Is a company director able to claim redundancy?
All employees who meet the qualifying criteria for redundancy under the Employment Rights Act 1996 are entitled to receive statutory redundancy payments. If your company is insolvent, the Redundancy Payments Service (RPS) will pay claims direct to the redundant employee, up to certain limits.
However, you might not be aware that a company director is eligible to claim redundancy pay in certain circumstances. As a director, you will need to demonstrate to the RPS that you were an employee of the company to be eligible for payments.
But, where a successful claim is validly made, it can be particularly helpful. Particularly where a company has no assets, and the director(s) must personally meet the costs of liquidation.
What are the criteria for a director to claim redundancy?
The company must have been trading for more than two years for any person to make a claim for redundancy. A director must also be regarded as an employee of the company, working a minimum of 16 hours per week and being paid through the company’s payroll.
A director must also be working under a contract of employment, which can be written, oral or implied. Having a controlling interest in the company in itself is not sufficient to show that a director is also an employee.
How to make a Redundancy claim?
The RPS has published guidance containing instructions about how to apply for redundancy payments and other important information which can be found, here.
Once the RPS has received your completed form, they may request documentation to support your claim, such as:
- Copies of company accounts or bank statements
- Copies of wage slips
- Copies of P60 forms
The Licenced Insolvency Practitioner dealing with the closure of your company will provide all employees with a factsheet which outlines how claims should be submitted and notify you of the individual case reference number generated by the RPS.
How is Redundancy Pay calculated?
An individual 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; and
- One week’s pay for each full year you were 22 or older, but under 41; and
- One and a half week’s pay for each full year you were 41 or older.
Length of service is limited to 20 years.
If you were made redundant on or after 6 April 2022, your weekly pay is capped at £571 and the maximum statutory redundancy pay you can get is £17,130. If you were made redundant before 6 April 2022, these amounts will be slightly lower.
Redundancy pay under £30,000 is not taxable. Depending on your circumstances, you may also be able to claim arrears of wages, accrued holiday pay, and pay in lieu of notice, all of which are subject to statutory limits.
What happens if I owe the company money?
It is not unusual for a director to have a loan account, or for the balance of the loan account to fluctuate. If a loan account is in credit (the company owes you money), and all other criteria are satisfied, there should be no impact on your claim for redundancy.
However, if your loan account is overdrawn (you owe the company money), the RPS routinely off-set this amount against your redundancy claim. Before submitting your claim, you should check the position.
Help from Licenced Insolvency Practitioners
Keywood Group is a firm of Licenced Insolvency Practitioners with offices in Birmingham and London, although we cover the whole of England and Wales.
Our team has extensive experience dealing with company closure, where redundancies will need to be made. Our Insolvency Practitioner is fully licenced and regulated by The Insolvency Practitioners Association.
If you want further information, please contact us for a no obligation chat.