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Where does director redundancy pay come from?

Posted on: Thursday 31st August, 2017

Where does director redundancy pay come from?

Whether you’ve decided to liquidate your company voluntarily, or have been forced into liquidation by a creditor, closing down a business in this way is challenging both practically and emotionally.

You may be losing your only source of income, but there is a chance that you could be entitled to claim redundancy pay as a limited company director. Not only would this reduce the financial strain you’re experiencing, but it could also pay off the company’s debts.

Government redundancy payments for company directors

If you’re an employee of the company in insolvency, as well as being a director, you may be able to make a claim for redundancy and other statutory entitlements if it’s going to be liquidated.

Statutory redundancy rules specify that you must have worked under a contract of employment for at least two years continuously, in a practical role that is more than advisory. You also need to have worked a minimum of 16 hours per week, and be owed money by your company.

But where does the money for government redundancy come from, and how much redundancy pay will you get?

How to claim redundancy as a director

You can ask the liquidator for a claim form (RP1), or make a claim online for government redundancy pay. If your business is insolvent the money could either come from the sale of company assets, or if insufficient funds are realised, it’s likely to be made from the National Insurance Fund (NIF).

Claims can be made before or after the liquidation takes place, but the deadline is 6-12 months from the date of liquidation. Redundancy payments are generally made 3-6 weeks after a claim has been received, and are administered by the Redundancy Payments Service (RPS).

In addition to statutory redundancy pay, RPS deals with arrears of wages, outstanding holiday pay, and statutory notice pay.

How much is redundancy pay? 

If you start by considering the length of time you’ve worked as an employee for your company, you can calculate your redundancy pay using your age and weekly wage, subject to certain limits:

  • Aged under 22: half a week’s pay for each full year of service
  • Aged 22-40: one week’s pay for each full year of service
  • Aged 41 and over: one and a half week’s pay for each full year of service
  • As of 6th April 2017, the weekly cap on wages is £489
  • The maximum amount of statutory redundancy pay is capped at £14,670
  • Length of service is capped at 20 years

If your company is facing liquidation and you would like advice tailored to your situation, our expert advisors at Redundancy Claim can help. We’ll confirm your eligibility to receive redundancy pay, and let you know the implications of liquidation. Call one of the team to arrange a same-day consultation free-of-charge.

Our flowchart can help you understand whether you might qualify for director redundancy.
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