Redundancy Claims for Company Directors
When a company is facing financial difficulty, this will often result in acute cash flow problems, and potentially difficulty in paying staff wages. Employees who meet the qualifying criteria for redundancy under the Employment Rights Act 1996 (ERA 1996) are entitled to receive statutory redundancy payments. Remember, that you may be required by law to consult with your employees about potential redundancies, and provide advanced notification to the government when making more than 20 redundancies.
If your company cannot afford to fund the redundancy payments, it is possible to apply to the Insolvency Service for financial assistance. If approved, the Redundancy Payments Service (RPS) will make payments direct to the employees and then seek to recover the monies advanced from your company. If your company is insolvent, the RPS will pay claims direct to the redundant employee, up to certain limits.
Is a company director also an employee?
The ERA 1996 confirms that an individual must be an employee of the company, in order to make a claim to the RPS. It does not necessarily follow that a company director is also an employee. The law on this matter is very clear and relies on whether there was mutuality of obligation. Put simply, did the director undertake work and were they paid for that work?
The following questions should be considered:
• Did the director have a contract of employment?
• Did the director work regular (or fixed hours)?
• Did the director receive holiday pay, or sick pay?
• Did the director receive regular wages, paid through the company payroll?
• Was there a company pension scheme, and was the director enrolled in it?
Where answers to the above queries are yes, most company directors may also be considered an employee, and therefore could submit claims to the RPS. So, what can be claimed?
Redundancy Pay
An employee is usually entitled to statutory redundancy pay if they have been continuously employed for two years or more. Statutory redundancy pay is calculated as:
• Half a week’s pay for each full year you were under 22;
• One week’s pay for each full year you were 22 or older, but under 41;
• One and a half week’s pay for each full year you were 41 or older.
Length of service overall, is limited to 20 years. For redundancies made on (or after) 6 April 2023, weekly pay is capped at £643 and the maximum statutory redundancy pay you can get is £19,290. Your likely redundancy entitlement can be calculated here.
Payment in Lieu of Notice
You must give employees’ adequate notice before their employment ends:
• at least one week’s notice if employed between one month and 2 years;
• one week’s notice for each year if employed between 2 and 12 years;
• 12 weeks’ notice if employed for 12 years or more.
All employees should receive their basic pay (which would have been paid during the notice period) and could claim additional entitlements if their contract provides for them.
Unpaid Wages and Accrued Holiday Pay
Employees are entitled to receive unpaid wages and accrued holiday pay, and other monies owed by the employer – such as a contractual bonus, overtime, or commissions. Arrears of wages are limited to 8 weeks, capped at £643 per week. Claims submitted for entitlement which has been accrued but not taken (or holidays taken but not paid) are limited to 6 weeks, capped at the same level.
How can our Insolvency Practitioner at Keywood Group help?
An Insolvency Practitioner is best placed to provide advice on all the options available, even if an informal solution would be best. At Keywood Group we pride ourselves on providing you with clear advice from the outset. Please contact us for a no obligation consultation either at our offices in Birmingham, or nationwide about the options available.
