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What are director redundancy payments?
Director redundancy payments are a type of compensation paid to directors who have been made redundant from their jobs. This payment is designed to provide financial assistance to directors who have lost their jobs due to no fault of their own. Redundancy occurs when an employer needs to reduce the number of employees due to business needs or economic conditions.
You could be eligible to claim redundancy if you are an employee or a business director.
If you seek to claim statutory redundancy pay, payments are fixed by the law. However, if you are entitled to contractual statutory pay, this amount will vary per company. Details of this amount will be located in your employment contract. All employees should hold a contract of employment according to law.
Worried about Redundancy?
If you are worried about how redundancy, we’re here to help you! There are many people who will be concerned about being made redundant or do not know their redundancy rights. Here at Business Helpline, We can discuss all of your options and help you plan for a better future.
Call our team today on 0800 088 2142.
Can you claim director redundancy pay?
Company directors are entitled to redundancy, even though many assume they are not.
Directors of insolvent companies often under-claim what they are entitled to with regards to director redundancy and other statutory payments.
We can help you to claim director redundancy pay if you’re looking to close down your company.
How would a director know if they were eligible or not?
Several criteria must be fulfilled for a director to be eligible for director redundancy payments. These include:
▪️ The director must have a contract of employment.
▪️ The director must be working 16 hours a week or more for the company.
▪️ The director should assist with the day-to-day running of the business and not just an advisory role.
▪️ The company must be insolvent.
It is worth nothing, even if you do meet these criteria, you aren’t guaranteed to receive director redundancy pay.
How do you claim director redundancy?
Director redundancy calculator
If you’re wanting to claim director redundancy but you’re unsure how much you might receive then try our useful calculator below. The director redundancy calculator will give you a rough estimate of the amount you may get.
The amount you may receive in director redundancy payments is based on a few factors such as your age, length of service and also your gross weekly pay.
Please be aware that not all director redundancy claims are successful.
Director redundancy and liquidation
Director redundancy can only be claimed if a company enters a liquidation process. So, it’s important to understand these processes.
Generally, there are two main types of insolvent liquidation procedures. The first is Compulsory Liquidation and the second is a Creditors’ Voluntary Liquidation (CVL).
A compulsory liquidation happens when a creditor, or more than one creditor, petitions to the court for your company to be forced into liquidation. This will be achieved by putting together a winding-up petition (WUP) against your business.
On the other hand, a CVL is when the liquidation process is voluntarily started by directors within that insolvent company. They usually enter this process because of intense pressure from creditors, leaving directors concerned with nowhere else to go.
An insolvent company would hire an insolvency practitioner and they would take control of the whole process – talking to creditors and facilitating the process of selling assets to repay creditors.
Can I claim redundancy if my company isn’t in, or isn’t facing liquidation?
You cannot claim redundancy if your company is not facing liquidation.
Employees would not be able to claim redundancy while in employment so, with that in mind, a director can only claim redundancy when their company is in the process of going insolvent. Redundancy is designed to help those who have found themselves out of a job as opposed to helping those who simply want to quit their job.
Therefore, directors cannot seek redundancy in a solvent liquidation as this is seen as putting themselves out of work. There is a choice involved. Redundancy is to help those who lose their job without a say in the matter.
When can a claim be made for director redundancy?
Timescales are strict for redundancy both before and after liquidation. You have to start the process within 12 months of your company entering liquidation, or before your company is liquidated. The longer that you leave claiming, the more challenging it is to be successful in your pursuit. It is advisable to submit your claim within 6 months if your company has already been liquidated.
It is better to make a claim before your company is liquidated. People in this situation find that receiving a director redundancy payment can help to make the decision to liquidate their company a great deal easier. If you wait until after your company is liquidated, you could miss out on claiming all of your statutory entitlements. So, in short, get it done beforehand!
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Table of Contents
The most you can receive for redundancy and other statutory entitlements is:
▪️ Redundancy pay – £16.140 capped at 20 weeks
▪️ Notice pay – £6,456 capped at 12 weeks
▪️ Unpaid holidays – £3,228 capped at 6 weeks
▪️ Unpaid wages – £4,304 capped at 8 weeks
▪️ Payments are limited to £544.00 per week
A director should receive payments within 4-6 weeks, after the creditors’ meeting, so long as you have filled in and returned the relevant paperwork.
You should be making a claim within 6 months of the company entering liquidation and ceasing trading. Some circumstances could lead to that time frame extending to 12 months but the process, in this case, is a little bit trickier.
There are a number of reasons why a claim may not work. Popular ones are that the company has been incorporated for less than two years, you leave the company before it has gone through the liquidation process, or your employment has been transferred using TUPE regulation.
What you are eligible for with redundancy comes down to several factors:
▪️ How long you have been in the role
▪️ Your age at the time you have stopped trading
▪️ Your current salary
With redundancy, salary is capped at £544 per-week.
£16,140 is the overall maximum pay amount of redundancy pay that you can get. This remains constant, even if your actual earnings are higher or your length of service is longer than is required.
According to age, this is what you should be entitled to receive:
Under 22 – Half a week’s pay for each year of service
22 to 40 – A week’s pay for each year of service
Over 40 – A week and a half’s pay for each year of service
Your employee has to give you a minimum of one weeks’ notice for every year you have worked with them when you are made redundant. This goes up to a maximum of 12 weeks’ notice, worth £6,456.
Unpaid wages – Up to 8 weeks
Unpaid holidays – Up to 6 weeks holiday pay
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