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Directors and the Coronavirus Job Retention Scheme

14 May 2020

As part of its response to the ongoing coronavirus pandemic, the UK government has announced a series of measures to support continuous employment by UK companies and businesses.

The sharp slowdown in business activity has meant many employers have no work for employees, and cannot afford to keep them on. To prevent a huge number of lay-offs or redundancies, the UK government is to cover a large share of the wages of inactive employees who would otherwise have been laid-off or made redundant. Through the Coronavirus Job Retention Scheme (the Scheme), inactive employees will remain employees of a company or business, but will be placed on “furlough” – paid leave of absence.


Coronavirus Job Retention Scheme – Key aspects, as of 14 May 2020

  • The Scheme is being operated by HMRC. A dedicated HMRC portal has been created, open from 20 April 2020. Employers use the portal to submit the details of furloughed employees and the salary value being claimed.
  • The Scheme is available to all employers operating a PAYE scheme. This includes private, charitable and not-for-profit companies.
  • The Scheme will cover all employees on the payroll and issued a PAYE number on or by 19 March 2020.
  • Employees recently (Since February 2020) made redundant because of coronavirus impacts may be restored and furloughed.
  • Until an employee is furloughed the employer remains responsible for payment of salary in accordance with the contract of employment.
  • Once furloughed, an employee must not provide any service to the employer, or generate revenue for the employer. Furloughed employees may undertake training, or perform voluntary work.
  • Actual monies will be paid as a reimbursement grant to the employer. Because the payment is a grant, employers are not required to pay the money back in future.
  • The Scheme covers 80% of the employee’s salary, up to a maximum support payment of £2,500 per month.
  • Employees will remain on the payroll and employers will deduct tax and the employee’s NI in the normal way.
  • The employer is not mandated to pay the other 20% of the employee’s salary but unless there is a lay-off clause in the contract of employment entitling the employer to reduce or not pay salary, consent will have to be obtained from the employee to a 20% reduction of salary.
  • If employers want to top up salaries, they can but they will not be reimbursed for more than 80% of £3,125.
  • If an employee’s total salary is reduced as a result of the Scheme, they may be able to make a claim through the welfare system, including Universal Credit.
  • The Scheme is backdated to support employees inactive since 01 March 2020.
  • The Scheme will operate until the end of October 2020.
  • From August 2020, the UK government will introduce flexibility to allow a partial return to work by furloughed employees. Further details expected by July  2020.
  • The UK government will require employers to share the cost of the scheme from August 2020. Details of employer participation have yet to be released, but the UK government website states that the employer contribution will "substitute" the amount (80%) currently paid by the state.
  • The UK Government has the right to audit the Scheme, including retrospectively, and recoup payments made in fraudulent or erroneous circumstances.
  • If an employee is working reduced hours, the employer cannot claim under the Scheme so as to ‘top up’ salary.
  • Holiday will continue to accrue during furlough leave.

How to furlough employees

  • The employer must first determine whether the situation leaves no option but to lay-off employees or make them redundant.
  • The employer must then inform the affected employee(s) of the decision to furlough them. Relevant clauses in the contract of employment will still apply. There may be need for negotiation and written agreement, particularly if an employer is requiring the furloughed employee to take a 20% reduction in salary.
  • The employer must then use the new HMRC portal to register the names and salary details of furloughed employees (Remember – the government will pay up to £2,500 per month). In cases of up to 99 individual furloughs, the data of each employee may be entered into the portal directly. For furloughs of 100 or more employees, the data must be compiled and uploaded as a file. File types .xls, .xlsx, .csv and .ods will be accepted.
  • The precise information required in all cases is: National insurance number, claim period, amount and the payroll/employee number (optional).
  • The UK government says the first reimbursement payment should start being distributed before the end of April 2020.

Can a director furlough themselves?

As part of their efforts to keep their businesses afloat, company directors may consider placing themselves on furlough. This raises a number of issues:

  • The Coronavirus Job Retention Scheme only supports permanent employees. An executive director is usually the most senior contracted permanent employee of a business, so would qualify. Non-executive directors are not permanent employees, so would not qualify.
  • Furloughed employees must not perform any work for the employing business – few company directors can meet the requirement to remain entirely inactive. Depending on the size and needs of the company, it may be possible to furlough one or more directors.
  • The UK government has recently indicated that a director can furlough and continue with their statutory duties. However, references to these duties only mention certain compliance activities such as filing accounts. Given that one statutory duty of a director is "to promote the success of the company", the IoD has asked the government to urgently clarify the extent to which a furloughed director can act to save their company.
  • Directors paid a nominal salary but receiving the bulk of their reward through dividends would only receive 80% of the nominal salary (if they qualify). Payment-by-dividends is not supported by the Scheme. The IoD is campaigning for the government to extend financial support to the hundreds of thousands of micro- and small business directors who currently do not qualify for the Coronavirus Job Retention Scheme or the recently-announced support for the self-employed.

Obtaining Agreement

In all circumstances it is prudent to obtain an employee’s consent to any change. Even where there is a lay-off clause in the contract of employment, consent is a wise precaution because there could be disagreement over how long the lay-off was intended to last.


Example furlough letter (to be amended to your particular circumstances)

Dear xxx

We are writing to confirm our discussions relating to the terms of your continuing employment during the current Coronavirus pandemic. This is a variation of your contract of employment, designed to implement and take advantage of the Government’s Coronavirus Job Retention Scheme.

We have agreed that from [ ] you will be on Furlough Leave. This means your contract of employment continues, but you shall not be required to undertake any work for us. We will pay you 80% of your salary subject to a maximum liability to us of £2,500 per month, including employer’s national insurance contributions and employer’s pension contributions.

We are keeping the situation under review and will maintain contact with you [by email]. Please update us if any of your contact details change.

Your Furlough Leave shall end on the earliest of the following events:

  • The Government’s Coronavirus Job Retention Scheme ending,
  • either you or us ceasing to be eligible for funding under that scheme, or
  • us deciding to cancel Furlough Leave and ask you to recommence work.

During your Furlough Leave you may not work for any other organisation, or on your own account. If you do, you must tell us, and you may be liable to repay any sums we have paid you under the scheme if we become liable to repay it to the Government.

[You have agreed that until the Coronavirus Job Retention Scheme is operational (which we understand will be towards the end of April 2020) you will defer payment of your salary. This will be reimbursed to you once the scheme is operational]

If you have any questions please do not hesitate to contact xxxx.

Please acknowledge safe receipt of this letter and your agreement to its terms. This will enable us to include you in our application under the Coronavirus Job Retention Scheme.


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