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Can a director make themselves redundant?

Posted on: Monday 11th September, 2017

Can a director make themselves redundant?

When a business enters insolvency and has to be liquidated, the company’s employees are automatically made redundant. They become eligible for statutory redundancy and other payments if they meet certain conditions. The qualifying criteria for employee redundancy also apply to you as a director, as long as you can prove your status as an employee of the company.

If you fulfil the same criteria as your employees, and have worked under a similar arrangement – receiving a salary/wages under PAYE rather than being paid solely via dividends, for example – it’s likely that you’ll qualify for redundancy and other statutory entitlements such as unpaid wages and outstanding holiday pay.

Are you entitled to redundancy as a director?

To be regarded as an employee of the company, you must have worked:

  •  under a contract of employment – written, oral or implied – for a continuous period of two years
  • a minimum of 16 hours per week
  • in a practical role, rather than advisory or having only a controlling interest in the company

You must also be owed money by the company, which could be your original investment or PAYE arrears, for example. The process is more straightforward if you hold a written employment contract, but it may be possible to argue a case for your status as employee if your contract is oral or implied.

How much redundancy pay might you receive?

The calculation for redundancy pay takes into account three factors – your age, length of service, and weekly wage, and is subject to statutory limits.

  • If you’re under the age of 22: multiply half a week’s wage by the length of service (in full years)
  • If you’re aged 22-40: multiply one week’s wage by the length of service
  • If you’re aged over 40: it’s one and a half week’s wage multiplied by each full year of service

Limits have been placed on these figures by the government - length of service is capped at 20 years, weekly wages at £489, and maximum redundancy pay is £14,670.

Professional assistance for a successful claim

Making yourself redundant as a director isn’t always as straightforward as when employees make their claim, due to various factors including this dual status within the company. Some claims are rejected because they haven’t been presented correctly, or directors fail to provide sufficient proof that they are, in fact, an employee.

An unambiguous written contract setting out your hours of employment, holiday entitlement, salary, and duties as an employee, plus proof that PAYE is deducted from your salary, help to reinforce your eligibility for redundancy pay.

Obtaining professional advice and assistance offers you the best chance of making a successful claim, and ensures you provide the evidence sought by the Redundancy Payments Service (RPS).

Our experts at Redundancy Claim will review your working situation within the company, advise on whether you can make yourself redundant, and if so, help with your claim. Contact one of the team to arrange a free same-day meeting in complete confidence. 

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