What are an employee’s rights during insolvency?

A debt solution may not be suitable in all circumstances. Fees may apply and will affect your credit rating

Article by Laura Walshe of The Business Debt Advisor

Learning that you are at risk of redundancy is stressful in any situation.

Being made redundant as a result of your employer entering into an insolvency process can be even more distressing.

In many cases where a company pursues an insolvency solution, staff are dismissed immediately and without notice.

Although the sale of Patisserie Valerie (out of administration) has saved 2,000 jobs, approximately 900 staff members were still made redundant in January when administrators closed 70 outlets.

At the time, a spokesperson for KPMG said: “We recognise this is a very difficult time for those members of staff who have lost their jobs. We are providing them with support, including assisting with claims.”

Employees who are owed money can submit a claim to the Redundancy Payments Service.

Claims are subject to an upper limit but if the value of the claim exceeds the maximum allowances (set out below), then a claim can be made in the insolvent estate for the additional amount.

It is always advisable for employees to have a basic understanding of the redundancy process, what will be required from them and what their rights are.

What is Redundancy?

Redundancy is a form of dismissal from your position.

Employees are generally at risk of redundancy when their employer needs to reduce their workforce, either because of staff surplus, or in order to implement cost-cutting measures.

Employees must be selected for redundancy in a fair and transparent way. For example, you may lack the experience required for the role.

An employee cannot be selected for redundancy because of their age, gender, disability, or if you are pregnant. Making a redundancy for any of these reasons could form the basis of a claim for unfair dismissal.

What can be claimed?

Redundancy Pay

An employee is usually entitled to statutory redundancy pay if they have been employed for two years or more.

You will be entitled to:

  • Half a week’s pay for each full year you were under 22;
  • One week’s pay for each full year you were 22 or older, but under 41;
  • One and a half week’s pay for each full year you were 41 or older.

Length of service is limited to 20 years and the maximum amount per week is £508 – this means that statutory redundancy pay is effectively capped at £15,240.

Your likely redundancy entitlement can be calculated here.

Payment in Lieu of Notice

You must be given notice before your employment ends.  You can only claim for statutory notice pay and the relevant notice periods are:

  • at least one week’s notice if employed between one month and 2 years;
  • one week’s notice for each year if employed between 2 and 12 years;
  • 12 weeks’ notice if employed for 12 years or more.

All employees should receive their basic pay (which would have been paid during the notice period) and you could receive additional entitlements such as pension contributions of private healthcare if your contract provides for them.

Unpaid Wages and Accrued Holiday Pay

Employees can also apply for outstanding wages and other monies owed by the employer – i.e. bonus, overtime and commissions.

However, claims can only be submitted for entitlements included within your contract of employment. The upper limit for claims is 8 weeks and capped at £508 per week (or £489 if you were made redundant before 6 April 2018).

Additionally, a claim can be submitted for holidays accrued but not taken, and for holidays taken but not paid, within the 12 month period before your employer become insolvent.

The upper limit for claims of this nature is 6 weeks and capped at the same level.

If you have any concerns about statutory redundancy then please fill out our Contact Formand we will be in touch.

Alternatively, call us on 0800 781 0990.

Our team has extensive experience and can arrange an initial consultation at no cost, usually on the same day.

Alternatively, there is further information available at www.gov.uk/claim-redundancy.

Find out how we can help your business

We provide the most comprehensive debt advice and support for individuals and business owners. Our experienced team offers a personal approach to finding solutions to your debt challenges.