The Redundancy Payments Service has started rejecting all redundancy claims submitted by directors who were paid at less than NMW

03 Oct, 2022


This is what the Redundancy Payments Service told us at the end of last week.

“RPS will consider each claim carefully before any decision to reject is made. Whilst we always take into account the fact that the liquidator and the CMC acting for the director will have considered the employment status of the director, it remains the final decision of the RPS as to whether to agree with them.

RPS will consider a number of indicators to determine employee status of directors such as pay structure, holiday arrangements, entitlement to sick pay, notice periods etc when making a decision on their employment status.

A key factor that RPS consider is whether a director renumerated themselves as an employee or an office holder. As per the National Minimum Wage Act (1998) a director must pay themselves the National Minimum Wage (NMW) if they are an employee. The NMW is currently £9.50 per hour which equates to £380 for a 40 hour week. However, a director is exempt from the NMW if they choose to be renumerated as an office holder and not class themselves as an employee or worker. If the evidence provided by the liquidator and the CMC acting for the director indicates they were not paid at national minimum wage then they will only be classed by us (RPS) as an office holder and not as an employee.

As officers and the shareholder of the company, directors are in a position to control what form of funds they receive from the company be that salary, wages, bonuses, or dividends.

If directors do not agree with the decision made by RPS then this needs to be appealed at Employment Tribunal (ET). This enables the legal argument to be heard in the appropriate forum.”

Currently many of the directors that we deal with pay themselves less than NMW. Typically, they will be advised by their accountants to pay themselves around £175 per week which is below the national insurance threshold and take the rest of their remuneration via dividends. Whilst this is tax efficient for directors, they will no longer qualify for directors’ redundancy pay as their earnings for PAYE purposes are well below NMW.






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