A significant proportion of the updated Treasury Direction (TD) is devoted to how you calculate pay for those who can now be flexibly furloughed. In this article we look at the impact of the TD and what this means in practice for both employers and employees. 

We previously reported (LELR 675) on the changes to the Coronavirus Job Retention Scheme (CJRS). Since 1 July 2020 employers have been able to bring employees who have previously been furloughed for at least three weeks back to work on a part time basis. Employers are required to pay employees at the full rate of pay for the hours that they work. They are also required to pay employees at least 80 per cent of their wages for the period that they are flexibly furloughed, which they can then claim back through the scheme.

The majority of the updated 33-page Treasury Direction sets out in detail how employers should calculate pay in order to claim the grant to cover the wage cost of those employees an employer chooses to flexibly furlough.

Hours of work

Flexible furlough provides employers with an opportunity to bring workers back to work gradually, while still being able to claim a grant towards the wages of employees for the period in which they are not working.

However, the employer will have to carry out a detailed calculation to claim the grant towards the wage costs for employees on flexible furlough by working out the usual hours worked by the employee in the claim period (a period of seven days or more) and deducting the number of hours actually worked. The calculation is complex and involves applying a particular formula depending on the period being claimed for and whether the worker is a fixed rate employee (i.e. salaried) or non-fixed rate employee (i.e. variable hours or variable pay). While it may be that including such detail was intended to assist employers it may end up having the opposite effect and discourage not only smaller employers, who do not have sophisticated payroll systems in place, but also larger employers who will have to undertake separate individual calculations for each employee from engaging in the exercise. The overriding concern therefore, is that some employers may choose to make employees redundant rather than spending large resources on carrying out detailed calculations to work out furlough pay. This is despite the fact that the purpose of the CJRS is to help employers retain employees.

Varying hours

The Treasury Direction makes clear that under the flexible furlough scheme there is no minimum period which an employer has to flexibly furlough an employee. An employer can therefore not only bring a furloughed employee back to work for just one day a week but, because the minimum claim period is one week, it means that an employer could also vary the days and hours that a worker can be required to work flexibly from week to week. 

There will though, need to be individual notification and acceptance of new flexible furloughing arrangements (and there can be more than one), or (again one or more) collective agreement(s).

These should be reviewed before the CJRS ends on 31 October 2020.

Flexible furlough pay

Although the level of grant which the employer can claim towards its wage costs is being reduced (see LELR 674) the employer is required to continue to pay its employee at least 80 per cent of their “regular salary or wages” (capped at £2,500 per month) for each period they are furloughed.

To calculate the regular salary or wages of a fixed rate employee the employer must use the actual salary before tax in the last salary period ending on or before 19 March 2020. Regular salary or wages does not include benefits in kind, anything in lieu of a cash payment (i.e. salary sacrifice) or anything else which is not regular. Nor does it include discretionary payments. The Treasury Direction confirms that the following are non-discretionary payments and so should be included in regular salary or wages:

  • overtime, fees, commissions or piece rates
  • payments made in recognition of the employee undertaking additional or exceptional responsibilities
  • payments made in recognition of the circumstances in which the employee undertakes the employee’s duties or time when they are undertaken (e.g. shift premia).


The Treasury Direction also makes clear that performance related payments can be included in regular salary and wages where these are set out in a legally enforceable agreement which prescribes how the payment is calculated.

Impact on employees

The way in which pay is calculated can give rise to pay differentials between groups of employees. For example, a furloughed employee may receive more money for the hours they work under flexible furlough than an employee who was put on reduced hours at the beginning of lockdown. 

Employers should therefore negotiate with unions and workplace representatives where the union is not recognised, to address these pay differentials and ensure they do not discriminate against workers with a protected characteristic. Employers cannot get around this difficulty by simply unilaterally reducing the pay of those previously furloughed, as that would be a breach of the TD and a breach of contract.

To read the Treasury Direction in full go to https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/895778/Further_Treasury_Direction_made_on_25_June_2020_under_Sections_71_and_76_of_the_Coronavirus_Act_2020.pdf

To read the government guidance, ‘Claim for wages through the Coronavirus Job Retention Scheme’ in full go to https://www.gov.uk/guidance/claim-for-wages-through-the-coronavirus-job-retention-scheme?utm_source=24e697a9-a8bb-4654-9809-971bf13e2423&utm_medium=email&utm_campaign=govuk-notifications&utm_content=immediate

To read the government guidance, ‘Calculate how much you can claim using the Coronavirus Job Retention Scheme’ in full go to: https://www.gov.uk/guidance/calculate-how-much-you-can-claim-using-the-coronavirus-job-retention-scheme?utm_source=eb6fb9b0-8fd2-42e9-b905-adaf3ebcdb1f&utm_medium=email&utm_campaign=govuk-notifications&utm_content=immediate

To read the government guidance, ‘Steps to take before calculating your claim using the Coronavirus Job Retention Scheme’ in full go to: https://www.gov.uk/guidance/steps-to-take-before-calculating-your-claim-using-the-coronavirus-job-retention-scheme?utm_source=8f006c27-4f6f-453f-910d-11535f9f0838&utm_medium=email&utm_campaign=govuk-notifications&utm_content=immediate

To read the examples for employers, ‘Examples of how to calculate your employees' wages, National Insurance contributions and pension contributions’ in full go to: https://www.gov.uk/government/publications/find-examples-to-help-you-work-out-80-of-your-employees-wages/examples-of-how-to-work-out-80-of-your-employees-wages-national-insurance-contributions-and-pension-contributions

Articles shared by Thompsons relating to coronavirus (COVID-19) are correct at the time of publication. You should check the government's guidelines for the latest information and advice at https://www.gov.uk/coronavirus.