Directors & Redundancy
Did you know that company directors are entitled to redundancy payments?
Bridgestones has been helped 100's of company directors with struggling businesses claim redundancy (and other statutory entitlements such as holiday pay and unpaid wages) when the company enters liquidation. The average UK claim of around £12,000!
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What is a Director Redundancy Claim
If you are a director of a limited company that has been trading for over two years, and you are considering closing the company due to financial problems, you may be able to claim for directors’ redundancy payments from the National Insurance fund. It is likely that you can also claim for other statutory entitlements, such as notice pay, holiday pay and unpaid wages.
"We find that there is often a lack of clarity amongst directors with regards to what they are entitled to in redundancy pay."
The Criteria for Directors' Redundancy
For a company director to be eligible for a redundancy payment, they must be regarded as an employee of the company as well as a director. This means that they must be operating in more than simply an advisory or non-executive role. They must have had a practical role in the running of the company. The main criteria for a director to claim statutory redundancy pay are:
- You must be an employee of the company, under a contract of employment. (The contract can be written, oral or implied – though it always advisable to have a written contract of employment, for clarity and avoidance of doubt in these situations).
- You must have been employed by the company for at least two years.
- You must have worked over 16 hours per week.
How Much Redundancy Pay is a Director Entitled to?
There are various rules in place which quantify how much money a director can claim in redundancy pay. The amount of redundancy pay that a director is entitled to depends on their length of service, age and current pay. The rate of gross weekly wages at the time of redundancy (capped at £508/week) and your length of time in service (capped at 20 years) are used as the basis for calculating how much redundancy pay you’ll receive.
- Directors aged 18 – 21 can claim redundancy pay at a rate of half a week’s pay (capped at £508/week) for every year that they have worked for the company (capped at 20 years).
- Directors aged 22 – 40 can claim redundancy pay at a rate of one week’s pay (capped at £508/week) for every year that they have worked at the company (capped at 20 years).
- Directors aged 41 and over can claim redundancy pay at a rate of one and a half week’s pay (capped at £508/week) for every year that they have worked at the company (capped at 20 years).
The average UK claim for directors’ redundancy is £12,000. A director can also make a claim for arrears of wages, pay in lieu of notice and holiday pay. It should be noted that whilst statutory redundancy payments are not taxed, national insurance and tax contributions do apply to holiday pay and payments of unpaid salary.
Arrears of wages and holiday pay
A director can claim for up to eight weeks of unpaid wages and up to six weeks’ accrued holiday pay.
Pay in lieu of notice
Payment instead of notice can apply in redundancy cases. This means that your employment can be ended without any notice being given. In this case, pay in lieu of notice can be claimed at a rate of one week’s notice for every year that they have worked at the company (capped at 12 years).
How To Make a Claim For Directors’ Redundancy Pay
You should contact your company’s insolvency advisor to determine whether you, as a director, fulfil the criteria for directors’ redundancy pay and, if so, how much money you are entitled to.
You would then apply for redundancy and any other payments that you are entitled to from the National Insurance fund, through your company liquidator.
Claims for redundancy payments should be made within six months of the date of the company liquidation. This can be extended to 12 months, in some cases.
So What Should You Do Next?
As experienced insolvency practitioners, we have years of experience in advising company directors on their rights and what they are entitled to. We have also acted as liquidator for companies of all sizes, all over the country, to realise company assets, formally shut down the company and distribute redundancy payments.
If your company is going through financial problems and you are thinking about liquidation and redundancy, contact us ASAP via telephone, email or online live chat for professional advice and help.