CJRS - Latest Guidance and Treasury Direction


After it was announced on 17 April that the Coronavirus Job Retention Scheme (“the Scheme”) has been extended from 31 May 2020 to the end of June, the government issued the fifth iteration of its guidance on the Scheme. The latest guidance for employers, updated yet again on 20 April, is here and that for employees is here.

The HMRC portal through which employers can claim under the Scheme went live on 20 April. For details of how to claim and further link to the portal click here.

On 15 April  the Treasury issued a direction to HMRC regarding the operation of the Scheme (“the Direction”) which, unlike the guidance, has statutory force. In certain key respects, the Direction contradicts the guidance, and in others is at best ambiguous. In this blog, I highlight the latest developments in the government’s guidance and consider how the Direction and the guidance inter-relate.


A long-standing frustration was that the government’s guidance was silent as to the inter-relation between furlough and holiday. The Direction also did not shed any light on the matter.

However, the guidance for employees and the part of the guidance for employers relating to what they can claim now state that it is possible to take holiday while on furlough, and that the holiday pay paid must be the full entitlement in accordance with the Working Time Regulations (“the Regulations”). Although the guidance is silent on the point, holiday pay entitlement in respect of any element of annual leave beyond the 5.6 week entitlement under the Regulations will be governed by the contract of employment.

The guidance is silent on whether an employer can compel an employee to take annual leave while on furlough. This is a matter for advice in individual circumstances.

The guidance concludes this section by saying: "During this unprecedented time, we are keeping the policy on holiday pay during furlough under review." Therefore, this might not be the final position.

The reason for furlough

The Direction states that the purpose of the Scheme is “to provide for payments to be made to employers on a claim made in respect of them incurring costs of employment in respect of furloughed employees arising from the health, social and economic emergency in the United Kingdom resulting from coronavirus and coronavirus disease“.

It goes on to provide that no claim may be made “if it is abusive or is otherwise contrary to the exceptional purpose” of the scheme, and that claims can only be made for a employees who are furloughed “by reason of circumstances arising as a result of coronavirus or coronavirus disease“(but it is expressly not a condition that furloughed employees would otherwise have been made redundant).

The guidance is not at all as explicit that the decision to furlough must be causally connected with circumstances arising due to the pandemic. It states that the Scheme “is designed to help employers whose operations have been severely affected by coronavirus… to retain their employees and protect the UK economy. However, all employers are eligible to claim under the scheme and the government recognises different businesses will face different impacts from coronavirus.” It is the case, though, that employers who are identified in the event of an audit to have claimed in relation to employees who have been furloughed for reasons unconnected with circumstances arising from the virus outbreak will be at risk of having to reimburse monies received and, perhaps, facing penalties including, depending on the circumstances, prosecution for fraud.

Consent to furlough

There has always been confusion in some quarters as to whether the agreement of an employee is required to place them on furlough. This will not have been helped by the wording of some of the government’s guidance to employees. The current iteration states:

If you and your employer both agree, your employer might be able to keep you on the payroll if they’re unable to operate or have no work for you to do because of coronavirus (COVID-19). This is known as being ‘on furlough’.


Both you and your employer must agree to put you on furlough - so speak to your employer about whether they can claim. Once agreed your employer must confirm in writing that you have been furloughed to be eligible to claim.

This contrasts with the guidance to employers. The first iteration stated that an employer merely needs to write to the employee notifying them that they have been furloughed. The second, third and fourth iterations repeated this, and added that the employer needed to keep a copy of the written notification for five years.

Specifically, the current iteration states under the heading ‘Agreeing to furlough employees’:

Employers should discuss with their staff and make any changes to the employment contract by agreement. When employers are making decisions in relation to the process, including deciding who to offer furlough to, equality and discrimination laws will apply in the usual way.

To be eligible for the grant employers must confirm in writing to their employee confirming that they have been furloughed. If this is done in a way that is consistent with employment law, that consent is valid for the purposes of claiming the CJRS. There needs to be a written record, but the employee does not have to provide a written response. A record of this communication must be kept for five years.

And under the heading ‘Before you claim’, it states:

Employers should discuss with their staff and make any changes to the employment contract by agreement. Employers may need to seek legal advice on the process. If sufficient numbers of staff are involved, it may be necessary to engage collective consultation processes to procure agreement to changes to terms of employment.

So the only context in respect of which the guidance for employers requires the agreement of the employee is in relation to any changes in their contract of employment. Changes in the contract of employment will be required only if the employer is not to continue to pay the employee in full and the contract of employee does not provide the employer with the right to apply the relevant reduction in pay (such as under a lay-off clause, which will typically provide the employer with the power to reduce pay to nil, subject to an obligation to pay statutory guarantee pay of £30 per day for up to one week every three months). This reflects the position under the general law, and the reference to the general requirement for employee consent in the guidance for employees is otiose.

