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Last updated 1 August 2020

Section 1: Introduction: the JRS from 1 July 2020

1. The basics

The JRS was introduced to help employers who cannot maintain their current workforce because their operations are affected by the COVID-19 outbreak (although the JRS is not limited to workers engaged under an employment contract, this note refers to ‘employers’ and ‘employees’ for ease).

Organisations will need to use their judgement in determining whether the JRS is intended for their own specific circumstances.

Eligible employers can apply to HMRC for a grant towards the employment costs of eligible individuals who are temporarily not working, or not working their usual hours, due to the outbreak, and who agree to be ‘furloughed’.

The scheme will run until 31 October 2020. 

2. How did the JRS change on 1 July 2020?

Changes were made to the JRS with effect from 1 July 2020 to introduce ‘flexible furlough’ (see 6 below) and provide for a phased reduction in financial support for employers (see 7 below). 

The additional flexibility, whilst welcome in allowing businesses to tailor use of the JRS to their specific ‘back to work’ planning, adds complexity to the already challenging calculation of JRS claims.  The new calculations require additional data on historical hours worked, which might be difficult for some employers to source (see 13 below).

This note summarises the key features of the scheme as it currently operates on and after 1 July 2020.

3. Is my business eligible to participate?

The JRS is open to all employers who were eligible to participate in the previous version of the scheme and – on or before 31 July 2020 – submitted a JRS claim in respect of employees who had been furloughed for at least three weeks prior to 1 July 2020.  

4. Which employees can be furloughed?

Employers can furlough any employees who were:

  • Furloughed for at least one continuous three-week period at some point in time between 1 March and 30 June 2020; and
  • Included in a claim submitted on or before 31 July 2020 under the previous version of the JRS.

Employees who do not meet these conditions can be furloughed if they were:

  • Included in a relevant RTI submission made on or before 19 March 2020; and
  • On statutory family leave (i.e. maternity, paternity, shared parental, adoption, sick or parental bereavement leave) or army reservist leave for a period that ends after 10 June 2020, and which began on or before that date.

5. What are furloughed employees paid?

In the absence of any agreed change in terms and conditions, furloughed employees remain contractually entitled to their usual pay and benefits, including pension contributions.

Employers can either seek to agree a reduction with furloughed employees (see 10 below) or continue to provide them with their full contractual pay and benefits.

In all cases, for the duration of the scheme employers must pay furloughed employees:

  • Their full contractual rate of pay for any hours worked; and
  • At least 80% of their ‘reference salary’ for any of their ‘usual hours’ spent on furlough (note that an employee’s ‘usual hours’ will not necessarily be the same as their normal contracted working hours – see 13 below).

The minimum payment in respect of ‘usual hours’ spent on furlough is capped at £2,500 per month, and is reduced by reference to any hours actually worked during the claim period.

Employees who take holiday, or undertake compulsory training, whilst on furlough must be paid at their full contractual rate of pay for those days (i.e. at least the appropriate National Minimum Wage rate for the relevant hours).

The minimum furlough payment must be made in cash and cannot be:

  • Netted off against the cost of providing benefits (including under a salary sacrifice arrangement); or
  • Reduced by any administration charges, fees or other costs relating to the employment.

However, other deductions from salary that were authorised by the furloughed employee can continue, as can partnership share acquisitions under tax-advantaged Share Incentive Plans and contributions to savings contracts linked to SAYE options (for employees who hold tax-advantaged Enterprise Management Incentive share options, being furloughed will not prevent them satisfying the working time requirement).

All payments are made subject to normal payroll deductions, including student loan repayments, and are also subject to employer’s NIC and, where relevant, Apprenticeship Levy.

6. How does ‘flexible furlough’ work?

Flexibly-furloughed employees are permitted to work for their employers for any part time hours and on any shift pattern, but – subject to certain limited exceptions – cannot undertake any work for their employer or any linked or associated company during furlough hours.

Flexible furlough arrangements must be agreed in writing between the employee and the employer before the start of the relevant claim period (see 10 below).

7. What support will employers get under the JRS?

Employers can claim grants toward the cost of employing individuals during the usual working hours for which they are furloughed (i.e. not working).

The level of support available under the JRS, which tapers down from 1 August, is summarised in the table below:

Employment costs in respect of usual hours on furlough

Support available under the JRS

Up to 31 July

From 1 August

From 1 September

From 1 October

Regular salary payments

80 % of reference pay up to £2,500 per month

80 % of reference pay up to £2,500 per month

70 % of reference pay up to £2,187.50 per month

60 % of reference pay up to £1,875 per month

Associated employer’s NIC and minimum pension contributions


Not funded

Not funded

Not funded


From August 2020, the employer must fund the difference between the minimum payments it must make to furloughed employees (and the associated employer’s NIC and minimum pension contributions) and the grant available under the JRS.

JRS grants do not cover any Apprenticeship Levy due on payments made to furloughed employees.

