Businesses are going to start re-opening as we come out of lockdown and hopefully life will start going back to normal. But what happens if the business you own or work for simply can’t get back on it’s feet and can no longer pay it’s debts?
A lot of businesses are relying on the furlough scheme at the moment to keep their employees on the books. When that scheme ends, the sad fact is that we are likely to see a lot of people being made redundant. With a lot of jobs being lost, this is likely to result in a more competitive job market. And in circumstances like these, employees are going to rely on getting a redundancy payment from their employer to see them through. But if the business you work for has failed and cannot pay its debts, what happens to your redundancy pay? Do you just miss out? Thankfully , the answer is no. Redundancy pay Employees who are made redundant and who have at least 2 years’ continuous service are entitled to a Statutory Redundancy Payment which is calculated based on the employee’s age, length of service and weekly pay. A weeks’ pay is currently capped at £538 so if you earn more than that, the excess is ignored. There is also a 20-year service cap and so, putting these caps together, the maximum payment is £16,140. These caps increase each year and so from 6 April 2021, the maximum payment will be £16,320. If you want to check how much your statutory redundancy pay should be, there is a handy calculator on the gov.uk website (see Calculate your statutory redundancy pay - GOV.UK (www.gov.uk)). Some employees might also have a right to enhanced or additional redundancy pay under their employment contract. It is not overly common these days but it is worth checking your contract and staff policies just in case. Notice pay The employee will also be entitled to a minimum amount of notice. The amount of notice they get depends on the terms of their employment contract. However, there is a statutory minimum notice period which applies to all employees which is one weeks’ notice in the first 2 years of employment, and an additional week for each full year of service after that. This is capped at 12 weeks’ notice in total. Some employees might have a longer notice period than this in their employment contracts and so, again, it is worth checking your employment terms or contract. Other payments When someone’s employment ends, they might also be entitled to other payments like pay in lieu of any holiday they have accrued but not taken. Bonus or commission payments, overtime and outstanding wages may also still be owed. These all have to be paid. What if the employer can’t pay? If your employer is insolvent and cannot pay you your redundancy pay itself, you can apply to the Insolvency Service for your redundancy pay. You would need to complete an application online and then wait for the Insolvency Service to confirm what you are entitled to. You would not be able to claim enhanced redundancy pay through the Insolvency Service but you can claim the following: Statutory Redundancy Pay Any outstanding notice pay Any outstanding wages up to a maximum of 8 weeks’ pay Up to 6 weeks accrued but untaken holiday pay Protective Awards (see below) Tax and National Insurance contributions will be deducted from these payments and any government benefits you were entitled to may also affect the amount you receive. Likewise, if you owed your employer anything, such as money they loaned to you, this would also be deducted from your payment. If you have missed out on pension contributions, you may also be able to out in a claim for the shortfall. However, this claim would go to your pension scheme rather than the Insolvency Service. For more information on how to claim through the Insolvency Service, see Explaining your redundancy payments - GOV.UK (www.gov.uk). Who to contact? There is normally a redundancy payment helpline that employees can call for advice if their employer is insolvent. However, the gov.uk website says that the helpline is temporarily out of action due to the pandemic. We are instead pointed to the Insolvency Service which you can email at This email address is being protected from spambots. You need JavaScript enabled to view it. for help. What about business transfers? Some businesses that are insolvent (or close to it) might not close down because they are bought out or taken over by someone else. If the business carries on under new ownership, this might mean that staff will not be redundant and their employment will transfer to the new owner. If this is the case, the employee will not be entitled to redundancy pay and can’t claim it from either their original employer or through the Insolvency Service. Beware the sham redundancy! A business in trouble and facing the prospect of having to pay large sums to make staff redundant might sometimes look around for another reason to dismiss an employee, one which doesn’t come with a right to redundancy pay. Often, this will be some alleged misconduct or poor performance. If this happens to you, you should take legal advice straight-away as you may have a claim for unfair dismissal. It is important that you keep records of what went on as best you can, whether that is keeping copies of relevant emails or text messages, or making notes of calls or conversations. There is a strict 3-month time limit for bringing an unfair dismissal claim so make sure you don’t delay in getting help. What is a Protective Award? A Protective Award is a form of compensation that an Employment Tribunal may order an employer to pay if they made more than 20 employees redundant at a single place of work without going through a proper consultation period first. The maximum compensation available is 8 weeks’ pay and this is in addition to the other payments an employee is entitled to when made redundant. We mention it here because if a Protective Award has been made by the Tribunal but not paid by the employer because they are insolvent, this can also be claimed through the Insolvency Service. Further help and guidance We are specialist employment law solicitors. If you need any further help with redundancy, whether you are an employer or an employee, get in touch with our Head of Employment, Kim Cross, at This email address is being protected from spambots. You need JavaScript enabled to view it. or 01945 898090.
