The scheme will begin on 1 November and last for six months
The announcement comes as England expects the PM to announce further measures to slow the rise in coronavirus infections next week, measures which are likely to hit the already affected hospitality industry.
It will only apply to those businesses which are told to shut, not those who choose to shut.
Grants will be paid up to £2,100 per employee per month, while Rishi Sunak also announced an increase in business grants (up to £3,000 a month) for those forced to shut down.
According to the BBC's business editor, Simon Jack, this scheme is more generous than the furlough scheme and far more generous than the Job Support Scheme, which asked businesses to pay 55% of staff wages.
A tiered system of measures is said to be announced on Monday, which will determine which parts of the country will be affected the most and, consequently, which industries.