When determining a company director’s eligibility to claim redundancy, it is important to consider a number of factors based around their general working relationship with the company.
When a limited company is liquidated, the appointed insolvency practitioner will seek to establish whether a director is also an employee of their company, in which case they may be able to claim redundancy and other statutory payments.
So what criteria must be met by a director in this respect?
A written, oral or implied employment contract
If a written contract of employment is in place, the process of establishing a director’s status as an employee may be more straightforward. Lack of a written employment contract does not necessarily mean they cannot claim redundancy, however, as some directors work legitimately as employees under implied or oral contracts.
If a regular salary is received by the director through the PAYE system, and others have made the assumption that they work under a contract of employment, this may be sufficient to persuade the appointed liquidator of the director’s employee status.
The situation can become more complex, however, if the director also holds a controlling interest in the company, but again, this does not completely rule out the possibility of being classed as an employee and therefore eligible for redundancy.
Their role within the company and working hours
Directors need to work for the company in a capacity that is more than advisory, for a minimum of 16 hours per week. Their role should be practical and identifiable in the same way as a member of staff.
Length of time the company has been incorporated
The company must have been incorporated for a minimum of two full consecutive years prior to liquidation, before its directors can become eligible to claim redundancy.
Claims for redundancy pay and other entitlements
Up to £30,000 of redundancy pay is tax-free. Director/employees can also claim other statutory payments including unpaid wages, arrears of holiday pay, pay in lieu of notice, and unpaid pension contributions.
As their business has gone into liquidation, it is likely that the claim will be paid from the National Insurance Fund (NIF) rather than from assets realised by the liquidator. Claims are made via the Redundancy Payments Service (RPS), and generally take up to 12 weeks to be paid.
Eligible directors’ claims will be based on their age, length of service with the company, and final weekly wage, with government caps being placed on several aspects of the calculation, currently:
- Weekly pay capped at £489
- Length of service capped at 20 years
- Maximum statutory redundancy pay capped at £14,670
It is not commonly known that directors are eligible for redundancy under certain conditions, but by claiming this and other statutory payments, it is possible to mitigate the potentially significant financial repercussions of loss of income through business liquidation.
Written by Gary Addison; a director at Redundancy Claim. Gary advises company directors on issues related to director redundancy, employee redundancy and statutory entitlements.