However, the Direction not only stipulates at paragraph 6.1 that there must be an instruction by the employer to the employee to cease all work in relation to their employment but, out of nowhere, adds at paragraph 6.7 that:

An employee has been instructed by the employer to cease all work in relation to their employment only if the employer and employee have agreed in writing (which may be in an electronic form such as an email) that the employee will cease all work in relation to their employment.

Of course, this is completely at odds with the guidance to employers, and it also goes beyond what is stated in the guidance to employees – which does not require a specific agreement that the employee “will cease all work”, or require that any agreement with the employee is in writing. Indeed, there will be many instances where an employee has been, or will be, furloughed when they will already have ceased work, and therefore where it would not be practicable to direct the employee to cease work or to obtain their agreement that they will do so, e.g. where their employment had previously terminated and they are being reinstated to be furloughed, they are returning from unpaid leave or maternity/paternity/parental/adoption leave, or they have been on sick leave or off work in isolation.

There will be many thousands of employers who have furloughed employees without any kind of agreement with them at all, including where agreement has not been required in accordance with the government’s guidance to employers. Where some form of agreement has been obtained, it will be relatively rare that there is written agreement in terms that the employee “will cease all work”.

In my view, the stipulation in paragraph 6.7 is likely to have been made without due consideration and, in any event, without the intention of imposing a requirement that employees must have consented to cease work, whether in writing or otherwise. Accordingly, I consider that this stipulation is likely to be overridden by a future direction or else not enforced by HMRC when auditing employers’ claims under the Scheme (to the extent that it is to do so). There are several reasons for this, which include that:

  • Paragraph 6.7 is contrary to what has been the government’s guidance for employers from the outset, and indeed as restated on 17 and 20 April, after the Direction was issued.
  • Paragraph 6.7 defies all logic and common sense. The government introduced the Scheme in order to provide much needed relief to employers and their employees to help mitigate the catastrophic economic impact of virus outbreak. It would be massively politically damaging to the government to apply a needless and unjustifiable technicality that would prevent employers who have acted in accordance with their published guidance from recovering payments under the Scheme – including to the extent that this could contribute to employers ending up having to make redundancies, or indeed going out of business altogether, when the principal aim of the Scheme is to protect jobs.
  • If paragraph 6.7 stands and HMRC enforce it, the Treasury will doubtlessly be the subject of countless applications for judicial review on the basis that employers had a legitimate expectation that HMRC would act in a way consistent with the published guidance. Such applications will be costly and time consuming to fight, and seemingly destined to succeed.

In any event, a practical point to bear in mind is that HMRC will be paying claims as submitted, so even if paragraph 6.7 stands and will ultimately be enforced (subject to any application for judicial review), this will only be an issue for employers who are without the relevant written agreements if they happen to be audited in the future.

Those points having been made, unless and until there is a future direction to override paragraph 6.7, it would be prudent for employers to obtain from employees who are furloughed in the future their written agreement that they will cease all work and, to the extent it has not already been obtained, also written agreement to this effect from employees who have already been furloughed. It is unclear whether, to the extent that paragraph 6.7 is to stand and is to be enforced, such agreements can be effectively backdated, but they should at least purport to have effect from the date that furlough commenced. If backdating turns out not to be permitted (and any application for judicial review regarding the entire effect of paragraph 6.7 were to fail), at least agreement will be in place going forwards.

Sickness absence and furlough

The guidance originally stated that a period of furlough subject to funding under the Scheme could not be commenced for employees who are on sick leave or who are self-isolating and are entitled to statutory sick pay (“SSP”) until the period of entitlement to SSP ends. However, in the third iteration of the guidance, released on 9 April, the position was reversed and since then, including as updated on 17 and 20 April (i.e. after the Direction was made), the guidance has expressly stated that employers may place on furlough employees who are on sick leave, if they so wish. For further details of how sickness and furlough inter-relate according to the government’s guidance, click here.

The guidance also expressly states that employees who are shielding in line with public health guidance can be furloughed. Following a statutory amendment on 16 April, with retrospective effect to 13 March, such employees are also entitled to SSP.

However, paragraph 6.3 of the Direction stipulates, counter to this, that if an employer gives an instruction to cease work at a time when an employee is entitled to SSP, the period of furlough cannot commence under the Scheme until the period of entitlement to SSP has ended. My view is that rather than the Treasury having made a deliberate decision to adopt a contrary position to the guidance, this is likely to have been the mistaken incorporation of an aspect of an outdated iteration of the guidance. Nevertheless, if this is not addressed in a future direction, it will be open to HMRC, in the event of an audit, to demand repayment of sums claimed under the Scheme in respect of employees who were entitled to SSP at the date that the employer purported to commence furlough until the earlier of the end of the period of entitlement to SSP and the end of furlough. This could of course cover a prolonged period, whether for an employee with a medium or long-term condition or one who is shielding in accordance with public health guidance. Again, however, any such stance by HMRC would be vulnerable to judicial review on grounds of the employer’s reasonable expectation.

