Coronavirus Job Retention Scheme: furlough for company directors?

31 March 2020

The Government has, over the past few weeks, announced a huge amount of support to businesses and the general workforce of the UK and are currently in the process of putting the systems in place to provide that financial support.

One category of employee that has specifically not been mentioned is the company director/shareholder who is paid a salary and dividends and various bodies are pushing for more clarification on these individuals.

Under the provisions of the Coronavirus Job Retention Scheme, the ‘furloughing’ of employees means that the employer retains the employees on the businesses payroll but under the terms of the scheme in order to receive an the 80% grant from HMRC towards the employee’s costs (to a maximum of £2,500). In order to be eligible, the furloughed employees cannot undertake any work for the business whilst they are furloughed.

It is open for a business to furlough any or all of its employees in order for the business to take advantage of the scheme. However, in company terms, whilst the Director is also an employee they also have other duties. There is a distinction between directors who have an existing employment contract in place and those who do not, since it appears easier to furlough in respect of performing the duties expected as an ‘employee’. Many companies, particularly owner managed businesses, do not ordinarily bother putting these in place but technically you could have two separate contracts; a service contract and an employment contract.

It is anticipated that directors will not be furloughed in respect of their duties as a company officer although where there are several directors it might be possible to furlough all but one, leaving the remaining director to conduct all ongoing fiduciary duties.

Specific guidance as to what constitutes work for a director as an employee has not been provided. Discussions amongst professionals and their advisory bodies have mentioned that the statutory duties of running the company do not constitute work and so filing accounts/confirmation statements and maintaining company assets are not work for this matter. However, looking at a sales quote/production rotas/dealing with payments/payroll etc would.

HMRC have noted that once the scheme is in place they will be dealing with a number of claims in the first instance and will most probably just make the payments to businesses, as requested, but they will seek to ‘audit/check’ some of these calculations as time passes and so it is imperative that jobs are only undertaken by those non-furloughed individuals/directors, in order to ensure the validity of the grant claim.

We are still awaiting further official guidance and clarity around the position for company directors, and will provide an update as soon as we have information.

UPDATE:

If you have questions in relation to the Coronavirus Job Retention Scheme and the furloughing of employees, including updated information on the eligibility of company directors, please read our FAQs page within our COVID-19 section.