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Furlough for the self-employed explained: guide to furloughing employees and company directors

6-minute read

Sam Bromley

12 November 2020

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Can you furlough yourself? How do I furlough an employee? Our guide for the self-employed explains more about the furlough scheme, otherwise known as the Coronavirus Job Retention Scheme (CJRS).

The furlough scheme was originally due to end on 31 October. But with further restrictions announced, Rishi Sunak has confirmed that the furlough scheme is being extended until March 2021.

Rather than closing up shop and making people redundant, furloughing employees is one way businesses can try to stay afloat while they’re unable to trade (either completely or to their usual capacity).

Here’s a closer look at the definition of furlough, who’s eligible for the scheme, and how it works.

What does furlough mean?

Furlough is a type of leave from work. It lets you keep your staff on without them working, while the government pays a portion of their usual wage.

This is seen as better than laying them off without pay or making them redundant because of the coronavirus pandemic.

What’s a furloughed worker?

You can define your employees as ‘furloughed workers’ under the Coronavirus Job Retention Scheme (CJRS) if you pay them through PAYE (Pay As You Earn).

The scheme has been set up for employers with businesses that have been severely affected by the Covid-19 outbreak. It helps you by paying part of your workers’ monthly wages.

What happens during furlough?

Your employees will be off work and can’t do any work for you while they’re furloughed.

But you can furlough flexibly, meaning your employees can work for you part time – you’ll pay their usual wage.

Your employees will be paid 80 per cent of their monthly earnings for hours not worked, up to a maximum of £2,500 a month. The government will review this level of pay in January 2021.

80 per cent is the same level seen at the beginning of the scheme and is more generous than September and October, which saw the government’s contribution gradually winding down. Employers were also required to make a contribution for hours not worked.

For November and December, you won’t need to make a contribution for hours not worked, and will only pay employer National Insurance Contributions (NICs) and pension contributions.

That being said, you can choose to top up your employee’s wages if you wish.

The leave is intended for businesses to bring their workers back to working for them after the furlough period has ended. However, in some cases, furlough may then lead to redundancy.

Is my business allowed to furlough people?

Any employer in the UK with a UK bank account and UK PAYE scheme is eligible for the Coronavirus Job Retention Scheme (CJRS).

Which type of workers can be furloughed?

Furloughing employees

To furlough an employee from November, they need to have been on your business’s payroll on or before 30 October 2020.

You must have made a Real Time Information (RTI) submission for each furloughed employee on or before 30 October. RTI means information about tax and other PAYE deductions that you transmit to HMRC every time you pay an employee.

If your employee is shielding in line with public health guidelines or lives with someone who’s shielding, they can be furloughed. Similarly, if an employee is temporarily unable to work because of childcare responsibilities or caring for a vulnerable person at home, they can be furloughed.

The government says that short-term illness and self-isolation shouldn’t be a consideration when deciding whether to furlough employees.

Furloughing casual workers

The scheme has been put in place to support all workers (not just employees) paid through the PAYE system on or before 30 October.

This means if you have apprentices, casual workers or zero-hours contract workers, they’ll still be covered if they’re paid through PAYE.

Can self-employed workers be furloughed?

If a worker is self-employed, they won’t qualify for furlough under the CJRS, but they might be eligible for in the form of the Self-employed Income Support Scheme (SEISS). This scheme has been set up to help self-employed people whose businesses have been adversely affected by the pandemic.

They’ll need to have trading profits of less than £50,000 and have submitted a Self Assessment tax return for tax year 2018-19.

As with the furlough scheme, the government has made the SEISS grant more generous for winter. Self-employed workers can get 80 per cent of average trading profits for November, December and January, rather than the 40 per cent previously announced.

Can company directors furlough themselves?

The guidance from HMRC appears to be that, as ‘office holders’, company directors may be furloughed and still carry out their ‘statutory duties’. They should do 'no more than would reasonably be judged necessary for that purpose', according to the government website. This means they shouldn't do work they'd be doing 'in normal circumstances to generate commercial revenue or provide services to or on behalf of their company'.

How to furlough staff: what process do I need to follow?

Before you begin the process of furloughing workers through the Coronavirus Job Retention Scheme (CJRS), they need to have agreed in writing to stop working for you and to be furloughed.

Claims for the extension to the Coronavirus Job Retention Scheme (CJRS) opened from 8am on 11 November at gov.uk. Businesses will be paid in arrears for the period at the beginning of November.

The government says that the CJRS extension will operate in the same way as before, in that:

  • you must report and claim for a minimum period of seven consecutive calendar days
  • you need to report actual hours worked and the usual hours an employee would be expected to work in a claim period
  • for hours worked, you will pay employees subject to their employment contract and employers will be responsible for paying the tax and NICs due

So when calculating a claim you need to:

  • work out the length of your claim period
  • understand what you can include when calculating wages
  • work out your employees’ usual hours and furloughed hours

You can read more about the steps to take before calculating a claim at gov.uk.

Furlough letter template

A furlough written agreement you make with an employee might generally include the following details:

  • the start date of the furlough
  • how much the furloughed worker will be paid
  • when the furlough will be reviewed
  • how to keep in touch during furlough
Download

Furloughing agreement letter for small businesses - free Word download

Choose to download your template now, or get it directly from Farillio’s site where you’ll also get access to their full suite of customisable legal templates.

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How do I furlough an employee through the Coronavirus Job Retention Scheme?

Claims opened on the government portal from 8am on 11 November 2020.

Claims relating to November 2020 must be made by 14 December.

It’ll be helpful to have the following information to hand:

  • your UK bank account number and sort code (which must accept BACS payments)
  • your employer PAYE scheme reference number
  • the number of employees to be furloughed
  • each employee’s National Insurance number (contact HMRC if you don’t have this)
  • the start date and end date of the claim
  • the full amount you’re claiming for, including employer National Insurance contributions and employer minimum pension contributions
  • your phone number
  • a contact name
  • your name (employer name), or your Corporation Tax unique taxpayer reference, or your Self Assessment unique taxpayer reference, or your company registration number
  • your Government Gateway user ID and password (which you get when you register for PAYE online)

What do I need to pay my workers while they’re furloughed?

Each eligible worker can get 80 per cent, or up to £2,500 a month, paid through the Coronavirus Job Retention Scheme (CJRS). You then have the option to decide whether to top up their wages to 100 per cent, but you don’t have to if you’re not able to.

If a furloughed employee is normally paid minimum wage, as long as they’re not doing any work for you, the minimum wage threshold doesn’t have to be met. This means they can be paid 80 per cent of their usual minimum wage income.

However, if they do any training while furloughed, they need to be paid the minimum wage for the hours they spend training. For example, this might apply to an apprentice who continues with their apprenticeship studies while furloughed.

What if the worker has more than one job?

If, for example, someone has two jobs, it’s possible for them to be furloughed for one or both of those jobs.

Each job is dealt with separately. If the worker is furloughed for both jobs, they’ll be eligible for the associated financial support (80 per cent pay, or up to £2,500) for both.

This article is intended for guidance only. You should seek professional advice before making any decisions regarding furloughing workers.

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We create this content for general information purposes and it should not be taken as advice. Always take professional advice. Read our full disclaimer

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