Director Refused Redundancy.

[Gibson46]

Hi,

Regrettably, my business went into liquidation in November after 12 years of trading. I was advised that I could claim for redundancy. However, my claim has been refused by the RPO because I did not pay myself the minimum wage. As a result, they do not consider me an employee of the business, but rather an office holder. I worked in the business for 12 years, apart from approximately 6 months when I was in hospital. Is there any point in appealing this decision? The claim was for approximately £6.5k before deductions, plus any payment for loss of notice.

Thank you in advance for any advice.

 

[ChrisCallaghan]

Sadly I've been seeing this a lot in the last 12 months or so. I am unaware of any of my clients being successful with appeals. I'm not sure any grounds for appeal would have any firm ground. It's for this very reason that most of the firms I know who used to specialise in director redundancy claims have shifted their core services to assisting IPs with employee claims instead.

 

[Gibson46]

Sadly I've been seeing this a lot in the last 12 months or so. I am unaware of any of my clients being successful with appeals. I'm not sure any grounds for appeal would have any firm ground. It's for this very reason that most of the firms I know who used to specialise in director redundancy claims have shifted their core services to assisting IPs with employee claims instead.

Hi Chris,

Not the news I was hoping for, but at least I know there isn't any point in pursuing it. Thank you for taking the time to reply and sharing your expertise.

 

[Lisa Thomas]

I can unfortunately echo Chris' comments. I refer my directors to a specialist and they have been seeing issues with this problem too.

It's the RPO's way of clawing back some funds by rejecting director claims.

Feel free to DM for their details - it's always worth a chat and if they think they can help it might be worth exploring as they charge on a no-win, no- fee type commission basis.

 

[Elliot Green]

Hi,

Regrettably, my business went into liquidation in November after 12 years of trading. I was advised that I could claim for redundancy. However, my claim has been refused by the RPO because I did not pay myself the minimum wage. As a result, they do not consider me an employee of the business, but rather an office holder. I worked in the business for 12 years, apart from approximately 6 months when I was in hospital. Is there any point in appealing this decision? The claim was for approximately £6.5k before deductions, plus any payment for loss of notice.

Thank you in advance for any advice.

The problem appears conceivably to arise from the fact that redundancy arises from the status as employee and few employees would be treated as employees if they were neither processed on the payroll nor paid wages for a material period of time. Did you submit Real Time Information ("RTI") declaring the payroll position and monthly wage slips up to the point of Liquidation? How many months did you not take a wage for?

 

[Newchodge]

The problem appears conceivably to arise from the fact that redundancy arises from the status as employee and few employees would be treated as employees if they were neither processed on the payroll nor paid wages for a material period of time. Did you submit Real Time Information ("RTI") declaring the payroll position and monthly wage slips up to the point of Liquidation? How many months did you not take a wage for?

I think it is more that the Director has only taken a minimal wage (even if declared on RTI). If a Director is an employee they are subject to minimum wage rules. If they have not been paying themselves at minimum wage levels, they are not an employee.

 

[ChrisCallaghan]

I think it is more that the Director has only taken a minimal wage (even if declared on RTI). If a Director is an employee they are subject to minimum wage rules. If they have not been paying themselves at minimum wage levels, they are not an employee.

Exactly this. The RPS did issue a technical alert on this issue last year.

Given that most director choose to remunerate themselves with minimal PAYE to cover NI etc, and take the rest as dividends, they inadvertently are paying themselves less than minimum wage. Very tax efficient, but means no redundancy for a director in liquidation. A bit harsh I think, but I suppose cake and eat it springs to mind....

 

[DWS]

I am not an employment/PAYE expert by any means, but surely a Director as an employee can still be taking the minimal wage so as not to pay employers N/I and still be paying themselves the National Minimum Wage, is this not an hourly rate and based on the hours worked?

 

[Newchodge]

I am not an employment/PAYE expert by any means, but surely a Director as an employee can still be taking the minimal wage so as not to pay employers N/I and still be paying themselves the National Minimum Wage, is this not an hourly rate and based on the hours worked?

Yes. Last year £175 per week would be about 18 hours. So if a director running and working in their own company worked less than 18 hours every week, they should be able to claim. I doubt many would qualify.

