Understanding Statutory Redundancy Entitlements for Employees and Directors

12th May 2017 By admin
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Understanding Statutory Redundancy Entitlements for Employees and Directors

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Although the general threat of redundancy has receded since the 2007 economic crash, losing a job in this way remains a traumatic event that threatens to destabilise your life and deplete your personal finances.

If your employer has to restructure their organisation or is unfortunate enough to go out of business, it’s reassuring to know there are certain statutory payments that can help in the short-term.

Eligibility criteria for employees

The main eligibility requirements are to have a contract of employment or a written statement laying out the main terms of employment, and to have worked continuously for your employer for at least two calendar years.

In addition to redundancy payments you may also be eligible for other monies owed, including unpaid salary, notice pay and accrued holiday pay.

Are you a director and an employee?

It is not a widely known fact that directors can claim these same redundancy entitlements under certain circumstances. If your company has been forced into liquidation and you meet the full eligibility criteria, you may also be able to make a redundancy claim.

The main eligibility criteria for directors include:

  • Working under an employment contract
  • Running a business that has been incorporated for at least two years
  • Working for a minimum of 16 hours per week
  • Fulfilling more than an advisory or non-executive role within the company

How to claim

Eligible employees receive payment from their employer, assuming that they are still trading. If the payment puts the employer at serious risk of insolvency or the company has already gone out of business, claims can be made from the Redundancy Payments Service (RPS).

Monies are taken from the National Insurance Fund (NIF), which is used to pay statutory entitlements including redundancy and the state pension. Once a claim has been submitted and accepted, redundancy payments are usually made between four and six weeks later.

Statutory Redundancy Pay – how much could you receive?

Redundancy pay is calculated using your age, gross weekly pay at the time of redundancy, and the length of service with your employer:

  • Aged 18-21: half a week’s pay
  • Aged 22-40: one week’s pay
  • Aged over 41: one and a half week’s pay

The government has capped the length of service at 20 years, and gross pay at £479 per week. There is also a maximum limit of £14,370 that can be claimed.

You may also be eligible to claim some or all of the following statutory entitlements.

Unpaid salary

Up to eight weeks’ arrears of salary

Holiday pay

Up to six weeks’ accrued holiday pay

Notice pay

You have a statutory entitlement for pay in lieu of notice – the statutory notice period is two weeks, plus one week for every year you’ve been employed by the company, up to a maximum of 12 weeks.

Unpaid pension contributions

You may be able to claim for any missed payments to your company pension – the pension scheme administrator would deal with claims of this type.

Statutory Maternity/Paternity/Adoption pay and Statutory Sick Pay

These payments can be claimed from HM Revenue and Customs.

It is a distressing time when your company goes into liquidation, or your employer has reorganised their business and made your job redundant. If an employer is reluctant or refuses to make the statutory redundancy payments, you can take them to an employment tribunal within six months of the date of your redundancy.

Additionally, if you believe the payment you’ve received is incorrect, you’re entitled to request that it be reconsidered by an employment tribunal.