6 Min. Read

How Is Furlough Pay Calculated Under Coronavirus Job Retention?

March 12, 2024

When the coronavirus pandemic hit the UK, there was a huge effect on the job market.

When the lockdown was fully announced, many people couldn’t go to work and therefore couldn’t earn money.

To cover this the Chancellor announced the Coronavirus Job Retention Scheme, or CJRS. This scheme meant that HMRC would cover 80% of a furloughed employee’s wages. This had an upper limit of £2,500 per month.

At its peak, the CJRS supported more than 11 million jobs across the UK at a cost of over £53 billion. It was originally planned that the scheme would end in May 2020, but over a year later the scheme is still in place.

The intended purpose of the CJRS was to help avoid redundancies. The government said that there would be “no limit” to the amount of support they would provide.

Here’s What We’ll Cover:

What Is Furlough?

How Does Furlough Work?

What Is the Current Deadline?

Has Furlough Changed?

How Can I Claim Furlough?

How Are Furlough Payments Calculated?

Can I Claim Furlough If I’m Self-Employed?

Can I Work Whilst On Furlough?

Key Takeaways

But what exactly is furlough? How does it work, and how is furlough pay calculated under the coronavirus job retention scheme? Let’s take a closer look.

What Is Furlough?

Furlough allows companies to keep staff on their payroll who have stopped work for various reasons. This could be due to there being no work for them to do, they are unable to work or as highlighted recently, there is a national lockdown.

Employers will claim a grant. This means that the government will pay a portion of the employee’s wages whilst the employer can choose to top up the remaining amount.

Furlough essentially offers a company breathing space and allows workers to still receive an income. It also allows employees to return to work much faster once they are able to.

It wasn’t a feature of the UK employment law until the Covid-19 outbreak.

How Does Furlough Work?

Any business of any size that had been negatively affected by the coronavirus pandemic is eligible to receive these grants. Once the grant has been given, the employees are paid as normal.

Workers would receive 80% of their wages, up to a maximum of £2,500 a month. The employers only have to cover national insurance and pension contributions. Employers can then choose whether or not to top up the remaining 20% of their employee’s wages.

Almost any worker can be furloughed. This includes:

Full-time employees
Part-time employees
Flexible workers such as people on zero-hour contracts or agency workers

Any employee who lost their job just before the furlough scheme was introduced could also be re-hired and put on furlough.

What Is the Current Deadline?

The furlough scheme was originally planned to end in May 2020, but it has since been extended four times.

The current deadline is now the 30th of September, 2021. Both Prime Minister Boris Johnson and Chancellor Rishi Sunak have said it will not be extended any further.

Has Furlough Changed?

Originally, the government paid 80% of furloughed people’s wages, this has now changed.

From the 1st July 2021, the government only paid 70% of the furloughed employees wages up to £2,187.50 a month. The employer now has to make up the remaining 10%, but can still choose to top up the remaining 20%.

In August and September, the government will pay 60% of the furloughed employees wages up to £1,875 a month, while the employer will make up the 20%.

How Can I Claim Furlough?

If you are an employee, you don’t have to claim this money. It is the employer’s responsibility to put their workers on furlough.

If you are an employer, you can put an employee on furlough as long as:

They were employed by you before 2nd March 2021.
You have made a PAYE Real Time Information submission to HMRC between the 20th March 2020 and 2nd March 2021.

If you are wanting to claim furlough for your employees you will need to follow these four steps:

Gather your Government Gateway user ID and the password you received when you first registered for PAYE online.
From here, you can make a claim during or after your payroll is processed, but it cannot be submitted more than 14 days after the claim period ends.
You will then receive a grant from the government.
You can then pay your employee via your normal PAYE system.

How Are Furlough Payments Calculated?

Full-Time and Part-Time Employees

At the time of writing, the current payments are:

60% of your wage will be paid by the government, 20% will be paid by your employer.
The 60% paid by the government has a cap of up to £1,875 a month.
Your national insurance and pension contributions will be paid by your employer.
Your employer may choose to top up the final 20% but they are not required to.

For example, if you previously earned £2,000 a month then the government would be paying you £1,200 a month and your employer would be paying you £400 a month.

This would total at £1,600 a month, or 80% of your usual wage. Your employer could choose to top up the remaining £400, or 20% of your wage.

Zero-Hour Employees

If you are working on a zero-hour contract, your furlough will be calculated in one of two ways.

By looking at the same month’s earnings from the previous year.
By working out your average monthly earnings from the previous tax year.

For example, if you made £1,500 in August 2020 and you were claiming furlough in August 2021, then your payment would be based on that previous earning.

Or if you made on average £1,600 per month from the previous tax year, your furlough would be calculated against this number.

Can I Claim Furlough If I’m Self-Employed?

You currently cannot claim furlough if you are self-employed.

However, if you are a director of a limited company and you pay yourself through PAYE then you are technically employed so you can claim furlough.

If you are self-employed and have suffered a loss of income due to the coronavirus crisis, you can apply for the Coronavirus Self-employment Income Support Scheme, which is separate from the furlough scheme.

Can I Work Whilst On Furlough?

You are able to take on a second job if you are on the furlough scheme. But you must check with your current employer first to make sure that it isn’t in breach of your existing contract.

If you do get a part-time job, you must be paid at your normal rate for the hours worked. You will then be paid a minimum of 80% for the hours not worked.

Key Takeaways

The furlough scheme helped a huge amount of people in the UK avoid being out of work for a long period of time.

With the help of the government, people were able to earn a living wage whilst they were in full lockdown.

If you are still currently on the scheme, it would be best to prepare for the scheme ending on the 30th September. There is no sign that it will be further extended.

Are you looking for more business advice on everything from starting a new business to new business practices?

Then check out the FreshBooks Resource Hub.