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When a company enters into an insolvent process, with insufficient monies to pay amounts due to employees in respect of:
An employee must complete an RP1 form to make a claim for payment from the Redundancy Payments Service (RPS).
How much you can claim is determined by various factors – how long you’ve been an employee for instance, as well as your age and salary. The amount of gross weekly pay at the time of insolvency is used in the calculation, but caps are applied to:
When a business is forced into insolvency concerns for the welfare of employees will run alongside the fear for your personal financial position, particularly if you have given personal guarantees in respect of company liabilities.
It is often thought that you have few statutory entitlements as a company director, particularly when the business becomes insolvent. With a bit of forethought however, you will be entitled to the same entitlements as your employees, even though as a director of the company you fulfil an additional role, and also may be a shareholder.
Preparing for adversity is equally as important as planning for growth, so what actions can you take to give you the best chance of receiving a pay out from the RPS should the worst happen?
To establish a director’s entitlement to claim, the RPS will need to know certain facts about your employment and day-to-day responsibilities, including:
This information is established by the completion of an additional form RP3.
If you have taken a salary using the PAYE scheme and can demonstrate that you have a similar
connection to the company as other employees, then it is likely you will be eligible for various statutory entitlements in the event of insolvency.
Points that you need do consider:
Do you have a contract of employment – written, oral and implied?
One of the initial questions in establishing eligibility is whether or not a contract of employment exists, and if it does, whether it is written, oral or implied.
A contract does not have to be written down in order to be legal. Some directors work as an employee following discussions between themselves and the board, assuming this role under an oral contract. However employee status is not as easy to prove as when the contract is written, therefore it is good practice for a director to have a formal contract of employment from day one.
A contract of Employment should include the following:
Ensure that you have:
a comprehensive written Contract of Employment
That your salary is paid through the PAYE scheme
That your gross weekly salary is at least at the maximum level for payments from the RPS, currently £479 per week
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