Furlough Calculation Example

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Comprehensive Guide to Furlough Pay Calculations in the UK

The Coronavirus Job Retention Scheme (CJRS), commonly known as the furlough scheme, was introduced by the UK government to support employers and employees during the COVID-19 pandemic. This guide explains how furlough pay is calculated, what you’re entitled to, and how to maximize your claim.

1. Understanding Furlough Pay Basics

Furlough pay is designed to cover 80% of an employee’s regular wages, up to a monthly cap of £2,500. The scheme was initially fully funded by the government but later required employer contributions. Here’s what you need to know:

• Eligibility: Employees must have been on the PAYE payroll on or before 30 October 2020 (for most claims)
• Minimum period: Furlough periods must last at least 7 calendar days
• Flexible furlough: Employees can work part-time and be furloughed for their non-working hours
• Claim deadlines: Claims must be submitted within 14 days of the end of the claim period

2. How Furlough Pay is Calculated

The calculation depends on your employment status and pay structure. Here’s the breakdown:

For employees with fixed salaries:

1. Take 80% of the employee’s regular wage (as of 19 March 2020 or their last pay period before that date)
2. Apply the £2,500 monthly cap (pro-rated for shorter periods)
3. Calculate employer National Insurance contributions (ER NICS) on the furlough pay
4. Calculate minimum employer pension contributions (3% of qualifying earnings)

For employees with variable pay:

Use the higher of either:

• The same month’s earning from the previous year (e.g., earnings from February 2019 for February 2021 claims)
• The average monthly earnings from the 2019-2020 tax year

Pay Type	Calculation Method	Example (£2,500 monthly salary)
Fixed salary	80% of regular pay (capped at £2,500)	£2,000 (80% of £2,500)
Variable pay (2019 comparison)	80% of higher of same month 2019 or 2019-20 average	£1,840 (80% of £2,300 average)
Zero-hours contract	80% of average weekly earnings in 2019-20	£416 (80% of £520 average)

3. Employer Contributions and Costs

From July 2020, the scheme required employers to start contributing to furlough costs. The contribution requirements changed over time:

Period	Government Contribution	Employer Contribution
March-June 2020	100% of wages (up to £2,500) + ER NICS + pension	None
July 2020	80% of wages (up to £2,500)	ER NICS and pension
August 2020	80% of wages (up to £2,500)	ER NICS, pension and 10% of wages
September 2020	70% of wages (up to £2,187.50)	ER NICS, pension and 20% of wages
October 2020	60% of wages (up to £1,875)	ER NICS, pension and 20% of wages

For most claims, employers could claim:

• The furlough grant (80% of wages, capped at £2,500)
• Associated Employer National Insurance contributions
• Minimum automatic enrolment employer pension contributions (3% of qualifying earnings)

4. Common Furlough Calculation Mistakes

Avoid these frequent errors when calculating furlough pay:

1. Using the wrong reference period: Always use the correct reference date (19 March 2020 for most employees) or the 2019-2020 tax year for variable pay.
2. Incorrectly pro-rating the cap: The £2,500 cap must be adjusted for partial months or non-monthly pay periods.
3. Forgetting about pension calculations: Pension contributions are calculated on the lower of 80% of regular pay or the cap amount.
4. Miscounting furlough days: For flexible furlough, you must calculate the exact number of furloughed hours.
5. Missing claim deadlines: Claims must be submitted within 14 calendar days of the end of the month they relate to.

5. Special Cases and Exceptions

Some employment situations require special handling:

Employees with multiple jobs:

Each job is treated separately. The £2,500 cap applies to each employment.

Employees on statutory leave:

Different rules apply for employees on maternity, paternity, adoption, shared parental or parental bereavement leave. They should receive their statutory pay or furlough pay, whichever is higher.

Apprentices:

Apprentices can be furloughed but must receive at least the Apprentice Minimum Wage for all time spent training (minimum 20% of normal hours).

Company directors:

Directors can be furloughed but can only perform statutory duties (like filing company accounts). Their pay is calculated based on their PAYE salary, not dividends.

6. Tax and National Insurance Implications

Furlough payments are subject to normal tax and National Insurance deductions:

• Income Tax: Furlough pay is subject to PAYE income tax in the usual way
• Employee National Insurance: Deducted at 12% (between £184-£967 per week) or 2% (above £967 per week)
• Employer National Insurance: Payable at 13.8% on earnings above £170 per week
• Pension contributions: Minimum 3% employer contribution and 5% employee contribution on qualifying earnings

The government initially covered employer NICs and pension contributions, but these became the employer’s responsibility from August 2020.

7. Record Keeping Requirements

HMRC requires employers to keep detailed records for 6 years including:

• The amount claimed and claim period for each employee
• The reference pay calculation for each employee
• Usual hours worked (for flexibly furloughed employees)
• Actual hours worked (for flexibly furloughed employees)
• Copies of all furlough agreements with employees

Failure to maintain proper records can result in HMRC rejecting claims or requiring repayment of grants.

8. Alternative Support Schemes

If you’re not eligible for the furlough scheme, consider these alternatives:

• Self-Employment Income Support Scheme (SEISS): For self-employed individuals
• Job Support Scheme: Replaced furlough in November 2020 (now closed)
• Statutory Sick Pay (SSP): For employees unable to work due to COVID-19
• Universal Credit: For individuals needing additional support
• Business interruption loans: For employers facing cash flow issues

Frequently Asked Questions

Can I work while on furlough?

No, during hours you’re recorded as being on furlough, you cannot do any work that makes money or provides services for your employer. However, you can:

• Take part in training
• Volunteer for another employer or organisation
• Work for a different employer (if your contract allows)

What happens if my employer can’t afford to top up my pay?

Employers are not legally required to top up furlough pay to 100% of normal wages. If your employer cannot afford to top up your pay:

1. You’ll receive 80% of your regular pay (up to £2,500)
2. You may be eligible for Universal Credit or other benefits
3. You can look for additional work (if your contract allows)

How is furlough pay calculated for employees with irregular hours?

For employees with variable pay, use the higher of either:

1. The same month’s earning from the previous year (e.g., earnings from March 2019 for March 2021 claims)
2. The average monthly earnings from the 2019-2020 tax year

Then take 80% of that figure (subject to the £2,500 cap).

Can I be made redundant while on furlough?

Yes, employees can be made redundant while on furlough. If this happens:

• You should receive redundancy pay based on your normal wage, not your furlough pay
• You’re entitled to a notice period (which can be served while on furlough)
• You may be eligible for statutory redundancy pay if you’ve worked for your employer for 2+ years

Authoritative Resources

For official guidance on furlough calculations, consult these authoritative sources:

• UK Government: Claim for wages through the Coronavirus Job Retention Scheme
• Treasury Direction: Official legal framework for the CJRS
• University of Warwick: COVID-19 and Employment Rights Research