Calculating 80% pay for variable pay employees on furlough: Changes from 1 May 2021

Where employees are on furlough, employers can claim up to 80% of their ‘usual’ wages. The calculation of usual wages is different depending on whether the employee has fixed or variable pay. Currently, this includes different treatment as regards periods spent on maternity or other family related leave or sick leave; such periods are essentially disregarded for the purposes of the fixed pay calculation, but included for the purposes of the variable pay calculation, which can result in variable pay employees receiving a reduced level of furlough pay.

However, the Guidance: Calculate how much you can claim using the Coronavirus Job Retention Scheme has been updated and now states in respect of variable pay employees:

for claim periods which start on or after 1 May 2021 only, when you calculate the amount of wages at step 1 and the number of calendar days in step 2, you should not include days during or wages related to a period of:

  • statutory sick pay related leave
  • family related statutory leave
  • reduced rate paid leave following a period of statutory sick pay related leave
  • reduced rate paid leave following a period of family related statutory leave

That is unless the employee was on one of these kinds of leave throughout the entire period used to calculate their average wages, in which case you should include the days during and wages related to that leave.

Wages related to these kinds of leave include salary for the time off, statutory payments for the time off and allowances for the time off. You should still include payments that are not derived from a particular period, for example performance related (non-discretionary) bonuses.

Payroll will need to be aware of the upcoming change in order to ensure that employees on furlough receive the correct pay and employers claim the correct amount under the CJRS from May onwards.