Directors are generally considered to be office holders, they are considered to have different rights and responsibilities to employees and are classed as office holders for tax and NIC purposes.
Why is this important? Office holders do not qualify for the NMW or NLW.
And a good job too; if they did qualify, and if the minimum wage regulations applied to the payments they received from a company, that would lay waste to the advice given to directors to take a low salary and the balance of remuneration in more NIC advantageous forms, predominantly dividends.
A director with a salary of £8,164 for 2017-18, working a 30-hour week and taking 6 weeks off for holidays, is being paid approximately £6 per hour. On the assumption that we are looking at a person in middle age, they should be paid the NLW of £7.50. This would equate to an annual salary of £10,350.
It is worth checking with clients – directors of small companies who have embraced the low salary high dividend approach – to ensure they have not signed a contract of employment. If they have, they are morphed into workers and are now subject to the minimum wage regulations.
The title of this article mentions the word “implied”.
It is not clear, from the research undertaken by our editors, if directors can be subject to an implied contract of employment, and if they are, does this open the door to minimum wage issues? It is to be hoped not as this would open all sorts of difficulties when advising clients on remuneration strategy.
Practitioners reading this blog, and who have an opinion on this matter – does an implied contract draw a director into the minimum wage legislation – we would love to hear from you. Send your thoughts to firstname.lastname@example.org
Until next time…