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Why Directors are able to get money back

A very large proportion of the directors that we speak to believe that they are not entitled to receive any redundancy payments, either from the company or from the National Insurance Fund. If this sounds like you, you may find the following Q&A’s helpful…
Are directors entitled to redundancy pay?
In short, yes. As long as you can demonstrate your status as an employee of the company, as well as director.

Have you worked more than 16 hours per week? For more than 2 years continuously?

Have you been entitled to remuneration from the company, with at least part of your salary going through the company PAYE?

Then you are entitled to redundancy pay. Regardless of how long you have worked for the company, you will also be entitled to (at least) a paid statutory notice period, together with any unpaid salary the company owes you, and/ or outstanding holiday days.

Can directors claim to the National Insurance Fund?
In short, yes.

If the company is unable to pay your outstanding employment entitlements, you will be able to apply for payment from the National Insurance Fund, once the company enters formal insolvency.

Why are directors able to get money back?
So long as you are also an employee of the limited company (as well as an office holder and/or shareholder of the company), you will be able to make a director’s claim for unpaid employment entitlements to the National Insurance Fund.
I am a sole director and 100% shareholder of a company, can I really also be an employee of my limited company?
In short, in the vast majority of cases, yes. It can be a complex legal area, however, for the large majority of directors, your day to day working life will demonstrate and determine your status as an employee of the company. Specifically, for example, what you do on a daily basis, and whether you are entitled to a salary.

In practice, some of the most common indicators of employment will be:

 

Director / Employee NOT employee: office holder / shareholder
You are working under a contract of employment or a contract of service – whether that is written or oral / implied No contract of service / employment
You provide your services to the company on a regular (daily) basis i.e. have recognisable working hours and the company is obligated to pay you in return for your service Required on an infrequent basis, having minimal duties, perhaps only those required under the relevant statute, or trust deed
You are entitled to a salary Not entitled to a salary / regular payment
At least some of your salary is paid through the company’s PAYE scheme (it is common that this will be made up with dividend payments on top) Perhaps only paid a voluntary honorarium, or shareholder’s dividends
You are entitled to take paid holidays (although whether you have actually been able to take all of them is a different matter!) No paid holiday entitlement
A notice period is / should be required by either party to terminate your employment

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