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Is a Director Eligible For a Redundancy Payment?

Many people are not aware that they can make a claim for redundancy payment if their company is liquidated and declared insolvent. This is an amount paid by the Insolvency Practitioners to help with the costs of liquidating the business and recouping any loans made to the business. It is a tax-free sum. Depending on the circumstances, directors can also claim for notice pay and backdated holiday payments.

The key to whether or not a director can make a redundancy claim is documentation. The existence of a written contract of employment, or board minutes which confirm and set out their terms of employment is the best way for a director to prove that they are a worker entitled to statutory entitlements such as redundancy.

If a director is remunerated director redundancy payment through PAYE, or if they are paid a monthly salary to keep up with their national insurance contributions, then it is easier to prove that they are employees of the company and therefore eligible for redundancy payments. However, even if a director is not remunerated via the payroll or pays themselves a small salary through drawings and dividends, they may be entitled to a claim for redundancy if other criteria are met.

One important factor is the number of years a director has worked for the company. People under twenty-two will be entitled to half a week’s pay for every year of service, while those up to forty will receive one week’s payment for every year of service.

Other factors are considered to determine if a director is eligible for a redundancy payment, and the total amount of money they can claim. For example, if the director was employed in a managerial position when their company was made redundant, they are likely to be entitled to more than those who were not.

Directors are able to make a claim for up to 30 weeks’ redundancy (capped at PS643 per week) together with six weeks of unpaid holiday pay and six weeks’ notice pay, all of which is paid from the National Insurance Fund. If you are a company director, it is important that you seek the advice of an independent firm to assess your eligibility for redundancy and other statutory payments.

Myles has 6 years’ experience of working within the insolvency industry and specialises in assisting directors with their redundancy claims. He is dedicated to helping directors to maximise their pay-outs and guide them through the application process in challenging times.