Who Pays for Staff Redundancy When a Business Goes Into Liquidation
When a business goes into liquidation, it’s not just the company’s assets and finances that are at stake. The livelihood of its employees is also on the line. But who pays for staff redundancy when a business goes into liquidation?
In this blog post, we’ll dive deep into the world of staff redundancy, insolvency practitioners, and the legal framework that protects employees during liquidation.
Buckle up and get ready to explore the complexities of employee rights and entitlements in this challenging time.
Short Summary
- Employees in liquidation can be protected by financial compensation systems such as the National Insurance Fund.
- Insolvency Practitioners oversee the insolvency process and provide resources for individuals to access information about their employer’s insolvency.
- Employees are entitled to a range of payments, including redundancy pay, unpaid wages and holiday pay, with assistance from government calculators and funds such as the Pension Protection Fund available where necessary.
Understanding Staff Redundancy in Liquidation
Staff redundancy in liquidation can be a complex and emotionally draining process for employees. The good news is that there are systems in place to protect employees’ rights and ensure they receive the financial compensation they deserve.
The National Insurance Fund (NIF) plays a crucial role in providing redundancy payments for employees whose employer is insolvent.
Insolvency practitioners manage the liquidation process, which includes calculating redundancy payments based on factors such as employee’s age, length of service, and wage.
The legal order of priority for payments made in corporate liquidation is established, and employees may need to pay income tax on certain payments received during the process, such as wages and holiday pay.
The maximum amount of payment for wages and other money owed is £571 per week (£544 if redundancy occurred on holiday days prior to 6 April 2022).
The Role of Insolvency Practitioners
Insolvency practitioners are appointed to administer an insolvent company’s affairs, business, and property. They play a crucial role in managing the company’s liquidation process and ensuring employees’ rights are protected.
One of the ways insolvency practitioners protect employees is through the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE), which secures the rights of employees by automatically transferring their employment contracts and maintaining their continuity of service if their employer transfers the business or a part of the business in which they were employed to another entity, subject to meeting the relevant criteria.
Employees of a sole trader or partnership can consult the Individual Insolvency Register on the Insolvency Service website to verify if their employer’s name or trading name is listed, helping them determine if their employer is insolvent.
This information empowers employees to take the necessary steps towards claiming their redundancy payments and other entitlements.
Redundancy Payments: Who is Responsible?
The Redundancy Payments Service is the go-to source for employees seeking to claim redundancy payments in the event of employer insolvency.
This service is responsible for providing redundancy payments to eligible employees on behalf of their former employer if the employer is formally insolvent.
Employees can submit a claim for up to £643 if their employer or they have not been paid or taken their annual leave in one week’s notice or holiday days. Any further claims must be paid by the employer.
The National Insurance Fund plays a critical role in providing redundancy payments to employees, ensuring that they receive the financial support they need during the tumultuous time of liquidation.
By supporting employees through the Redundancy Payments Service, the National Insurance Fund helps to safeguard their rights and provide a safety net in times of crisis.
Claiming from the Redundancy Payments Service
To claim redundancy payments from the Redundancy Payments Service, employees must first obtain a case reference number (CN number) from the insolvency practitioner.
This CN number is essential for claiming the money owed to them by their employer. Typically, employees will receive the money within six weeks of submitting the application.
To make a claim, employees must provide their CN number, National Insurance number, bank account and contact details, in addition to details of their employment and redundancy. Claims made redundant, must be submitted within six months of the date of their dismissal for their redundancy payment.
It’s important to note that in order to be eligible for redundancy pay from the National Insurance Fund, employees must have had a minimum of two years’ consecutive service and must make the claim within six months of the date of their redundancy dismissal.
Ensuring you meet these eligibility criteria and providing the necessary information will help streamline the process and get you the financial support you need.
The National Insurance Fund’s Role
The National Insurance Fund is a vital safety net for employees who have been made redundant due to their employer’s insolvency.
It is responsible for providing specific payments such as redundancy pay, unpaid wages, and holiday pay, among other entitlements. These statutory payments are administered through the Redundancy Payment Service.
The National Insurance Fund not only provides redundancy payments, but also retains the money used for various statutory payments.
These include statutory redundancy payments and state pension. By ensuring that employees receive the financial support they need during the liquidation process, the National Insurance Fund plays a crucial role in protecting employees’ rights and helping them navigate through difficult times.
