Flexible Furlough Calculation Example

Calculate your flexible furlough entitlements under the UK Coronavirus Job Retention Scheme

Comprehensive Guide to Flexible Furlough Calculations

The flexible furlough scheme was introduced by the UK government in July 2020 as part of the Coronavirus Job Retention Scheme (CJRS) to provide more flexibility to employers as businesses began to reopen after the initial COVID-19 lockdown. This guide explains how flexible furlough works, how to calculate entitlements, and what employers need to consider when implementing this scheme.

What is Flexible Furlough?

Flexible furlough allows employees to work part-time while still being furloughed for their non-working hours. Unlike the original furlough scheme where employees couldn’t work at all, flexible furlough enables businesses to bring employees back for any amount of time and any work pattern, while still being able to claim the CJRS grant for the hours not worked.

Key Dates and Changes to the Scheme

The flexible furlough scheme underwent several changes during its operation:

• 1 July 2020: Flexible furlough scheme begins, allowing part-time work
• 1 August 2020: Employer contributions begin (employers pay NICs and pension contributions)
• 1 September 2020: Government contribution reduces to 70% of wages (employers pay 10%)
• 1 October 2020: Government contribution reduces to 60% of wages (employers pay 20%)
• 31 October 2020: Original scheme ends (extended in some forms until September 2021)

How to Calculate Flexible Furlough Payments

The calculation for flexible furlough involves several steps:

1. Determine usual hours: Calculate the employee’s usual working hours based on their contract
2. Record actual hours worked: Track the hours the employee actually works during the claim period
3. Calculate furloughed hours: Subtract actual hours from usual hours
4. Calculate reference pay: Use the higher of either:
   • The wages payable in the corresponding calendar period in the tax year 2019 to 2020
   • The average wages payable in the tax year 2019 to 2020
5. Apply the relevant percentage: Multiply the reference pay by the furlough percentage
6. Calculate the claim amount: Apply the government contribution percentage based on the claim period

Example Calculation

Let’s consider an example with the following details:

• Employee monthly salary: £2,500
• Usual hours per week: 37.5
• Actual hours worked in claim period: 15
• Claim period: September 2020

Calculation Step	Details	Amount
1. Usual hours	37.5 hours × 4 weeks	150 hours
2. Furloughed hours	150 – (15 × 4)	90 hours
3. Furlough percentage	90 ÷ 150	60%
4. Reference pay	£2,500 monthly salary	£2,500
5. Furlough pay	60% of £2,500	£1,500
6. Government contribution	70% of £1,500 (September rate)	£1,050
7. Employer contribution	30% of £1,500	£450

Employer Obligations and Considerations

When implementing flexible furlough, employers must:

• Have a written agreement with the employee (or collective agreement with a trade union)
• Keep records of how many hours employees work and how many hours they are furloughed
• Pay employees for all hours worked at their normal rate
• Pay the employee at least 80% of their reference pay for furloughed hours (even if the government contribution is less)
• Pay employer National Insurance and pension contributions on the full amount paid to the employee
• Submit claims through the HMRC portal before the deadline

Common Mistakes to Avoid

Many employers made errors when calculating flexible furlough payments. Some common mistakes include:

1. Incorrect reference pay: Using the wrong reference period for calculating usual pay, especially for employees with variable hours or pay
2. Miscalculating usual hours: Not correctly accounting for different working patterns or part-time employees
3. Claiming for wrong periods: Submitting claims for periods when the employee wasn’t actually furloughed
4. Not paying employees enough: Failing to top up the government grant to reach 80% of reference pay
5. Incorrect pension calculations: Not calculating pension contributions on the correct amount of pay
6. Missing deadlines: Submitting claims after the monthly deadline

Tax and National Insurance Implications

The flexible furlough scheme has specific tax and National Insurance implications:

Income Tax

All payments made to employees through the furlough scheme are subject to income tax in the usual way. Employers must:

• Deduct income tax through PAYE
• Report payments on the Full Payment Submission (FPS)
• Include furlough payments in the employee’s P60

