Written 5 April 2020
We’ve been asked a lot of questions about the support packages announced by the Government for small businesses over the last few weeks. An important aspect of this was the Coronavirus Job Retention Scheme (CJRS), and in particular the process known as furloughing. This is effectively where a business has no work for an employee, but instead of laying them off, the employee is retained and paid, whilst effectively sat at home and not working.
We have received a lot of enquiries from clients asking how it will work. At the moment, we only know what HM Revenue and Customs (HMRC) have decided to let us know. They maintain that further details will follow in due course. They expect it to be available by the end of April 2020. In the meantime, we thought it would be useful to highlight 3 aspects of furloughing which you may or may not be aware of.
1 You need to write to your employees
If you have an employee who you don’t have any work for, and you need to furlough them, then you need to write to them letting them know what you are doing. This is important as HMRC have the right to retrospectively audit any element of the claims made. Also, if an employee has reduced hours or pay, then they are not eligible to be furloughed.
ACAS has produced a template of a letter, which can be found here.
2 Employees can be furloughed and unfurloughed
Furloughing has a certain amount of flexibility – it’s not a case of ‘no work, no employees’. It is possible that only part of your workforce can be furloughed. The minimum length of time that an employee can be furloughed for is 3 weeks, after which they can be unfurloughed. If employees are furloughed for multiple times, each separate period of furloughing must be for a minimum of 3 weeks.
3 Directors can be furloughed
This is probably one of the greyer areas associated with the CJRS and furloughing. However, after a couple of weeks of uncertainty, the guidance has now been updated to include the following:
As office holders, salaried company directors are eligible to be furloughed and receive support through this scheme. Company directors owe duties to their company which are set out in the Companies Act 2006. Where a company (acting through its board of directors) considers that it is in compliance with the statutory duties of one or more of its individual salaried directors, the board can decide that such directors should be furloughed. Where one or more individual directors’ furlough is so decided by the board, this should be formally adopted as a decision of the company, noted in the company records and communicated in writing to the director(s) concerned.
Where furloughed directors need to carry out particular duties to fulfil the statutory obligations they owe to their company, they may do so provided they do no more than would reasonably be judged necessary for that purpose, for instance, they should not do work of a kind they would carry out in normal circumstances to generate commercial revenue or provides services to or on behalf of their company.
This also applies to salaried individuals who are directors of their own personal service company (PSC).
Further details can be found here.
We are obviously not experts on this, we are simply going from the limited information and guidance available, and will hopefully provide more guidance and advice when it is available. We would also urge all employers who may be affected to regularly visit HMRC’s website, as it should be updated when more details are available.
Also, this article is written with employers in mind.