Can directors be placed on furlough leave?

If you’re a director of a company, can you be furloughed along with standard employees? Let’s find out more.

For some businesses, it’s hard to underestimate the effect the Coronavirus crisis has had. Many will have seen their people forced to stay at home, their demand decimated and their revenue cut off at source.

The Government has, as a result, introduced various legislative provisions to help people and businesses through this situation. It has introduced the Coronavirus Job Retention Scheme, or ‘furloughing’, allowing employers to retain their staff by guaranteeing 80% of their wages while they lockdown at home. It has also taken steps to help self-employed people, by offering a taxable grant to the value of 80% of their average monthly income.

However, there is one group that may feel that they are not receiving the same consideration from the Government – company directors.

In this article, we will look at how the furloughing scheme applies to company directors.

Furloughing

In answer to the question in the title – yes. Company directors can be furloughed. If company directors agree to go on furlough leave, their company can claim for 80% of their wages, as well as some pension contributions and NICs, up to a value of £2500 per month. This amount can be paid to the director as an income for the period of furloughing.

How much will directors receive?

While company directors can be placed on furlough leave, some may find it doesn’t work for them. If as a company director, you pay yourself a notional salary and take dividends as the rest of your income, you may experience a dramatic drop in income. This is because the Government’s scheme only guarantees salaries; it will not underwrite dividends.

If your notional salary is below the 0% tax threshold (currently £12,500 per year), then your monthly income from the furlough scheme could be less than £834 per month. You may find it to be more financially prudent to stay working in the company.

Directors’ duties

One of the differences between furlough rules for employees and company directors regards what you can do while you are on furlough leave.

For employees, you are not allowed to do any work for your company while you are furloughed. Company directors, on the other hand, are still allowed to perform their ‘statutory duties’. We are still waiting for clarification on what precisely the Government means by ‘statutory duties’. However, it is safe to say that providing services to customers, or any commercial activities, will be prohibited.

What next?

It is understandable that some company directors may feel that they are carrying a more substantial share of risk, especially compared to self-employed people. Hopefully, the lockdown period will be short, we can all go back to work and the economy will bounce back; but, that is not guaranteed. Perhaps the Government will acknowledge the role they are playing with favourable tax reforms in the future? We will have to wait and see.

Find out more

There is a lot of information to take in at the moment, and every business is different.

If you have any questions about Employment Law during the COVID-19 crisis, it’s time to talk to Couchman Hanson.

We are currently offering you a free, 30-minute call with a Couchman Hanson employment lawyer, where you can get all your questions answered. It’s peace of mind during these uncertain times.  

To find out more, call 01428 722189 or email enquiries@couchmanhanson.co.uk