National Insurance

Both employer and employee National Insurance contributions are due on furlough payments:

• Employer NICs are payable on the full amount paid to the employee
• Employee NICs are deducted from the employee’s pay
• From August 2020, employers couldn’t claim for employer NICs through the scheme

Pension Contributions

Pension contributions must be calculated on the full amount paid to the employee:

• Minimum 3% employer contribution (8% total with employee contribution)
• Calculated on qualifying earnings (between £6,240 and £50,270 for 2020/21)
• From August 2020, employers couldn’t claim for pension contributions through the scheme

Comparison of Furlough Scheme Phases

Scheme Phase	Dates	Government Contribution	Employer Contribution	Flexible Working Allowed
Original Furlough	March – June 2020	80% of wages (up to £2,500)	NICs and pension only	No
Flexible Furlough 1	July 2020	80% of wages for unworked hours	NICs and pension	Yes
Flexible Furlough 2	August 2020	80% of wages for unworked hours	NICs, pension, and employer contributions for unworked hours	Yes
Flexible Furlough 3	September 2020	70% of wages for unworked hours	NICs, pension, and 10% of wages for unworked hours	Yes
Flexible Furlough 4	October 2020	60% of wages for unworked hours	NICs, pension, and 20% of wages for unworked hours	Yes

Legal Requirements and Documentation

To comply with HMRC requirements, employers must maintain specific records for at least 6 years:

• The amount claimed and claim period for each employee
• The claim reference number
• Calculations showing how the claim amount was determined
• Usual hours worked, including any calculations
• Actual hours worked
• Copies of any flexible furlough agreements with employees

HMRC has the right to audit claims and may request this information. Failure to provide adequate records could result in having to repay grants and potential penalties.

Alternative Support Schemes

For businesses that didn’t qualify for the furlough scheme or needed additional support, several alternative measures were available:

• Self-Employment Income Support Scheme (SEISS): For self-employed individuals
• Bounce Back Loan Scheme: Loans of up to £50,000 with government-backed guarantees
• Coronavirus Business Interruption Loan Scheme (CBILS): Loans of up to £5 million
• Job Support Scheme: Introduced after furlough ended to support viable jobs
• Statutory Sick Pay (SSP) Rebate: For employers with fewer than 250 employees

Frequently Asked Questions

Can employees work for another employer while on flexible furlough?

Yes, employees could work for another employer while on flexible furlough, provided their contract with their primary employer allowed it. The original furlough agreement should specify whether this is permitted.

How does flexible furlough affect holiday pay?

Employees continued to accrue holiday as normal during flexible furlough. Holiday pay should be calculated based on the employee’s normal rate of pay, not their furlough rate. If an employee takes holiday while on flexible furlough, the employer must top up their pay to 100% of their normal wage.

What happens if an employee is made redundant during flexible furlough?

If an employee is made redundant, their redundancy pay should be based on their normal wage, not their furlough wage. The furlough scheme could not be used to pay for redundancy payments.

Can apprentices be put on flexible furlough?

Yes, apprentices could be furloughed in the same way as other employees. However, employers were encouraged to continue apprenticeship training where possible, and apprentices could continue training while furloughed.

Resources and Further Reading

For official guidance on the flexible furlough scheme, consult these authoritative sources:

• UK Government: Claim for wages through the Coronavirus Job Retention Scheme
• UK Government: Changes to the Coronavirus Job Retention Scheme
• University of Warwick: COVID-19 and Furlough Scheme Analysis

Conclusion

The flexible furlough scheme provided vital support to businesses and employees during the COVID-19 pandemic, offering a bridge between full lockdown and economic recovery. While the scheme has now ended, understanding how it worked remains important for historical payroll records, potential audits, and as a reference for future similar schemes.

For employers who utilized the scheme, proper documentation and accurate calculations were essential to ensure compliance and avoid potential repayment obligations. The scheme demonstrated how government intervention can help preserve jobs during economic crises, though its complexity also highlighted the challenges in designing and implementing such large-scale support measures.