 

[ChrisCallaghan]

Yes. Last year £175 per week would be about 18 hours. So if a director running and working in their own company worked less than 18 hours every week, they should be able to claim. I doubt many would qualify.

In most of my recent cases where this has arisen, the director was the sole worker of the company. Hard to argue you're only working less than 18 hours in those circumstances, especially when their company was their sole source of income.

 

[DWS]

Yes. Last year £175 per week would be about 18 hours. So if a director running and working in their own company worked less than 18 hours every week, they should be able to claim. I doubt many would qualify.

I am sure if it meant the difference between getting redundancy or not getting it then you would find quite a few working less than 18 hours

 

[Newchodge]

I am sure if it meant the difference between getting redundancy or not getting it then you would find quite a few working less than 18 hours

You mean committing fraud?

 

[DWS]

In most of my recent cases where this has arisen, the director was the sole worker of the company. Hard to argue you're only working less than 18 hours in those circumstances, especially when their company was their sole source of income.

But is it their only source of income if they are also receiving dividends?

 

[DWS]

You mean committing fraud?

How is it fraud?

 

[ChrisCallaghan]

I am sure if it meant the difference between getting redundancy or not getting it then you would find quite a few working less than 18 hours

Any director claiming redundancy from the RPS following a liquidation is welcome to make this claim. I wish them luck.

But is it their only source of income if they are also receiving dividends?

Specifically I meant that their remuneration from the company is their sole income, i.e. PAYE salary and the dividends. The point I was making is that if a director is the sole worker of that company, and that company is paying a director enough through PAYE/Dividend combo to support that director as their sole income, it is unlikely that their are working less than 18 hours a week.

How is it fraud?

If it's not true. If it's true, a director can expect an argument with the RPS to prove their were working the hours that would reflect minimum wage for the amount of PAYE pay they took.

 

[DWS]

So I as a Director have to charge for every hour I work for the Company?
If I decide I only want paying for 18 hours but I do 50 is that fraud?

 

[ChrisCallaghan]

So I as a Director have to charge for every hour I work for the Company?
If I decide I only want paying for 18 hours but I do 50 is that fraud?

No, and I suspect you know that. If a director wants to pay themselves less than minimum wage, or not for all the hours they work, that would not be fraud. But that director can expect that they will be denied a redundancy claim following a liquidation, as they have paid themselves below minimum wage for the hours they worked.

However, if a director:

• worked 37.5 hours a week for their company
• paid themselves a minimal amount of PAYE to cover NI, taking the majority of their remuneration in dividend.
• Following a liquidation, declared to the RPS that were working less than 18 hours (as opposed to the 37.5 hours a week they actually worked) and that their PAYE salary did in fact cover minimum wage for the hours their worked

Then yes, obviously that would be fraud. Making a false statement to a government body etc etc.

 

[Newchodge]

So I as a Director have to charge for every hour I work for the Company?
If I decide I only want paying for 18 hours but I do 50 is that fraud?

Technically, not paying an employee Director minimum wage for all the hours they work is a criminal offence.

 

[DWS]

My point is, that no one is trying to deceive anyone, you are doing 50 hours but are only getting paid for 18, you are not telling the RPS (whoever they are) that you are doing 18hrs or less you are saying you are doing 50 but only getting paid for 18.

 

[Frank Wessely]

Hi @Gibson46

There have been some interesting comments in this thread and from what I have seen it is a moving target as to how the Redundancy Payments Service scrutinises claims from directors.

The information required to assess employment status was previously set out in a list of questions on the RP3 form which formed part of the redundancy application for directors. It was then confirmed by the RPS that the RP3 form was no longer going to be used and it would be replaced by a ‘Director Further Questionnaire’ form for claims under £250.00 p.w. Unfortunately, it is a document which is easy to answer incorrectly and may not reflect the true position of the director.

The new questionnaire requests many more supporting documents to be submitted with the completed form. One such document, the employment history, has to be obtained from HMRC and this can take several weeks when the employment history is for a period over four years.

