If you’re a director of a limited company facing insolvency or voluntary liquidation, you might assume you’re not entitled to claim for redundancy pay, but you could be wrong.
Under UK employment law, directors can qualify for the same statutory redundancy payments as any other employees, provided certain criteria are met.
This article tells you everything you need to know about directors’ redundancy claims, including who qualifies, how much you might be entitled to, and how to make a successful claim.
Whether you’re preparing to close your company or just exploring your options, understanding your rights could mean thousands of pounds in government-backed payments you didn’t know you were entitled to.
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Is a director entitled to redundancy?
If a director is an employee of the business with a proper contract of employment, they may be entitled to payment from the Redundancy Payments Service (RPS).
However, there are additional criteria that must be met in order for a director to qualify for redundancy.
When is a director entitled to redundancy claims?
To qualify, a director must typically meet the same criteria as any other employee:
Employment status
The director must be able to prove they were also an active employee of the company, not just a board member. This is usually shown through:
- A contract of employment.
- Being on the company’s payroll (receiving a regular salary with PAYE and National Insurance being deducted).
- Performing regular duties under the control and direction of the directors and management of the company.
Length of service
They must have worked continuously for the company for at least 2 years for a minimum of 16 hours per week.
Reason for redundancy
Their role must be genuinely redundant (e.g., the business is closing, or their position is no longer needed).
When will a director not be entitled to redundancy?
A director may not qualify if:
- They were only paid via dividends, not salary.
- There was no written employment contract or evidence of an employee/employer relationship.
- [where does this come from?] [They had no subordination, i.e., they were not under the control of others in the company.]
- They were a sole director/shareholder without any distinction between ownership and employment.
How do I make a redundancy claim?
If you meet the criteria and believe you are entitled to redundancy, claims can be made from the National Insurance Fund via the RPS.
You’ll need to provide evidence to support your claim, and you will be asked for this by the Insolvency Service.
What other information will I need to provide?
Directors applying to the RPS for monies owed will need to provide evidence to support their claim that they were an employee of the business, including:
- a ‘CN’ (case reference) number
- your National Insurance number
- an email address
- your bank or building society details (so you can get paid)
- the date you became redundant (if you lost your job) – this can be found on your official letter of redundancy
- your employment details, including dates you were employed and how much you were paid
- details of any money you’re owed by your employer
- amount of holiday days you’re entitled to and holiday days you’ve taken
- copies of any letters sent to or received from your employer or an employment tribunal
- details of any money you still owe your employer
As a director applying for redundancy claims, additional information will be asked for based on your circumstances and may include:
- The company’s organisational makeup regarding directors and shareholders
- P60 documents from the past three tax years
- Payslips covering the most recent three-month period
- Employer bank records for the past year to assess the consistency of wage payments
- An analysis comparing the stated contracted hours with the actual duties performed
- Confirmation that at least the national minimum wage was consistently met
- A copy of the employment agreement and evidence of whether its terms were upheld
- Details of any dividend payments issued over the previous three years
- Information on holiday entitlement and pay policies
- Overview of pension provisions offered through the workplace
- The company’s procedures for managing sick leave
- Policies related to grievance handling and disciplinary action
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Can the RPS reject a director's redundancy claim?
If a director has taken more money out of the company than they’ve put in, this is called an overdrawn Director’s Loan Account or DLA, the RPS will probably refuse their redundancy claim until that money is fully paid back. Therefore, directors should consider repaying any overdrawn DLA prior to the liquidation of the company.
How much director redundancy pay am I entitled to?
The redundancy payment you may receive will be based on three things: how long you worked there, your age, and your weekly earnings.
To be eligible for redundancy pay, you must have completed at least 2 years of continuous service, with a maximum of 20 years taken into account. The weekly pay used in the calculation is capped at the weekly statutory limit (or your actual weekly pay if it’s lower). The maximum statutory redundancy payment you can receive is 30 times the weekly statutory limit or £21,570.
If you’re eligible, your redundancy payment will be worked out as follows:
- Aged 18–21: ½ week’s gross pay for each full year of service
- Aged 22–40: 1 full week’s gross pay for each full year of service
- Aged 41 and over: 1½ weeks’ gross pay for each full year of service
What other director employee claims can I make?
If you meet the criteria of being both a director and an employee of the company, you may be entitled to other statutory payments through RPS. These payments are available in situations where the company has entered liquidation or insolvency and is unable to meet its financial obligations.
In addition to statutory redundancy pay, the following claims may also be available:
Statutory Notice pay
You may claim one week’s notice pay for each full year of continuous employment, up to a maximum of 12 weeks. This may be reduced if you received pay in lieu of notice.
Unpaid wages
You can claim up to eight weeks’ worth of unpaid wages, which may include salary, commission, or contractual payments that remain outstanding at the time of liquidation.
Accrued holiday pay
You may be entitled to receive up to six weeks of unpaid statutory holiday pay that had accrued but was not taken before the company entered liquidation. This is limited to the statutory minimum and does not include any additional contractual leave entitlement.
Unpaid pension contributions
If employee pension contributions were deducted from your wages but not transferred into your pension scheme, the RPS may pay these amounts. However, employer contributions are not covered and must be claimed through the insolvency practitioner.
Key conditions and limitations
- All payments made by the RPS are subject to a weekly gross pay cap of £719 (or your actual wage if it is lower).
- Payments are based on gross pay and may be subject to income tax and National Insurance.
- You must provide clear evidence of your employee status, such as a contract of employment, payslips, and records of PAYE payments.
- Claims are submitted via the insolvency practitioner, who will confirm your eligibility to the RPS.
How McTear Williams & Wood can support you
If you are exploring the possibility of director redundancies, it may be a sign that your company is experiencing financial difficulty. Whether you’re facing reduced cash flow, mounting debts, or operational challenges, we understand how stressful and complex these situations can be.
Our experienced team offer local, clear and tailored advice to help you assess your options. We will work with you to identify practical solutions based on your circumstances, whether that involves redundancy planning, business restructuring, or formal insolvency procedures.
To discuss your situation confidentially, contact our specialist advisers for expert guidance.
