Can Directors Claim redundancy?
Find out when and how directors can claim Redundancy.
There is nothing to prevent a director being both a director and an employee of a company. If the director is also an employee then the director is allowed to make a redundancy claim to the Redundancy Payments Office (a government agency) should the Company be placed into a formal insolvency process such as Liquidation. Directors can also claim for notice pay, arrears of wages and holiday pay.
Am I eligible to claim Redundancy?
You need to show that you worked under a contract of employment for at least 2 years and the contract can either be in written form, oral or implied.
The director must also be paid through the company’s payroll.
Finally, you must not owe any money to the Company when the business goes into liquidation as ordinarily this amount will be deducted from any potential redundancy payment owed to the director.
If the business has been running for a considerable time such as five years or more, the amount the director can claim can be substantial.
Having proved that you are an employee of the company, the payment you receive depends upon your length of service, age, and rate of pay. The rate of gross weekly wages at the time of redundancy, (currently capped at £544 per 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.
If you have been paying yourself a low wage, say £800 per month, then you should be able to rely on the National Minimum Wage Regulations which will increase your rate of pay that will be used by the Redundancy Payments Office when calculating your claim.
How does a direction pay for a liquidation?
Often directors want to do the right thing by putting the company into liquidation, which ensures that the insolvent company is dealt with quickly, properly and professionally, but also protects their staff and allows them also to claim the sums owed to them. But if the directors have put all their personal funds into the Company, and there are no assets in the Company, how do they pay for a liquidation?
If the director can legitimately make a claim from the Redundancy Payments Office, and if that claim is worth several thousand pounds, which is common, then this claim can often be used to pay the liquidation costs.
This can be an effective way to place a company into liquidation at effectively no cost to the directors.
If you would like a FREE CONSULTATION with an Umbrella.UK licensed insolvency practitioner to discuss your company’s situation, or your potential employee claim, please call 0800 611 8888
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