Employer advice: figuring out flexible furlough

The concept of furlough was introduced by the Government via the Coronavirus Job Retention Scheme in March 2020, to provide temporary support to workers and businesses during the period of disruption caused by Covid-19.

Employees furloughed under the scheme remained employed, receiving 80% of their regular pay, up to a cap of £2,500 per month (which employers could claim back from the Government), but could not perform any work for their employer. This lack of flexibility made it difficult for some businesses to get back up and running. Following lobbying by Make UK and other business groups, the Government has now introduced greater flexibility.

New ‘flexible furlough’

From 1 July 2020, employers can agree to bring furloughed employees back to work part-time on ‘flexible furlough’ and will be responsible for paying employees’ wages while they are working. Employees will receive furlough pay for their non-working hours, for which employers will continue to receive Government support (although the level of support available will gradually taper down as the scheme draws to a close, which is expected to be on 31 October).

How can employers best make use of this new flexibility?

Firstly, it is important to note that the scheme is closed to new entrants (with limited exceptions). Only employees who had already completed at least three weeks of furlough on or before 30 June can be flexibly furloughed after 1 July.

The number of employees that can be flexibly furloughed (again, subject to some exceptions) is limited to the maximum number claimed for in a claim period under the original scheme. Employers must bear this in mind if their workforce currently rotates on and off furlough, as it may mean that not everybody can come back on flexible furlough at the same time.

Flexible furlough agreements need careful drafting to ensure the arrangement works effectively

When considering whom to put on flexible furlough, employers need to take into account various factors, including:

• operational requirements (i.e. what roles are needed and the employee numbers required in each role);
• cost implications, since employers must pay for employees’ working hours; and
• practical issues, as not all employees will necessarily be able to return (e.g. due to shielding or childcare issues).

Employers must also take care to avoid discrimination when selecting employees for flexible furlough, as equality and discrimination laws still apply.

What should flexible furlough agreements look like?

It’s clear from Government guidance that flexible furlough must be agreed and not imposed on employees. If the workforce is unionised, this may be done via collective agreement.

Flexible furlough agreements need careful drafting to ensure the arrangement works effectively. We would expect them to set out essential terms and conditions, including the number of hours the employee will work each week/month and the working pattern and pay for those hours. They should also set out the number of ‘furloughed hours’ (i.e. non-working hours for which the employee will receive furlough pay), as well as information on how furlough pay will be calculated. Make UK has created a new flexible furlough letter template, to help employers agree flexible furlough with employees.

It’s important to note that a flexible furlough agreement must be made in writing, or confirmed in writing by the employer, and the employer must retain a copy until at least 30 June 2025.

Are there any other points to bear in mind?

Since furlough pay can only be claimed for the ‘usual hours’ that flexibly furloughed employees are not working, calculating those usual hours requires attention to detail. Different formulae apply depending on whether employees work fixed or variable hours and whether their pay varies according to their hours.

Employers need to choose an appropriate claim period to make best use of the financial support available, as claims cannot straddle two calendar months and it is not possible to submit two claims that cover the same period. It’s sensible to use a robust calendar alert system to ensure claims are submitted at the right time.

Finally, employers must keep a close eye on their budgets. The level of Government support will decrease from 1 August (initially with the removal of coverage for employer NICs and pension contributions, and then with the tapering of the percentage of pay that is covered by the Government – down to 70% in September and 60% in October).

While the scheme’s new flexibility will doubtless be helpful for employers, the rules on setting up flexible furlough arrangements and, in particular, calculating and submitting claims, are far from straightforward.