When considering a limited company with sole director is it acceptable to pay a minimal paye wage of £620 per month and dividends. My concern is that if the employment is full time, the paye does not cover minimum wage. Could this be a problem?
Many thanks for your comments, I look forward to hearing from you.
The director will be an employee of the company with a basic contract of employment.
Replies (12)
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Depends if they are an employee
Directors don't have to be employees. If they have a contract of employment, they need to be paid minimum wage. If they do not, they are effectively operating as self employed and do not need to be paid any salary. If they aren't an employee, they won't necessarily have statutory employment rights (for example entitlement to redundancy pay if the company is wound up).
Director and min pay.
If the Director was a shareholder (over 20%) he wouldn't get redundancy pay anyway. He would be considered self employed.
Not sure that's right
If the Director was a shareholder (over 20%) he wouldn't get redundancy pay anyway. He would be considered self employed.
Have a read of Technical Release 6, issued by R3. The position is a lot more nuanced and a range of factors are considered, none of which is necessarily conclusive on its own. A sole shareholder may even be entitled to redundancy pay, as decided in SSTI v Bottrill (1999) C/A.
Office Bearers
Agree with Brainheg that if a director has an employment contract then NMW legislation does apply.
However directors as office bearers (no employment contract in place) can perform the functions of an employee and not have to worry about NMW. Don't agree about the self employed bit though.
Please beware of director's tax credit situation though. If they are claiming WTC then they must be employees and hence must be covered by NMW.
Self employed
Agree with Brainheg that if a director has an employment contract then NMW legislation does apply.
However directors as office bearers (no employment contract in place) can perform the functions of an employee and not have to worry about NMW. Don't agree about the self employed bit though.
Please beware of director's tax credit situation though. If they are claiming WTC then they must be employees and hence must be covered by NMW.
I meant to say they're effectively treated as self employed for the purposes of employment rights. They don't need to do sole trader accounts or anything like that.
Redundancy pay.
Having attended several tribunals and failed to get redundancy pay for Directors who held over 20% of the shares, nowadays I ensure that they don't before a liquidation.
Reducing shareholding to get redundancy pay
Having attended several tribunals and failed to get redundancy pay for Directors who held over 20% of the shares, nowadays I ensure that they don't before a liquidation.
How do you get rid of the 20% shareholding?
Shares.
Give them to your Grannie! And do it before the AR is due. Otherwise; transfer for value and get transfer stamped when pasying minimum duty..
ERR
What happens if the company simply does not have enough money to pay the minimum wage, and is unlikely to for a number of years?
It's insolvent
What happens if the company simply does not have enough money to pay the minimum wage, and is unlikely to for a number of years?
It's insolvent, and the director needs to be a bit careful!
Shouldn't be a problem
What happens if the company simply does not have enough money to pay the minimum wage, and is unlikely to for a number of years?
Then it shouldn't give the director a contract of employment.