The latest update from the RPS concerning ‘director’ redundancy applications being approved for payment is as follows:

• 1. Any Director (employee) paid above £300.00 per week and can evidence they were receiving regular salary will be paid out.
• 2. Any director (employee) paid between £250.00 and £299.00 per week, paid regular salary, ideally paid into a company pension scheme, is likely to be paid but not guaranteed.
• 3. Any Director (employee) paid at their personal tax allowance (less than £250.00 per week) and is 100% shareholder of the company, or if they have taken significant amounts through dividends even with a lower shareholding, will NOT be paid out and the application will be rejected with the only recourse for the employee being taking the case to an employment tribunal.
• 4. Any Director (employee) paid at their personal tax allowance, not a 100% shareholder (50% or less), paid regular salary and is part of a company pension scheme is likely to be paid out.

Which of these do you fall into - No. 3?

I hope this is helpful.

Thanks.

 

[DWS]

Technically, not paying an employee Director minimum wage for all the hours they work is a criminal offence.

So then there are a lot of law breakers out there!
Most people using the optimal salary and dividends are breaking the law, surprised HMRC haven’t picked up on this!

 

[Newchodge]

So then there are a lot of law breakers out there!
Most people using the optimal salary and dividends are breaking the law, surprised HMRC haven’t picked up on this!

Only if they are employees as well as directors. If a director chooses to assess everything they do as director's duties and not employment, there is no issue, nor, the subject of this thread, is there any redundancy.

 

[ChrisCallaghan]

Technically, not paying an employee Director minimum wage for all the hours they work is a criminal offence.

Of course you are right Cyndy. I do tend to think it isn't when a director is essentially doing it to themselves, but I tend to forget this. The technical alert we had from R3 did mention your point. A quote from Dear IP 48 Jan 22:

".....where a director has paid themselves at a rate lower than National Minimum Wage, they will be asked to sign a declaration to that effect. This declaration contains an acknowledgement that the RPS may refer the claim to HMRC and the Insolvency Service’s Investigation and Enforcement Services (“IES”) for breach of the National Minimum Wage Act 1998."

 

[Lisa Thomas]

I haven't read all the posts here but yes, the issue is the 'fraud' element. RPO is getting directors to sign a form declaring they paid themselves less than the NMW which then opens the risk of a claim against them.

 

[fisicx]

If you ignore the director bit, redundancy is paid to employees whose job is now redundant. Which suggests payroll, tax, NI, minimum wage etc. so if you don’t tick all those boxes you get nuffin’. The fact someone is an employee and a director of the company is irrelevant.

 

[MikeJ]

deleted

 

[Gibson46]

Hi @Gibson46

There have been some interesting comments in this thread and from what I have seen it is a moving target as to how the Redundancy Payments Service scrutinises claims from directors.

The information required to assess employment status was previously set out in a list of questions on the RP3 form which formed part of the redundancy application for directors. It was then confirmed by the RPS that the RP3 form was no longer going to be used and it would be replaced by a ‘Director Further Questionnaire’ form for claims under £250.00 p.w. Unfortunately, it is a document which is easy to answer incorrectly and may not reflect the true position of the director.

The new questionnaire requests many more supporting documents to be submitted with the completed form. One such document, the employment history, has to be obtained from HMRC and this can take several weeks when the employment history is for a period over four years.

The latest update from the RPS concerning ‘director’ redundancy applications being approved for payment is as follows:

• 1. Any Director (employee) paid above £300.00 per week and can evidence they were receiving regular salary will be paid out.
• 2. Any director (employee) paid between £250.00 and £299.00 per week, paid regular salary, ideally paid into a company pension scheme, is likely to be paid but not guaranteed.
• 3. Any Director (employee) paid at their personal tax allowance (less than £250.00 per week) and is 100% shareholder of the company, or if they have taken significant amounts through dividends even with a lower shareholding, will NOT be paid out and the application will be rejected with the only recourse for the employee being taking the case to an employment tribunal.
• 4. Any Director (employee) paid at their personal tax allowance, not a 100% shareholder (50% or less), paid regular salary and is part of a company pension scheme is likely to be paid out.

Which of these do you fall into - No. 3?

I hope this is helpful.

Thanks.

Hi Frank, Thank you for your detailed message. 3 is the closest to my situation. However, I did not own 100% of the business it was a 50/50 split.