What are my rights if my employer becomes insolvent?

Keith Steven outlines your rights as an employee if the company you work for is in financial straits.

People standing with backs facingIt can be a worrying and stressful time if the company you work for is struggling financially. While the future may be uncertain, it’s important to be aware of your rights as an employee, so you know what you’re entitled to, and how the process works.

The company is going into administration

Administration happens when a business is under significant financial pressure and needs protection from legal action. Administrators will be called in to take control of the company. They will review all options available to the business, which could include a sale, a company voluntary arrangement (CVA) or possibly closure and liquidation.

Once administrators are appointed, they are responsible for the business, and generally after two weeks, they take on your employment rights.

If the business is sold on, your employment rights may be transferred to the new business through Transfer of Undertaking (Protection of Employment) (TUPE). This means you keep your job, but it is moved to a different business.

If the business is put into a CVA, your rights can be affected, and you may or may not keep your job. A CVA is a formal arrangement between the company and its creditors to pay back a proportion of debt. There is usually a restructure and change to the business, which can unfortunately lead to redundancies.

If the business is closed down and put into liquidation, you will be made redundant and will need to look for alternative work.

I am being made redundant. What now?

As well as signing up for jobseeker's allowance and looking for a new job, you will need to contact the insolvency practitioner in order to claim redundancy pay. You will be sent forms to fill in to help with this.  

The redundancy payments helpline set up by the government will help with specific questions that you may have.

Once claims have been worked out, you will be able to claim directly from the Department for Business, Innovation and Skills. Usually the money will come from the government’s National Insurance Fund, rather than from the company, as there may not be enough to pay employees.

The amount of statutory redundancy pay you can claim will depend on how long you’ve worked for the company and your age.

Employees can claim:

  • Arrears in pay of up to eight weeks (limited to the statutory pay of £475 per week).
  • Holiday pay for up to six weeks.
  • Statutory notice pay if you were dismissed without warning, didn’t work your full notice, or haven’t been paid for your notice period by your employer.

You could also claim statutory maternity, paternity or adoption pay if you’re expecting children, or statutory sick pay, if you’re unwell.

The statutory pay limit per week is set by the government, and will most likely increase slightly from April 2016.

It’s important to not panic in this type of situation, and to be patient, as there are often hundreds of employees in the same situation as you. If the administrator or liquidator cannot answer your questions, phone the dedicated helpline on 0330 331 0020 (Monday to Friday, 9am-5pm).

About the author

Keith Steven of KSA Group Ltd has been rescuing and turning around companies since 1994. He has worked for insolvency firms, turnaround funds and venture capital investors and is the author of the site www.companyrescue.co.uk. You can follow Keith on Google+.