What are employees entitled to in an insolvency process?Posted: Nov 5, 2019

One of the major aspects of any insolvency is what will happen to the employees. Any news story in relation to an insolvency will focus on ‘how many employees have been made redundant or at risk’ or ‘how many jobs have been saved’. 

It is also common that this is one of the first questions that directors ask as normally they are very concerned about their employees especially in small SME’s where staff are seen as part of the team. A common question is‘ what can my employees claim’, ‘how long will payments take’.

In an insolvency employee’s claims are processed by the Redundancy Payments Service which is part of the Insolvency Service. As a starting point visit their website at https://www.gov.uk/your-rights-if-your-employer-is-insolvent This provides details of what your rights are, what you can claim for and how to make a claim. Whilst the Government scheme guarantees payments there are certain limits that the employee need to be aware of and these may be different from the employee’s individual contractual rights. The employee has 4 potential claims;

Wages

Any money that you are owed for wages can be claimed for the 8 weeks prior to the insolvency and capped at £544 per week. The cap changes every year in April.

Holiday Pay

This is slightly more complex to calculate. You start with your annual holiday entitlement and add the statutory bank holiday. This total number is apportioned depending on when in the holiday year you are made redundant and then finally any holiday day have been taken or bank holiday that has occurred in the period is deducted to calculate the number of holiday days left.

So far example if you have a 1st January to 31st December holiday year and were made redundant on 30 June your entitlement would be 6/12 of the total. Again this is capped at £544 per week.

Redundancy Pay

If you have worked for the business for more than 2 years then you can claim redundancy pay. To calculate the amount visit the redundancy pay calculate here:  https://www.gov.uk/calculate-your-redundancy-pay

Statutory Notice Pay

You can claim a week per year for statutory notice pay up to a maximum of 12. In effect this is a damages claim, being the difference between what you should have earned during your notice pay period and what you actually received elsewhere, whether this was benefits received or a new job. Below is an example to show how this works;

An employee worked for the business for 15 years at a weekly rate of £300 per week.

Notice (12 weeks’ maximum is applied)                  12 x £300                                                         £3,600

Benefits received (6 weeks at £100 per week)           6 x £100                                                         (£600)

New job (6 weeks at £200 per week)                         6 x £200                                                       (£1,200)

Net Claim                                                                                                                                          £1,800

Again this is capped at £544 per week.

If the employee has excess claims, so, for example, is paid over £544 per week or their contractual notice period is longer than the statutory notice period then they can claim these against the Company.

Can a director make a claim?

The simple answer is yes, as long as they are an employee of the Company, have a PAYE salary and a contract of employment just like any other employee.

Find out more about how we can support you through this difficult period.  We’re here to help with clear, straightforward guidance.

Call us on 0116 2325117 (Leicester) or 01926 671891 (Warwick), or email us on gavin@smartbusinessrecovery.co.uk