar month and the employer has already claimed for the period ending immediately before it (because claims cannot overlap calendar months from end June).
  • If there is an error and employers have overclaimed they can correct this in the next claim and will be asked if they need to. For underclaiming, employers need to contact HMRC.

Details on the calculations to be made have been added to the Government's websites including:

Implications of the changes for employers

Employers' contributions

In some sectors, such as hospitality, which is likely to be one of the last sectors to re-open, any payments that employers are required to make might be too high. Even though no employer contribution to wages is required until September, employers in the hospitality sector for example may still not be generating any income in the coming months and may struggle to fund the NICs and pension contributions. They may have to make the difficult decision about implementing redundancies in the weeks ahead. Whilst the furlough scheme will be winding down, the CBI is lobbying for other methods of wage subsidies such as making use of the Apprenticeship Levy.

The August changes may also have implications for employers who are currently topping up wages.

Partial furlough

Partial furlough will be welcomed by both employers and staff. Employers will need to consider for how long staff could be taken off furlough and whether the return to work will be to working from home or from their workplace.

The issue for employers will be in deciding who to take off furlough and for how long. Employers must not act in a discriminatory way and will need a fair system of selecting who should come back to work taking into account the business needs and the skills required but with regard to equality and discrimination legislation. Offering part time furlough may be a fair way of dividing work, but employers are limited by the maximum number of employees they have had on furlough in any previous claim period before 1 July (plus those returning from maternity and other family friendly leave). Deciding on the length of the partial furlough could be problematic too. It is likely to be some time before many businesses are fully operational and employers may err on the side of caution and take workers off furlough for only relatively short periods in the first instance.

Furlough agreements

Existing furlough agreements cover a range of matters such as the period of furlough, the arrangements with regard to wages, annual leave and what notice is required to end furlough. Employers will need to prepare new written furlough agreements to reflect the changed arrangements, whether this is a supplemental letter (signed by both parties) or a new furlough agreement. Similarly, where there is a partial furlough, the supplemental letter or new furlough agreement will need to specify the arrangements for returning to work. For instance, whether, the individual will be working from home or returning to the workplace. If the latter, then the employer should specify what steps they have taken to make the workplace COVID-19 secure.

Whatever decision is made about how to notify staff about the changed furlough arrangements, employers will need their staff's consent prior to making any changes.


Whilst there is always a balance to be struck, the amendments to the scheme overall appear to avoid the cliff edge scenario and chart a path towards a gradual winding down of the scheme. Nevertheless, some employers may take the view that even though partial furlough is permitted from 1 July, their income is not going to increase sufficiently over the coming months to enable them to make the NICs and pension contributions from 1 August and further employer contributions thereafter. They may feel that they have no alternative but to consider reducing their workforce and making redundancies, regardless of the extension of the scheme to the end of October.

The collective redundancy consultation obligations of at least 45 days where it is proposed to make redundant 100 or more staff within a 90-day period, or at least 30 days for between 20 - 99 staff, mean that employers may already have to begin making decisions about large-scale redundancies if they know that jobs in their organisation are not sustainable, especially as employer contributions start to kick in.

Extensive Government guidance about the current scheme has been published and we have written regularly about it.

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