In response to the COVID-19 outbreak, the government announced the now very familiar job retention scheme whereby employees could be placed on furlough leave and employers can claim 80% of their salary in the form of a government grant (subject to a cap of £2,500 per month). (Furlough leave for employees is discussed in more detail here)
The scheme works to assist businesses in preventing mass redundancies as many cannot continue to do their jobs during the coronavirus crisis. The furloughed employee is therefore effectively on gardening leave during the period of furlough and must not do any work for the employer. Due to this being a condition of the scheme, initially there was some uncertainty as to whether or not salaried directors could be furloughed as they are obliged to comply with certain duties under the Companies Act 2006 on an ongoing basis and this could be perceived as part of their work undertaken for the company.
Guidance on how employers and employees can use the scheme, published on 26 March 2020, has since been updated twice (4 and 9 April 2020). The guidance now confirms that, as long as salaried directors do not carry out any work of the kind that they would usually do to generate revenue for the company:
- they are eligible to be furloughed through the scheme;
- they may carry out duties enabling them to comply with their statutory obligations to the company if those actions would be judged reasonably necessary for that compliance; and
- the scheme extends to an individual who is a sole director of their own personal services company.
The arrangements for furlough must be adopted formally and recorded in the company records.
The job retention scheme is currently running for three months from 1 March 2020 until the end of May. However, if the Government deems it necessary, the scheme may be extended to help businesses survive the economic impact of coronavirus.