FAQ: As a Director, can I be furloughed under the Employment Retention Scheme?

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FAQ: As a Director, can I be furloughed under the Employment Retention Scheme?

One of the most common questions we are currently asked is “As a Director, can I be furloughed under the Employment Retention Scheme?”

Given that one of the main conditions of the scheme is that no work is undertaken, there are forums that suggest that even to send so much as a tweet could be tantamount to fraud. The decision to furlough a director must not therefore be taken lightly.

An Argument for continuing to work as a Director of the Company.

Directors have a statutory responsibility to fulfil their Statutory Duties whilst in post. As a furloughed individual, you do not cease to be a director and therefore the responsibility remains. In a nutshell, these are:

  • to act within powers
  • to promote the success of the company for the benefit of it’s members (shareholders)
  • to exercise independent judgement
  • to exercise reasonable care, skill and diligence
  • to avoid conflicts of interest
  • not to accept benefits from third parties
  • to declare interests in transactions or arrangements with the company

With particular reference to the Duty to Promote the Success of the Company, the following is specifically stated:

A director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to—

(a)the likely consequences of any decision in the long term,

(b)the interests of the company’s employees,

(c)the need to foster the company’s business relationships with suppliers, customers and others,

(d)the impact of the company’s operations on the community and the environment,

(e)the desirability of the company maintaining a reputation for high standards of business conduct, and

(f)the need to act fairly as between members of the company.

Therefore we feel that there is a good argument for a Director to be legally required to undertake his or hers responsibilities whilst being furloughed. These are different to engaging in “every day” work. We’d suggest that the above duties are used as a guideline to ensure that they can be demonstrated to be in line with the above responsibilities that keep a company operating, whilst trying to avoid any grey areas where possible. If in any doubt, play take advice.

We, in line with the ICAEW, believe that the pragmatic approach is the right approach.

An alternative?

If your business has two or more directors, furlough can be rotated provided that each period lasts for at least three weeks, however with “compensation” offered at approximately £575 per full month, we’d question whether that truly compensates for the director being unable to assist in getting the business back up on its feet.

Contact Us

We’d be more than happy to discuss the options available to you or to clarify directors responsibilities should you require it. Please contact your client manager or get in touch here.