Qualifying employers

The guidance has always stated that the Scheme excludes public sector or publicly-funded employers. However, there is no such exclusion in the Direction. Arguably, the guidance on this point is no more than an encouragement to public sector and publicly funded employers not to draw on public funds through applying to the Scheme and, absent a further direction to preclude it, public sector and publicly funded employers are just as eligible to apply to the Scheme as any other employer.

TUPE and successor businesses

The guidance was originally silent as to whether a transferee employer could apply the Scheme to employees who transferred to it under TUPE or the Employment Rights Act.

However, the third iteration of the guidance stated that transferees can claim under the Scheme for employees who transferred to them after 28 February 2020 – which was the original qualifying date for employment for employees who could be furloughed under the Scheme. When the qualifying date was changed to 19 March, the guidance was updated to refer to transfer after that date. This will be subject to the employee having been on the transferor’s payroll and having been subject to an RTI submission as of 19 March. The Direction also reflects this position.

However, as things stand, employees who transferred after 28 February but before 20 March cannot be furloughed under the Scheme – notwithstanding that all other employees who were on an employer’s payroll and subject to an RTI submission as at 28 February can be furloughed with effect from 1 March.

It has not been provided that transferees are to have the right to access transferors’ payroll records for the purposes of determining the historic pay of furloughed employees on variable pay that is necessary to determine payments to be made under the Scheme.

Further, it has not been stated that the period of furlough will be deemed to be continuous as between the transferor and the transferee. This will be important to the extent a pre-transfer and/or a post-transfer period furlough is shorter than the 3 week period necessary to be subject to the Scheme.

Calculation of payments

The most complex aspect of the guidance and the Direction relates to the payments that employers can claim.

The Direction states that that employees will be treated as on variable pay for the purposes of calculating their “reference salary” (80% of which can be reclaimed, subject to the £2,500 per month cap) unless they are a “fixed-rate employee”.  A “fixed-rate employee” is defined as an employee entitled under their contract to be paid an annual salary (and no other payment) in respect of basic hours determined by the contract, paid in equal instalments per pay period (of a number of weeks or a month) regardless of the number of hours worked in that period, and where the basic hours do not normally vary according to business, economic or agricultural seasonal considerations.

For variable pay employees, the employer can claim the higher of the employee’s earnings in the same month the previous year or the employee’s average monthly earnings for the 2019/2020 tax year. For fixed-rate employees the reference salary is the rate as at the last pay period before 19 March 2020.

It would appear that, in accordance with the direction, a salaried employee who earns contractual commission or bonuses during their normal working hours will be a variable pay employee, not a fixed-rate employee.

However, the guidance to employers relating to what they can claim tells employers to:

Choose the calculation you think best fits the way your employee is paid. For example, if you pay your employee a regular salary, use the calculation for fixed pay amounts. HMRC will not decline or seek repayment of any grant based solely on the particular choice of pay calculation, as long as a reasonable choice of approach is made.

This suggests that whether an employee is salaried should be the determining factor as to whether to treat them as a fixed-rate employee. However, the direction takes precedence over the guidance and, particularly as the guidance states that HMRC will not decline or seek repayment of any grant based on the choice of pay calculation as long as it is reasonable, it would seem to be open to employers to treat salaried employees who receive additional contractual remuneration for work performed within their normal working hours as variable pay employees, so that they can claim all aspects of remuneration covered by the Scheme, including that earned outside the employee’s normal, basic working hours.

Whether on fixed-rate or variable pay, the reference salary only includes “regular” salary or wages.  This excludes “conditional payments” and benefits in kind, and only includes payments which arise from “a legally enforceable agreement, understanding, scheme, transaction or series of transactions”. It can include pay that varies according to the business’s performance, the employee’s contribution to the business’s performance, the employee’s performance of employment duties, or otherwise at the employer’s discretion only where pursuant to such a legally enforceable arrangement.

Taken literally, this leads to absurd results. All payments of wages are “conditional on a matter” in the sense that, in the normal course, the employee’s work is a condition of payment. That cannot be intended, of course. But what about overtime payments – which are “conditional” on working in excess of contractual hours, particularly if the overtime is not compulsory or guaranteed.  And if it is included at all, how regularly must it be earned in order to be “regular” under the Scheme? The guidance states that any regular payments the employer is obliged to pay employees includes “past overtime”, without any qualification – so perhaps all and any overtime can be included for variable pay employees?

An on-line calculator for working out payments became available from 20 April, but this applies only to some employees who receive the same amount every pay period and is “aimed at organisations with only a small number of employees”. The guidance states that the online services will continue to be improved on a frequent basis, including supporting more employment situations with the calculator. Hopefully that will be done quickly and that this, and/or further updated guidance and Treasury directions, will help to provide clarity.

In any event, it seems inequitable that some salaried employees will have certain aspects of their remuneration excluded that could be recovered in the case of variable pay employees. This would seem to include overtime and call-out payments for salaried employees who receive nothing but their basic salary for working their normal, basic working hours.

For our observations on the main aspects of the Scheme, updated to take account of the above points, click here.

For our regularly-updated wider guidance for employers on the impact of the virus outbreak, click here.