Changes to the Job Retention Scheme

Changes to the Job Retention Scheme

The JRS will now run until 31 October 2020, but some aspects will change from August. Updated guidance clarifies certain matters, including when overtime payments should be included in JRS reference pay.

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KPMG in the UK


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The Job Retention Scheme (JRS), expected to end on 30 June 2020, will now continue until the end of October 2020. The scheme will operate on its current basis until the end of July, but from August employees who are ‘currently’ furloughed when the March to July period comes to an end, will be able to work part-time for their employers. Whilst additional guidance is awaited, it appears that employees can only be furloughed over August to October if they are already on furlough at the end of July. This would be an important restriction on accessing the new version of the scheme. Additionally, after 1 August, employers will be required to meet part of the employment costs of their furloughed workers. Details on this new version of the scheme are expected before the end of May. HMRC also updated their JRS guidance on 14 May. Changes include clarification of when overtime payments should be included in the calculation of furloughed workers’ reference pay, and confirmation that employers must retain the relevant records for six years, not five. This article sets out what employers need to know in order to consider how changes to the JRS could impact their business, and whether their current claims have been prepared on a sustainable basis.

The Chancellor’s announcement
In a welcome move, the Chancellor announced on 12 May 2020 that the JRS, which was due to end on 30 June 2020, will now run to 31 October 2020.

This means that businesses whose operations have been severely affected by the COVID-19 outbreak can continue to furlough workers over this extended period.

The JRS will continue to operate as it currently does until 31 July 2020, and in particular:

  • Subject to limited exceptions, furloughed workers are not permitted to undertake work for their employer; and
  • HMRC will pay participating employers:
    • 80 percent of a furloughed worker’s reference pay up to a cap of £2,500 per month; plus
    • The associated employers’ NIC and minimum automatic employer pension contributions.

However, from 1 August 2020, employees who are ‘currently’ furloughed when the March to July period comes to an end will be permitted to return to work for their employers on a part time basis. Whilst further guidance is awaited, this apparent need to be on furlough at the end of July in order to be furloughed over August to October is an important restriction on accessing the more flexible version of the scheme.

From 1 August, participating employers will also be required to meet part of their furloughed workers’ minimum salary payments (which are equal to 80 percent of their reference pay or, if lower, £2,500 per month – the employer can choose to ‘top up’ this minimum payment but is not obliged to do so).

Details of these changes, such as the portion of the minimum salary payment to be borne by the employer, and whether this will be linked to employees who return to work part time, or be a free standing requirement, will be published by the UK Government before the end of May.

Updates to HMRC’s guidance
HMRC also published several updates to their JRS guidance on 14 May 2020.

These include:

  • Clarification that claims cannot be submitted more than 14 days before the end of the relevant claim period;
  • Confirmation that participating employers must retain their relevant records for six years for possible HMRC review; and
  • Guidance on what overtime payments and other ‘non-discretionary payments’ can be included in JRS reference pay.

This last point is an important clarification, as previously it was uncertain what constituted ‘non-discretionary overtime’, which should be included when calculating furloughed workers’ minimum salary payments and the associated JRS grants. HMRC’s guidance now confirms that, in line with KPMG’s understanding, overtime payments can be included where the employer was contractually obliged to pay the employee at a set and defined rate for the overtime worked (rather than where the employer was contractually obliged to offer the overtime).

The updated guidance also confirms that other contractually enforceable variable payments (e.g. shift allowances) should be included in reference pay.

The treatment of overtime, allowances and similar payments requires careful consideration, and employers should assess the basis on which they calculate their JRS claims in light of this updated guidance.  Employers should also consider whether any amendments to past claims might be required once HMRC have introduced this functionality into their JRS portal.

What should employers do?
Extension of the JRS is clearly welcome, and employers will urgently need to consider how the support available affects decisions in relation to managing its workforce. 

In particular, if it is indeed the case that employees can only be furloughed over August to October if they were on furlough at the end of July, employers will need to assess the extent to which they might require support from the JRS over the coming five to six months, and plan which employees to furlough – and when – accordingly. This work will need to be undertaken in the coming weeks in order to put plans into action in when the new scheme rules come into force.

Other practical steps that employers who do or might participate in the JRS can take now include:

  • Reviewing existing agreements with employees – do existing agreements with employees need to be revised to allow the possibility of furlough continuing into July and beyond?
  • Getting people back to work - what staffing requirements are forecast from now until the end of October, and is it appropriate to bring furloughed workers back into the business on a full or part time basis?
  • Thinking about workforce requirements – does the extension of the JRS affect any planned headcount reductions? 
  • Modeling different levels of employer contributions – what level of subsidy can the business afford? If discretionary payments are currently made over and above furloughed workers’ minimum entitlements, could this continue or should the position be renegotiated?
  • Checking their claims – for many employers, calculating their current JRS claims is not straightforward, with common difficulties including:
    • Establishing the correct components of furloughed workers’ reference pay (in particular, employers should review past claims in light of HMRC’s recently updated guidance);
    • Identifying ‘fixed’ or ‘variable’ rate employees in order to calculate the grant correctly (‘fixed’ rate employees are defined in a similar way to ‘salaried’ workers for National Minimum Wage purposes, which is not always easy to apply in practice); and
    • Making deductions from payments to employees (furloughed workers must receive their entire minimum furlough payment in cash, and any deductions made by the employer must be carefully considered to ensure this condition is met).
  • Reviewing JRS compliance – are processes and controls robust enough to withstand HMRC review, and can they cope with the additional complexities the prospective changes will introduce?

For further information please contact:

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