The furlough scheme currently supporting 7.5 million jobs through the coronavirus crisis will be extended until the end of October.
Chancellor Rishi Sunak announced the news in the Commons.
The scheme - which pays 80% of a worker's salary up to a £2,500 monthly cap - will remain unchanged until the end of July and then continue with employers expected to start footing some of the multi-billion pound bill.
Mr Sunak told MPs that from August there will be greater flexibility in order to allow furloughed staff to begin returning to work.
"Employers currently using the scheme will be able to bring furloughed employees back part-time," he said.
"And we will ask employers to start sharing with the Government the cost of paying people's salaries."
Under the scheme - which has already cost the taxpayer £10 billion - staff will continue to receive the current level of support through a combination of state and employer contributions.
Details will be announced at the end of the month following consultations with business, but officials have acknowledged the state will continue to make the largest contribution.
Mr Sunak's announcement came as new analysis by the PA news agency puts the death toll at just over 40,000, following new figures on care home deaths released by the Office for National Statistics (ONS).
This includes deaths from Covid-19 and where it has been mentioned on the death certificate as a factor.
Published:12/05/2020 by Radio NewsHub