Many businesses have already taken advantage of the Government’s Coronavirus Job Retention Scheme (CJRS) and others are likely to do the same as economic uncertainty continues. There is, however, currently some doubt about whether employees being furloughed under the CJRS could have an adverse impact on their EMI options.
One of the qualifying conditions for EMI status is that the option holder must work at least 25 hours per week or, if less, 75% of their working time with the company that granted the EMI options. If an EMI option holder is furloughed they will not meet that working time requirement which strictly would then be a ‘disqualifying event’ for EMI purposes. As a consequence, their options would cease to qualify as EMI options and, depending upon the rules that apply to their options, those options may lapse.
Periods of absence due to injury, ill-health, disability, pregnancy, childbirth, parental leave, reasonable holiday entitlement or not being required to work during a period of notice of termination of employment do not result in an EMI option holder ceasing to satisfy the working time requirement. Guidance is being sought from HMRC that absence due to furloughing would be treated in the same way and it is hoped that HMRC applies common sense to the issue. However, until we have further clarification, this is likely to be a relevant factor in any decision taken by companies about furloughing EMI option holders.
However, there are two further consequences to consider. If a furloughed option holder takes another temporary job, this would not only impact the criteria for the CJRS, but also their ability to meet the working time requirement for EMI purposes. In addition, if an option holder takes a second job to supplement their income as a result of reduced hours, this could still impact their ability to meet the working time requirement for EMI purposes.