Employee Rights and Entitlements
Eligibility for redundancy pay is determined by a number of factors. These can include the employee’s age, length of service and final wage. There is a cap of 12 years and a maximum payout of £16,320 for redundancy pay.
To help employees estimate their potential redundancy pay, the government has created a calculator that takes these factors into account.
In addition to redundancy pay, employees may also be entitled to other payments such as unpaid wages, holiday pay, and statutory notice pay.
Ensuring that you understand your rights and entitlements during the liquidation process is essential in securing the financial support you need.
Calculating Redundancy Pay
The amount of redundancy pay owed to an employee is contingent upon their individual circumstances and factors such as age, length of service, and final wage.
To assist employees in determining their potential redundancy pay, the government has created a calculator that takes these factors into account. The maximum gross weekly pay for claiming redundancy pay is £571.
It’s important to note that there is a maximum duration of employment that qualifies for redundancy pay: 20 years.
By understanding the factors that affect redundancy pay calculations and utilizing the government calculator, employees can better prepare for their financial future during the liquidation process.
Unpaid Wages and Holiday Pay
Employees may be able to obtain unpaid wages and holiday pay from the Redundancy Payments Service if their employer is insolvent.
In the event of an employer’s insolvency, employees are entitled to claim for holidays taken within the 12 months preceding their employer’s insolvency, with a maximum of 6 weeks’ holiday pay, capped at £571 per week (up to a maximum of £3,426) as of April 2022.
This rate income tax also increases to £643 per week (up to a maximum of £3,858) from April 2023.
It’s essential for employees to be aware of their rights and entitlements when it comes to unpaid wages and holiday pay.
By understanding the regulations surrounding these payments and claiming the necessary funds, employees can help to secure their financial well-being during the liquidation process.
Statutory Notice Pay
Statutory notice pay is a paid notice period that is required by law when an employee is made redundant, even if it is not specified in their contract.
Statutory notice pay is calculated as one week’s notice per year of employment, with a maximum of twelve weeks. To claim statutory notice pay, employees must have a case reference number (LN number), which will be provided by the insolvency practitioner after the notice period should have concluded.
The maximum amount of payment for statutory redundancy and notice pay is £571 per week (£544 per week if the employee was made redundant prior to 6 April 2022).
It’s crucial for employees to understand their rights regarding statutory notice pay and the process for claiming it.
By taking the necessary steps and providing the required information, employees can help ensure they receive the financial support they deserve during the liquidation process.
Directors’ Eligibility for Redundancy Pay
Company directors may be eligible for redundancy pay if they fulfill the necessary qualifications and are considered employees of the company, receiving a salary through PAYE.
To be eligible for redundancy pay, directors must demonstrate their substantial role and payment under PAYE following a limited company’s winding up.
It’s important for directors to be aware of their rights and entitlements during the liquidation process, as this can help secure their financial well-being.
Directors are sometimes the only employees entitled to unpaid wages and holiday days or pay that hasn’t been taken or paid out. Such cases should be assessed individually.
By understanding the criteria for claiming redundancy pay and other entitlements, directors can ensure they receive the financial compensation they deserve.
Proving Director’s Employment Status
To verify a director’s employment status, it’s necessary to review their director’s service agreement or contract with the organization.
The employment status of a director is contingent upon the presence of either an express or implied contract, which can help determine their eligibility for redundancy pay and other entitlements.
To be eligible for redundancy pay, directors must be classed as an employee of the company. They must also have a salary that is taxable under PAYE, in addition to any dividend payments.
By providing the necessary documentation and evidence, directors can ensure they receive the financial support they need during the liquidation process.
Director’s Redundancy Pay Calculation
The process of determining a director’s redundancy pay is based on their age and length of service. For directors under 22, half a week’s gross pay is provided for each year of service. Directors aged between 22 and 40 are entitled to one week’s pay for each year of service.
Directors 41 years old or older are entitled to a further week’s pay-and-a-half week’s pay, for each year of service. The maximum redundancy pay a director is eligible for is £14,670.
By understanding the factors that affect redundancy pay calculations and the process for determining their pay, directors can better prepare for their financial future during the liquidation process.
Pension Contributions and Liquidation
In the event of insolvency, unpaid pension contributions may be classified as an unsecured debt.
However, pension assets are not part of the company’s assets to be distributed among creditors. Pension payments for former employees who have already retired are typically secured in the case of liquidation.
For missing pension contributions, it’s crucial to contact the insolvency practitioner and check the Pension Protection Fund for any available assistance.
