Director Redundancy Pay Claims Under More Scrutiny

Often when we’re referred to a company for insolvency advice, part of the discussion is director redundancy pay.

When a company is unable to pay wages, holiday pay, notice pay, or redundancy pay to its employees, the Redundancy Payments Service (RPS) will step in to ensure employees aren’t left out of pocket.

Directors are also able to claim from the RPS if they’re considered to be an employee of the company. However, in recent months, we’ve seen a substantial increase in director claims for redundancy being rejected. The RPS has confirmed this week that it’s now putting director claims under more scrutiny.

What Evidence Is Required from Directors?

Directors applying to the Redundancy Payments Service will need to provide evidence to support their claims of employee status. After making a claim, the RPS will contact directors to inform them about information they’ll need to provide. This varies on a case-by-case basis with information requests being made based on the claimant’s individual circumstances.

The potential types of information that may be requested from directors includes:

Details of the company’s structure in terms of directorships and shareholders
P60s from the past 3 years
Wage slips from the past 3 months
Employer’s bank statements from the past 12 months (to identify regularity of payments)
A comparison of work undertaken to contracted hours claimed
A copy of the employment contract
Dividends received in the past 3 years
Completion of a questionnaire explaining details of employment

It’s important to note that this is not an exhaustive list – the RPS may request additional evidence if they find it to be of relevance to the case.

When Will Directors Be Rejected?

Ultimately, if a director hasn’t been treated the same way as any “normal” employee would, the Redundancy Payments Service will reject their claim.

Recent instances of rejections we have seen include:

The Director did not have a written contract of employment
The Director was not in receipt of the minimum wage (taking only the personal tax allowance limit as a wage)
The Director opted to not pay themselves for several months pre-liquidation to assist with the Company’s cash flow

If a claim is rejected, the Director will have the option to appeal to the Employment Tribunal. However, a lot of the case law surrounding this issue is not favourable to directors.