Quite often a director of a limited company serves in a variety of roles, including that of an employee. When it comes to making a director redundant, as long as they are also classed as an employee, then they can be made redundant just like any other employee. The selection and dismissal process applied must be the same one you would follow if you were making any other position redundant.
An employee can be made redundant if the company’s fortunes or needs change; this is often caused by a decline in customers or sales meaning there is simply not enough work to go around. In this instance there may be a justifiable reason why you need to reduce your current workforce. Alternatives must first be considered, but once the decision to make redundancies has been made you must ensure you follow a fair selection process to determine which employees will be made redundant. This process must be based on their work performance and how vital they are to the running of the business; personal preference should not come into the equation here. Following this process it may be the case that a director is selected to face redundancy. If the director is also classed as an employee of the company then they can be made redundant in the usual way.
The important thing to remember when it comes to redundancy is that you are making the position redundant because it is no longer justifiable or viable from a business perspective; redundancy is not an excuse to get rid of someone you no longer want to employ. Once you have made an individual redundant you are not allowed to hire someone else to fill their vacated position.
As the sole director of a limited company you may be surprised to learn that you can technically be made redundant as long as you are also classed as an employee. This situation would occur if the company becomes insolvent and consequently enters a formal closure process such as a Creditors’ Voluntary Liquidation (CVL). In this instance the director will be eligible to claim redundancy pay as long as they have been taking a salary from the company through the PAYE system for the past two years. The onus on making this payment will fall to the company, however, due to its insolvent nature there is unlikely to be adequate funds in the business to allow for this. The redundancy claim will then be passed over to the Redundancy Payments Service (RPS) who will fund the redundancy pay owed to the director. This payment will be at the statutory level meaning that if the director had an enhanced redundancy package as part of their contract, this will not be honoured.
Redundancy Claims UK are experts in helping directors of limited companies claim the redundancy they are entitled to. With over 40 years’ insolvency experience plus a thorough understanding of the Employment Rights Act 1996, we are perfectly positioned to guide you through the process. Call our team today on 0800 063 9261 to learn more about how we can help you. RCUK are Authorised and Regulated by the Financial Conduct Authority. Authorisation No 830522. You can check our registration here.
Should you qualify for director redundancy, you can use this payment for any purpose you wish. Some people use this to fund the cost of the liquidation of their company;
If an insolvent company enters liquidation, either compulsory or voluntarily, then it is often the case that the director will be in line for a redundancy payment. This is conditional on the director being on the payroll and the company having been incorporated for a minimum of two years.
Director redundancy is still relatively unknown and there is much misunderstanding about who may be eligible for it. There are certain caveats when it comes to making a claim for director redundancy. In order to be eligible you must be registered as an employee of the company, have at least two years’ continuous service, and you must have worked a minimum of 16 hours a week during this time.
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