8. Further support under the Job Retention Bonus (‘JRB’) scheme

At the economic update on 8 July, the Chancellor announced that employers will receive a one-off payment of £1,000 in respect of each individual who:

  • At any point in time was validly furloughed under the JRS;
  • Earns on average at least £520 per month between 1 November 2020 and 31 January 2021; and
  • Remains in continuous employment until at least 31 January 2021.

Continuous employment will be measured from the time of the most recent JRS claim submitted in respect of the relevant employee.

Employees who are serving a statutory or contractual notice period that begins before 1 February 2021 will not attract a JRB payment for the employer.

Qualifying employers will be able to claim the JRB from February 2021.

JRB payments may be jeopardised if the employer does not maintain accurate and up to date payroll records, or if historical JRS claims are inaccurate and have not been corrected (see 9 and 20 below). Payments will be withheld if HMRC thinks JRS grants may have been fraudulently claimed or inflated.

Further detailed guidance on the JRB is expected in the autumn.

9. Do employers need to repay JRS grants?

Any excessive claims (i.e. amounts claimed to which the employer is not in fact entitled under the JRS) must be repaid to HMRC.

Amounts the employer is entitled to claim need not be repaid unless:

  • Circumstances change such that the employer is no longer entitled to retain them (e.g. where a furloughed employee returns to work sooner than expected); or
  • The grant is not used to meet relevant employment costs within a reasonable timeframe.

Section 2: Implementing flexible furlough

10. How does an employer flexibly furlough an employee?

An eligible employee will be ‘furloughed’ where, before of the COVID-19 outbreak:

  • The employer instructs the employee to work fewer than their usual hours (including ceasing work entirely);
  • The employee does in fact work fewer than their usual hours; and
  • Before the start of the period to be covered by the JRS claim, the employee and employer enter into an agreement (including a collective agreement between the employer and a trade union) which in summary:

–    Records the agreed reduction in working time and its main terms and conditions (e.g. any reduction in pay and benefits; shift patterns or how these will be determined);

–    Is incorporated into the employee’s contract of employment; and

–    Is retained by the employer until at least 30 June 2025.

Employers must initiate the furlough process and, whilst employees can ask to be furloughed, the employer has the final say.

Employers should consider how they usually approach these matters with their workforce, and may have an obligation to discuss the matter with recognised Trade Unions or other representative bodies.

The usual employment law and anti-discrimination considerations will apply when going through this process.  Employers should therefore find a fair and objective way to decide who should be furloughed and brought back into the business, when and on what basis. 

11. What rights do furloughed employees have?

Furloughed employees have continuity of employment and retain the same employment rights they previously held.

That includes entitlement to statutory sick pay, maternity rights, rights against unfair dismissal and to redundancy payments.

Employees will continue to accrue holiday entitlement whilst furloughed.

Additionally, holiday (including bank holiday) can be taken by an employee whilst furloughed, although this would need to be paid at the employees’ normal rate of pay.

12. Can furloughed employees be made redundant?

Yes, HMRC’s guidance confirms that furloughed employees can be made redundant, either during or after the furlough period.

JRS grants may be claimed in respect of furloughed employees during their notice period but cannot be used to cover redundancy payments.

Under regulations that came into force on 31 July, statutory redundancy payments, statutory notice pay, and certain other statutory payments must be based on the employee’s normal rate of pay, not the lower amounts they may have been receiving whilst furloughed.

Employees whose notice period begins before 1 February 2021 will not attract a payment for their employer under the JRB (see 8 above).

13. How are JRS grants calculated?

Each furloughed employee’s ‘reference salary’ and ‘usual hours’ worked must be established in order to calculate a JRS grant.

In turn, this involves determining whether the employee is in receipt of a fixed’ or a ‘variable’ rate of pay, and whether their hours are ‘fixed’ or ‘variable’.

This gives rise to four different categories of employees, with different rules to be applied when calculating the relevant JRS grant:


Rate of pay

Hours worked














HMRC’s guidance states they will not decline or seek repayment of a JRS grant based solely on the employer’s choice of pay calculation, provided a reasonable choice is made.

Whilst this means HMRC is unlikely to challenge a claim based on fine points of interpretation, the employer must still adopt a robust and defensible methodology that is supported by HMRC’s guidance and the Treasury Directions that set out the legal basis of the scheme.

Reference salary can be difficult to establish.  Broadly, it includes regular payments such as wages, non-discretionary overtime (i.e. where the employer is contractually obliged to pay the employee at a set and defined rate for the overtime worked), non-discretionary fees and non-discretionary commission (i.e. where the employer has a contractual obligation to pay the relevant sum and to which the employee has an enforceable right).

Discretionary payments – such as bonuses and tips – and the cost of benefits in kind are excluded.

The calculation of usual hours is also complicated and sourcing the relevant data on hours worked is key.

Reference salary and usual hours are discussed at 14 – 17 below.

