By Lisa Doherty
For most workers, redundancy is a fairly blunt calculation: meet the criteria and a payment follows.
For company directors, the picture is murkier and thousands of business owners across Ireland may be unaware of where they actually stand.
The complication lies in the fact that a director can wear two hats simultaneously: an employee carrying out day-to-day duties and an officeholder bound by statutory obligations which do not simply evaporate when a role disappears. Untangling the two is proving to be a source of confusion and in some cases costly mistakes.
Entitlement to statutory redundancy hinges not on job title but on employment status. Many directors who run a business day-to-day alongside sitting on the board are paid through PAYE and hold a standard contract of employment. Provided they have at least two years of continuous service, are under State pension age and lose their position for a genuine business reason, they qualify for statutory redundancy just like any other worker.
It becomes considerably more complex for so-called proprietary directors; i.e. those who own or control a significant shareholding.
Anyone holding 50 per cent or more of a company, directly or indirectly, is classified as self-employed for social insurance purposes and is generally excluded from statutory redundancy altogether, regardless of how long they have served.
For those holding between 15 per cent and 50 per cent, the outcome depends on the individual’s real working relationship with the company and is assessed case by case.
Enhanced or ex-gratia payments, often negotiated by senior or long-serving directors, add another layer of complexity. Unlike statutory redundancy, which is always tax-free, any ex-gratia sum above the statutory minimum is generally taxable, though reliefs can reduce the burden considerably depending on how the exit is structured.
Legal obligations too can outlast the job itself. Under the Companies Act 2014, a directorship only formally ends through resignation or removal by ordinary resolution, with the Companies Registration Office notified within 14 days. Until that paperwork is filed, an individual may remain legally responsible as a director, even after their employment has ended.
There is also a common misconception worth dispelling: income protection does not cover redundancy. It is designed to replace income lost to illness or injury, not job loss, meaning many departing directors discover valuable cover, including death-in-service benefits, simply lapses.
Given how much depends on shareholding, contract terms and individual circumstances, industry voices are united on one point: directors facing redundancy should not rely on generic guidance or assumptions.
With pension decisions, tax exposure and ongoing legal responsibilities all potentially in play, seeking expert, personalised financial and legal advice before signing any exit package is, professionals say, not optional, it is essential.
Lisa Doherty, CFP BBS QFA RPA SIA is a CERTIFIED FINANCIAL PLANNER. You can contact her through John F. Loughrey Financial Services t/a Fairstone by telephone on 074-9124002 or by email on [email protected]
The Your Money column features every Thursday in the Donegal News.