Posted on: Saturday 5th December, 2020
The number of hours a week an average company director works, and the type of work they carry out, are both important issues if the business they run experiences financial difficulty at any time.
Non-executive directors don’t take part in the day-to-day running of their company, but executive directors take on management responsibilities and are often also employees of the business.
So why does it matter how many hours a week the average director works? It’s because the number of hours they work may help with eligibility for statutory redundancy pay if the company should ever enter insolvent liquidation.
A director is an office holder of the company, but they can also be an employee under certain conditions. Working under a contract of employment continuously for two years or more, and taking a salary through the company’s payroll scheme, are just two criteria that must be met to be regarded as an employee as well as a director.
There are other requirements in addition to these, but this status as employee is crucial for a number of reasons, including:
When a company enters liquidation, all jobs are lost and employees that are eligible can claim redundancy pay and other statutory entitlements. The same applies to directors who can prove their status as employees.
By claiming redundancy pay, which can amount to a significant sum, the director(s) may be able to pay for the Creditors’ Voluntary Liquidation (CVL) process, which might otherwise be unavailable due to lack of funds.
Entering CVL also enables directors to take some control over the process and prioritise the interests of their creditors as demanded by UK insolvency laws, rather than entering compulsory liquidation.
This option to voluntarily liquidate can prevent the allegations of wrongful trading and director misconduct that sometimes accompany compulsory liquidation, where a creditor has petitioned for the company to be wound up.
If you work less than 16 hours per week, it’s unlikely that you’ll be eligible to claim redundancy pay should your company enter insolvency and have to be liquidated. Although it’s not the only criteria, the number of hours the average director works every week is an important issue, and it’s worth reflecting on whether you would be viewed as an employee within your company.
Holding office as director is unequivocal, but proving your status as an employee can be difficult unless you clearly meet the criteria laid out.
Redundancy Claims UK can provide further advice and information, and support you in making a claim for redundancy pay where appropriate. We work closely with the Redundancy Payments Service (RPS) - please contact one of the team to arrange a free same-day consultation.
Does accepting a new job offer before the date of redundancy prevent a director making a claim for redundancy to the RPS
If you are looking to close your limited company, you may have attempted to strike it off by submitting a DS01 form to Companies House. This process is also sometimes referred to as dissolving or company dissolution.
A Creditors’ Voluntary Liquidation (CVL) is an official procedure whereby a company’s assets are liquidated in order to pay creditors. It’s typically initiated by directors when their company becomes insolvent and there is no hope of business recovery.
May I take this opportunity to thank you and your team for all your professional help in securing for myself and my wife, redundancy pay. I would have no hesitation in recommending RCUK to assist them.Tom Harrison Managing Director of a construction company