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Company directors will, likely, understand the process of redundancy payments for employees. However, there is a common assumption that directors are not eligible for redundancy entitlement, thus leading them to believe there is nowhere to turn. If your company is facing financial issues, voluntary liquidation is often the best solution. If this is the case for the business, employees who have been working there for more than two years can expect statutory redundancy payments; the same goes for company directors who can prove employee status. With that in mind, we are sharing redundancy advice for directors and claiming payments.

Do you qualify

Redundancy entitlements for directors are available, but you must prove that you qualify for the payments. Essentially, you must be regarded as an employee of the company. If you are looking to claim director redundancy payments, this must be your first steps. You need to prove that you were more than just an advisor for the business, but worked as an employee.

Your status as an employee

As mentioned above, you must be an employee of the company for director redundancy payments. In order to check whether you are eligible for redundancy entitlements, you can complete a form provided by the Insolvency Service. This form will ask:

  • If a contract of employment was in place while in the role as director for the company;
  • If your hours were over 16 per week;
  • If the company has been incorporated for over two years;
  • What the day-to-day running involved when directing the company and information on your director responsibilities.

If all of the above can be proved and, additionally, that you had a practical and ‘hands on’ approach in running the company and took a salary from the PAYE scheme, you will, likely, be entitled to director redundancy payments. If you are unsure on the above and how to source the form, we suggest seeking redundancy advice as to your next steps.

The contract

The type of contract issued has a strong bearing on redundancy entitlements for company directors. When the company is entering liquidation and you are seeking payments, the liquidator will ask for the contract and the type; whether verbal or written. If the contract is written, it is much easier to prove your status as an employee and, as such, seek director redundancy payments. However, it is important to note that a verbal contract is still legal, but you will, definitely, need redundancy advice if seeking to prove your status. A verbal contract is, likely, to be sufficient though if you can demonstrate your intensive role in the company, as well as the salary through the PAYE scheme. If you are a company director and believe the business could soon be facing cash flow issues, we suggest you check your employment contract.

Claiming redundancy pay

If you are entitled to redundancy pay, you can use the redundancy payments service to begin proceedings. Redundancy payment claims must be made within six months of the company entering liquidation, however, they can be extended up to 12 months. Your claim will then be processed and rejected or accepted by the National Insurance Fund. Once accepted, the amount you receive will depend on the length of your employment at the company, your age and rate of pay. It’s important to note that the payments for length of service is capped at 20 years, and the rate of gross weekly wages at the time of redundancy is also capped at £508 per week for the tax year ending April 2019. You may also be able to claim backdated salary and holiday pay if you are eligible for redundancy entitlements. If you are still unsure of your redundancy entitlements as a director, our redundancy assist experts can help discuss your options and find the best possible outcome for your situation. Use the contact form below, or alternatively, you can answer a few questions and check whether you qualify for redundancy payments.

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