14. Determining reference salary for fixed rate employees

Broadly, a fixed rate employee is one who is entitled to be paid an annual salary in equal weekly or monthly instalments (or in instalments based on a multiple of weeks) in respect of a number of basic hours which do not normally vary according to seasonal considerations.

For fixed rate employees, ‘reference salary’ is equal to their actual pay before tax from the last pay period ending on or before 19 March 2020.

However, for fixed rate employees who are furloughed on their return from statutory leave (e.g. maternity, paternity, shared parental, adoption, sick or bereavement leave), or from army reservist leave, reference pay is based on the contractual salary before tax, and not what the employee was actually paid whilst on that statutory leave.

15. Determining reference salary for variable rate employees

For individuals who are ‘variable rate employees’, if they have been employed since at least 6 April 2019, reference pay is the higher of:

  • The pay from the same calendar period in the previous year; and
  • Average pay from the 2019/20 tax year before the period of furlough began.

If the employee began employment after 6 April 2019, their reference pay is an average of their earnings since they started work until the earlier of 5 April 2020 and the date they are furloughed.

16. Determining ‘usual hours’ on the fixed hours basis

Employees are regarded as working ‘fixed hours’ if their contract requires them to work a specified number of hours over a specified period and their pay in respect of that period does not vary in relation to the number of hours actually worked.

In these cases, the ‘usual hours’ for a particular pay period are based on the employee’s contracted hours in the last pay period that ended on or before 19 March 2020.

17. Determining ‘usual hours’ on the variable hours basis

Employees work ‘variable hours’ where they are not contracted for a fixed number of hours, or their pay depends on the number of hours worked.

A variable hours employee’s ‘usual hours’ in a particular claim period is the higher of their:

  • Average hours worked in the tax year 2019/20; and
  • Actual hours worked in the corresponding calendar period in the tax year 2019/20.

Section 3: Operating flexible furlough

18. How do employers claim the grant?

Once employees have been furloughed, employers will need to submit relevant information through HMRC’s JRS online portal in order to make a claim.

Supporting calculations must be retained for at least 6 years.

Employers can only make a single claim in respect of each relevant time period, which must fall wholly within a single calendar month.

Generally, there is a minimum claim period of one week – even where employees have been furloughed for less than a week – although special rules can allow claims to be made for shorter periods at the start and end of each month if these would otherwise be outside a claim period. 

Claims may be submitted up to 14 days before the end of the relevant claim period and should be paid by HMRC within 4-6 days of receipt.

The number of employees that can be included in a single claim is capped at the highest number of employees who were covered by a single claim submitted under the previous version of the JRS (i.e. in relation to a claim period that ended on or before 30 June 2020).   

However, qualifying employees returning from statutory family leave or army reservist leave do not count towards this limit.

For example, suppose an employer submitted three claims under the previous version of the JRS as follows:


Number of employees included in claim







The highest number of employees that can be included in a single claim submitted by that employer in respect of a period that begins on or after 1 July is:

  • 63 (i.e. the highest number included in a claim submitted for a period that ended on or before 30 June); plus
  • The total number of any qualifying individuals who returned from statutory family leave or army reservist leave (see 4 above).

19. What’s the tax treatment of a JRS grant or JRB payment for the employer?

The employer should include the JRS grant as income in its tax computation.

However, as this receipt should be offset by deductible employment costs, no associated tax charges should arise.

Similarly, any JRB payment claimed should be treated as income when calculating taxable profits.

20. How are any errors corrected?

Employers who have under claimed need to ensure that furloughed employees still receive the full minimum payments to which they’re entitled.

HMRC should be contacted in order to amend underclaims as this will require additional checks. Underclaims for periods that ended before 1 July can still be corrected in relation to employees who were included in the original claim.

Employers must repay HMRC where a JRS claim was overstated, a correct claim subsequently becomes excessive, or the grant is not used to pay relevant costs within a reasonable period (see 9 above).

This may be done by reducing a subsequent claim or, if the employer does not propose to make any further claims, by a direct payment to HMRC.

Under legislation introduced by Finance Act 2020, employers must notify HMRC of any overclaims that are not repaid before the relevant reporting deadline.

The notified amount will then be recovered through a special income tax charge.  

Unless previously repaid, overclaims that arose before 23 July must be reported by 20 October, with overclaims that arise on or after 23 July notified within 90 days. 

Penalties may be imposed for late notification. It’s therefore important for employers to identify and address overclaims on a timely basis.

In addition, in certain circumstances company officers will be held jointly and severely liable for repayments.

HMRC has announced that it may withhold or recover grants based on dishonest or inaccurate information, and that it is in the process of contacting several employers to confirm whether their JRS claims are correct.

This is a clear marker that future compliance action may be taken if claims are inaccurate. 

About JRS
Job Retention Scheme (JRS) Guide

The latest guidance on the COVID-19 JRS.