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How is holiday pay calculated in a redundancy process?

Posted on: Friday 12th June, 2020

How is holiday pay calculated in a redundancy process?

If your business is in decline and you need to make staff redundant, as a director you have an obligation to ensure they receive their full redundancy entitlement once their employment is terminated. In addition to the main redundancy payment, the full redundancy package can also include pay in lieu of notice, arrears of wages, and holiday pay.

These payments can help ease their financial situation a little as they search for another job, but did you know that as a director you may also be able to make a claim for redundancy and holiday pay when your business enters liquidation?

CFS Redundancy Payments are a very professional company, Caroline who is dealing with our case is friendly, compassionate and very clear in explaining everything during this difficult time. The service we have received has been amazing, Thank you.
Tina Hill
Tina Hill

Holiday pay in redundancy

There are two types of holiday pay in redundancy:

  • Holiday pay accrued: days not taken but still owed
  • Holiday pay taken: days taken but not paid

When calculating holiday pay, the following information is required:

  • Start date of the company’s leave year
  • Employee’s holiday entitlement during the leave year, including Bank Holidays
  • Any holidays that were carried over from the previous leave year
  • The number of days’ holiday already taken, including Bank Holidays

Other factors that can influence the amount of holiday pay include:

  • The government cap of £571 per week on holiday pay in redundancy situations (this is £525 per week for businesses that became insolvent before 6 April 2020)
  • The maximum number of weeks’ holiday that can be claimed – this is currently limited to six weeks

Claiming holiday pay in redundancy

When an employer is insolvent and cannot afford to make holiday payments, or any other elements of the redundancy package, that are due, help can be requested of the National Insurance Fund (NIF). The NIF will ensure employees are paid their statutory redundancy entitlements even when their employer is unable to do so.

Although redundancy payments are tax-free up to £30,000, income tax and National Insurance are both payable on holiday pay.

Director redundancy and claims for holiday pay

If your company is approaching insolvency and you believe there’s no option but to wait for a creditor to wind up the business, you may be missing out on redundancy payments as a director as well as delaying redundancy being paid to your employees.

It isn’t a well known fact, but if you place your company into liquidation voluntarily and have worked as an employee for a minimum of two years, under certain conditions you can make a claim in the same way as members of staff.

You could be entitled to redundancy pay, holiday pay, and other statutory payments including arrears of wages and notice pay. If the business cannot support the payments, which is likely if it’s insolvent, you can make a claim on the National Insurance Fund.

The average claim for director redundancy is £9,000, which could be used to pay the professional fees involved in a formal insolvency procedure. Furthermore, as this is voluntary liquidation and you’ve placed creditors’ interests first, it protects you to some extent from the stringent official investigations that take place following compulsory liquidation.

For more information on holiday pay in redundancy and redundancy pay for directors, call one of our team at CFS Redundancy Payments to quickly establish your best options. CFS are Authorised and Regulated by the Financial Conduct Authority. Authorisation No 830857. You can check our registration here.

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