What is classed as salary for redundancy pay calculation

Trish Registered Posts: 20 New contributor 🐸
A client is possibly going to close down his business. His Company Secretary is paid the personal allowance as an annual salary, paid in monthly instalments, plus dividends at the end of the accounting year. His question is would the dividends be included as salary for the purpose of calculating redundancy pay.
Can anyone help me with this, I have trawled the internet for an answer but to no avail! I would appreciate anyone`s input on this.



  • mini_schnauzer
    mini_schnauzer Registered Posts: 347 Dedicated contributor 🦉

    If the company may be having to close I presume it's because they are not making enough money
    - so how can a dividend be paid out?
  • Monsoon
    Monsoon Registered Posts: 4,071 Beyond epic contributor 🧙‍♂️
    To the best of my knowledge, salary is salary, and dividends are dividends. Only salary is counted.
  • payrollpro
    payrollpro Registered Posts: 427 Dedicated contributor 🦉

    You have to look at the Employment Rights Act 1996 for the deifinition of "wages" for the purposes of redundancy.

    Wages are defined in S27 with the calculation of a weeks pay contained in sections 220 to 227/8. S227(1) names the elements and includes a reference to "emoloment" by reason of employment. S27(2) excludes any payment made other than in the capacity as a worker.

    Whilst the shareholders might be employees a dividend is a share of the profits and therefore is not related to them being a worker. A shareholder does not have to contribute anything to the profitablity of the company other than funds to ensure its start up and survival, the working capital. I would say that whilst dividends could be described as an emolument they would be excluded by virtue of S27(2)(e).

    Once you have identified the relevant sums for wages you then must use the relevant part of S220 onwards to work out the correct weeks pay. Easy if the pay is fixed but any variation must be covered by use of the relevant section.

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