If you’re the director of a company, you’ll no doubt have experience in dealing with employees and employee law.
While you may or may not have had to deal with it first-hand, you may know a little about how redundancies work in the context of a workforce. But the chances are that you’ll know next to nothing about how redundancy payments work for you as a director, and may even be asking yourself: are directors entitled to redundancy pay?
In the event of liquidation, company directors are often eligible to receive statutory redundancy payments. Not in every case, but if the criteria are fulfilled, you’re just as likely to get a redundancy payout as anyone else that works for the business.
If you decide due to financial issues to put the business into voluntary liquidation, and you can prove that you are - effectively - an employee, then you’ll be able to claim a redundancy package of some sort.
The contract is all-important
Whether directors are entitled to redundancy pay or not will often be decided by the details of the contract that was drawn up. To receive redundancy pay, you will need to apply formally to the liquidator.
The first question they’re likely to ask you will be ‘what kind of contract was in place?’ Was it written, oral or implied…? Basically, they’re asking you to outline your position in the company.
If it’s oral or implied, you’re going to struggle to prove your involvement and the likelihood is that you will receive nothing (that said, it may still be possible). If, however, you have a full, concise and signed contract of employment, you should be fine.
After liquidation there are a few things you need to be able to prove to The Insolvency Service. You will need to fill in a form that asks you to confirm a few things. These include:
- Whether you regularly worked at least 16 hours a week (popping your head in the office once a week does not constitute working there).
- Your job role and day-to-day responsibilities in the running of the organisation. This information is vital in working out if you were genuinely working for the company or merely acting in an advisory capacity or non-executive role.
- If the business had been incorporated for two or more years, redundancy payments cannot be made after the liquidation of a ‘fly-by-night’ company.
- As we’ve mentioned previously - whether a contract of employment was in place or not.
How to claim
To get your hands on your statutory redundancy payment, you will need to apply to the Redundancy Payments Service, which is part of the government’s Insolvency Service. You mustn’t wait too long after the business is liquidated though - there is a six-month limit for applications.
Before submitting your claim, it’s important that you speak openly and honestly with the liquidator first. There are more details on what information you’ll need to apply on the gov.uk website here.
What you can expect to be paid
When it comes to director’s entitlement to redundancy pay, it’s important to remember that no two redundancies are the same and different criteria are considered when claims are assessed. These are:
- Your length of service
- Your wage
- Your age
There are caps on two of these three. Figures rise in alliance with the length of service but are capped at twenty years of continuous employment. And wages are the same, being capped at £538 per week. There is a maximum amount that can be claimed in this way of £16,140 (These figures are valid if you were made redundant on or after 6th April 2020).
Here’s how age affect the calculation:
- 18 – 21 years of age: You receive half a week’s gross pay
- 22 – 40: One week’s gross pay
- 41+: One and a half week’s gross pay
It’s also worth noting that up to eight weeks of unpaid wages and also a maximum of six weeks’ holiday pay can be claimed for.
What’s more, if you’re a shareholder in the business and have not been paying yourself minimum wage through the payroll, you can potentially claim compensation for this underpayment, too.
So, are directors entitled to redundancy pay?
Essentially, provided they meet the above criteria, are open and honest with their liquidator and complete their application fully and in a timely manner, directors are entitled to redundancy pay.
If your company is experiencing extreme financial difficulty and you’re considering voluntary liquidation and redundancy measures, our team at McAlister & Co can help. Contact us today for you free consultation.