Ensuring that you receive the pension contributions you’re entitled to is an essential aspect of navigating the liquidation process. By taking the necessary steps to secure your pension contributions, you can help protect your financial future.
Contacting Insolvency Practitioners
If you suspect that your pension contributions are missing, it’s crucial to reach out to the insolvency practitioner or official receiver for assistance.
You can locate a licensed insolvency practitioner in your area by searching the Insolvency Service website or contacting the Insolvency Service helpline for information regarding the insolvency process.
By contacting the insolvency practitioner and providing the necessary information, you can help ensure that your pension contributions are accounted for and that you receive the financial support you need during the liquidation process.
The Pension Protection Fund
The Pension Protection Fund is a UK government-backed fund that provides compensation to members of eligible defined benefit pension schemes when the sponsoring company experiences a qualifying insolvency event.
In the event of a company’s liquidation, the Pension Protection Fund provides full coverage of pension payments for former employees who have already retired, and up to 90% of the value of the pension for those who are below the scheme’s pension age.
By understanding the role of the Pension Protection Fund and the compensation it provides, employees can better prepare for their financial future during the liquidation process and ensure their pension contributions are protected.
Employment Tribunal Claims
Employees can make claims to the Employment Tribunal against the Secretary of State and previous employer for non-payment.
Potential outcomes may include repayment of owed money or compensation. To claim a redundancy payment, employees must initiate the application process to the tribunal within 6 months and 1 day from the termination of their employment.
For other outstanding payments, such as unpaid wages, employees must initiate the process within 3 months and 1 day.
Understanding your rights and the process of filing claims with the Employment Tribunal is essential to ensuring that you receive the financial support you need during the liquidation process.
Filing a Claim
Before bringing your employer to the employment tribunal, it’s recommended to contact the insolvency practitioner first and request written authorization to proceed. Once you have the necessary authorization, you can initiate the application process for the tribunal within the required time frame.
The tribunal must decide that you were an employee. Once they have done so, submit a copy of the decision to the insolvency practitioner.
They should give you contact details and a reference number. You need to use that number to apply to the Redundancy Payments Service. By following the necessary steps and providing the required information, you can help ensure the success of your claim.
Potential Outcomes
The potential outcomes of an employment tribunal claim may vary depending on the circumstances and can include compensation, reinstatement, or a settlement agreement. The amount of compensation awarded can vary depending on the circumstances, and in some cases, there is no limit.
The outcome of an employment tribunal claim is determined by an employment judge or a tribunal panel. By understanding the possible outcomes and their implications, employees can better prepare for the tribunal process and ensure they receive the financial support they deserve.
Frequently Asked Questions
Do employees get paid redundancy when company goes into liquidation?
Unfortunately, when a company goes into compulsory liquidation either, employees are not usually entitled to redundancy pay. Unless the company has made sufficient funds available and meets certain other criteria who pays for staff redundancy when a business goes into liquidation, there will be no payment.
Thus, employees do not get paid redundancy when a company goes into voluntary liquidation either.
What happens to employees when a company goes into liquidation?
When a company is liquidated, employees typically face an uncertain future as their jobs immediately cease to exist. Any unpaid wages or accrued entitlements due to employees, such as leave entitlements and bonuses, may be paid from the proceeds of the liquidation process if there are sufficient funds.
Otherwise, they will need to lodge a claim with the Fair Entitlements Guarantee to recover their entitlements.
Can company directors claim redundancy pay?
Yes, company directors can claim redundancy pay in the event of company insolvent, liquidation or closure. The director must be an employee of company insolvent, and meet eligibility requirements set out by the Insolvency Service in order to receive the redundancy payment.
These requirements include having worked for the company for at least two years, and having been made redundant due to the company’s insolvency. The amount of redundancy pay a director.
Can I claim redundancy if company is dissolved?
Yes, you may be able to claim redundancy pay income tax, if the company is dissolved. As an employee that has been continuously employed for two or more years, you are eligible for redundancy pay income tax, as stated in the UK Government’s guidance.
Summary
Navigating the complexities of staff redundancy in liquidation can be a daunting task. However, by understanding the roles of insolvency practitioners, the Redundancy Payments Service, the National Insurance Fund, and the Pension Protection Fund, employees can ensure that their rights and entitlements are protected.
Whether you’re an employee or a company director, being proactive in claiming redundancy pay, unpaid wages, and pension contributions, and seeking assistance from the Employment Tribunal when necessary, can help secure your financial well-being during the challenging time of liquidation.