A Director Can be Furloughed
It has now been clarified that a director can furloughed like a normal employee.
However, the director must not perform any work in the company other than undertaking their statutory duties while furloughed, such as filing company accounts and other required legal filings.
And remember it is only the GROSS SALARY (not the DIVIDENDS) that can be furloughed.
The details from my earlier blog regarding furloughing employees is reproduced below.
If your business is being adversely affected by the Covid-19 crisis is to place some or all of them on ‘furlough leave’ or Job Retention Scheme (JRS) as the government calls it.
The government have agreed to cover 80% of the gross salary (up to a maximum of £2,500 per employee month) of those furloughed employees, although it may be the end of April before the funding is received from the government.
You can pay more than the 80% but will only receive funding for 80%. You should check your employment contracts to ensure that employees are not entitled to 100% in the case of a lay off. If you are in any doubt about the contractual state of your employees you should seek independent HR advice.
Furlough is from 1 March 2020, so is to be backdated. It will last for at least 3 months and will be extended if necessary. Note that while the scheme is backdated to the beginning of March as it is intended to support all those employed then, a firm will only be eligible to claim the grant once they have agreed the furlough with their staff and staff have stopped working for the employer. This will of course be subject to employment law in the usual way.
A sample Furlough letter can be found at this link
The Rules in official statements at 23 March 2020 are:
- It is available to employees on the payroll at 28 February 2020.
- The scheme pays a grant (not a loan) to the employer.
- Once furloughed, the employee must not carry out any work whatsoever. If you do not follow these rules your claim may be withdrawn.
- All UK businesses are eligible, ‘any employer on the country, small or large, charitable or non-profit’ to use the Chancellor’s words.
- The grant will be paid to the employer through a new online system which is being built for this purpose.
- The employer will pay the employee through payroll, using the Real Time Information (RTI) system as usual, as required by the employment contract. This contract may be renegotiated but that is a matter for employment law. So RTI system reporting of payroll will continue as normal.
You must discuss with your employees about being classified as furloughed and what it means and obtain their agreement, preferably written or in email.
HMRC are working urgently to set up a system for reimbursement. Existing systems are not set up to facilitate payments to employers.
The Government hopes to have processed the furlough grants by the end of April but if a business needs short term cash flow support, it may be eligible for a Coronavirus Business Interruption Loan.
HMRC will have the right to audit businesses who are claiming the furlough grants, although I can’t see how they will have the staff or time to do this on any large scale.
As this is an unprecedented situation, I emphasize these views are only guidance and should not be taken as law. If you are in any doubt you should seek specialised HR advice, especially is there are unusual circumstances with your employees that don’t fit the norm.
Paul has been engaged in the accounting profession since 1988 after leaving the University of Manchester with a BSc (Hons) in Computer Science & Accounting. He qualified with Price Waterhouse Coopers in 1991. After a successful period in industry and a spell working in a local firm of Chartered Accountants, Paul decided to go it alone and established Haywards in 1994. In his spare time, Paul enjoys going to the gym, running, learning guitar and tormenting his Jack Russell, Arnie, and his Jackapoo, Stig. Along with his daughter (his wife hates football!), Paul is also a keen, but distressed, Wigan Athletic fan.