The Government has recently confirmed that the grant available under the Coronavirus Job Retention Scheme (CJRS) can also be claimed for office holders, including company directors and company secretaries, and salaried members of limited liability partnerships (LLPs) provided they are paid via PAYE.
Initially, the Government's guidance on the CJRS was not clear about how it would apply to office holders and members of LLPs. However, on 4 April 2020, the guidance was updated and now confirms that companies and LLPs can claim the grant available under the CJRS for all office holders, including company directors and company secretaries, and salaried members of LLPs but only if they are paid via PAYE.
What is the decision-making process?
- The agreement to furlough an office holder or LLP member must be reached between the relevant office holder or LLP member and the entity which operates PAYE on their income.
For company directors and company secretaries…
- The decision to furlough an office holder must be approved by the board of directors of the company in accordance with its articles of association.
- The company's articles of association should be reviewed to determine whether a director who is being furloughed can count towards the quorum of the board meeting and/or vote on the decision to furlough.
When making their decision, the directors of the company must have regard to their statutory duties as directors.
- Once the decision is made, it should be recorded in the company's records and communicated to the office holder in question.
For LLP members…
- The decision to furlough a member of a LLP must be taken in accordance with the terms of the LLP agreement.
- It may be that the terms of the LLP agreement need to be varied to reflect the impact of being on furlough for the relevant LLP member.
What about statutory directors' duties?
All company directors owe statutory duties to their companies. The Government's guidance has also confirmed that furloughed directors will still be allowed to take actions to fulfil their statutory duties provided they do no more than would reasonably be judged necessary for that purpose. This is likely to be a difficult line to tread.
While furloughed, directors should not do any work they would carry out in normal circumstances to generate commercial revenue or provides services to or on behalf of their company.
How much can be claimed under the CJRS for company directors, company secretaries and LLP members?
Under the CJRS, companies and LLPs will be able to apply for a grant that covers 80% of their usual monthly wage costs, up to £2,500 a month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that wage.
For office holders, the grant available will be calculated based on any regular payments a company is obliged to pay to company directors and company secretaries, including wages, past overtime, fees and compulsory commission payments. However, discretionary bonus (including tips) and commission payments and non-cash payments are excluded.
For salaried LLP members, the reference salary for the CJRS is the LLP member’s profit allocation, excluding any amounts which are determined by the LLP member’s performance, or the overall performance of the LLP.
What does this mean for you or your business?
This additional guidance from the Government is welcome confirmation of the extent of the CJRS and gives companies increased flexibility when making their decisions about furloughing.
The Government's guidance can be found here.
What do you need to be doing now?
Our Employment and Corporate Teams are here to help if you have any questions about furloughing office holders or LLP members or, indeed, any employees.
These notes have been prepared for the purpose of an article only. They should not be regarded as a substitute for taking legal advice.