Director with no contract, rights?

[kevtimson]

I own a company and myself and one other are listed as directors @ companies house. I own 100% share in the company however. Both myself and the other director have been paid £900 a month as mutually agreed since working together, however, there is no contract of employment or any written contract at all between us regarding pay or holiday entitlement. As of April this year we have been furloughed as the only two employees of the company. Last month the other director decided to leave the company with an exit date of 31/10/2020. As they are still due furlough pay I have been paying the furlough pay only (no top up to her wages of 20% for the last two pays. I have topped my own up by 20% as I am now going to be the only director and employee of the company. The leaving director is now claiming holiday pay plus stating I am need to pay the last tow months 20% top up to her wages... can you advise on this please? Given we have no contract and she has no proof she has worked 5 days a week from January to March do I need to pay her for holidays based on 5 days a week from January to October 31st? In previous years we have not taken holiday pay so I am unsure on what I am legally obliged to do?

[ULA]

Firstly even as directors of the business you should both have what is typically called a service agreement (employment contract for directors) setting out arrangements such as pay, hours of work and holiday entitlement.

Let me deal with the holiday pay first. Given that you do not have a service agreement in place I cannot direct you to that as reference for dealing with the situation however, the legal entitlement to holiday is 28 days which includes bank holiday. Therefore, you will need to come to some agreement based on pro-rata accrued but untaken holiday for the period Jan to Oct. Was there any unwritten or verbal agreement as to how many days you would on average (I know as directors there is rarely an average week!) expect to work in the business per week - 5 days, 3 etc. If so and it was less than 5 then the 28 days needs to be pro-rata for the number of days per week worked. Whatever those calculations work out as she will be due in holiday pay.

Under the terms of the furlough scheme there was no obligation for "topping up" the 20% wages to 100%, all that was required was for the 80% of wages to be paid either via the government up until Aug and then the sliding scale between the government and company up until 31 Oct. If the other director has been working their notice then there may be a moral argument to continue paying the top up if you are doing that for yourself but no obligation under the terms of the scheme. If the resigning director has not been "working" their notice then you may have an argument for not "topping up".

Hope that helps clarify the situation but if you have any more questions, please just come back to this post.