Employee entitlements when your employer goes bust

Lynn Barr, Assistant Manager in our Business Recovery and Insolvency team, provides a summary of what monies an employee is entitled to and how they can make a claim when their employer goes bust.

So, you have arrived at work as normal only to be told that your employer has stopped trading as they have gone into liquidation or administration or have been declared bankrupt.  Say you get paid monthly and your next pay day is Friday, you will panic. When your employer is insolvent it is likely that they will not have the funds to pay any sums owed to you for arrears of wages. There is a chance that the business might be sold or taken over by someone else who may take you on and continue to pay you.  However, if you are made redundant, it’s not just the arrears of wages that you are due, but accrued holiday pay, pay in lieu of notice and redundancy that you will be due from your employer. An employer that doesn’t have any money to make these payments!

This is where the Government will step in and your employer should be able to tell you the name of the Liquidator, Administrator or Trustee, who will then advise you on what to do next with regards to claiming monies owed to you by your employer.

This is a summary of what you can and can’t claim for and how you make a claim from the government.

What am I entitled to receive from the government?

Employees can claim for unpaid wages, holiday pay, statutory notice pay and statutory redundancy pay. 

Unpaid wages – this is money that you should have been paid for work you have done. It includes overtime, bonuses and commission.

Holiday pay – you can claim for holidays that you were entitled to but had not taken. It is capped at 28 days entitlement.

Notice pay – You are entitled to receive notice before being made redundant. You can only claim statutory notice from the government, even if your contract has different notice provisions. The statutory redundancy 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

Statutory notice is capped at 12 years. This means that you are likely to be entitled to a different amount from colleagues that you worked along side receiving the same payment.

Redundancy pay – This is due to any employee who has worked for the employer for at least 2 years and the entitlement is:

  • 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 half week’s pay for each full year you were 41 or older

Length of service is capped at 20 years.

What can’t I claim for?

Payments made by the Insolvency Service are subject to a weekly limit, which is currently £525.  This means that if you earn less than £525 a week you will be entitled to the full amount, however, if you earned over £525, the weekly payment will be capped at £525. Any balance of sums due to an employee over and above this, would be a claim in the insolvency and is submitted by the employee to the liquidator, administrator or trustee.

You can’t claim for unpaid expenses. For example, travel expenses which you incurred personally in carrying out your job which you would normally submit an expense claim to your employer which would then be reimbursed to you. Again, you need to submit a claim in the insolvency for this.

If you were a subcontractor, rather than an employee, you will not be able to claim for what you are owed from the government.

How do I make a claim?

The Liquidator, Administrator or Trustee will provide the reference number called a “CN” and website link to enable employees to submit their claim to the Insolvency Service.  You cannot make a claim without the CN reference. The application is made online and consists of 2 parts.

The first part is the application for redundancy pay, holiday pay and other sums due to you including arrears of wages, bonuses and commission. 

The second application is for statutory notice pay and cannot be applied for until the statutory notice of period has ended. Once your notice period has ended you will be sent a LN reference number and then you can make the claim on line for the loss of notice. This will be different for each employee depending on the length of your service and is because employees are expected to mitigate their loss as much as possible by claiming any unemployment benefit and sickness benefit, they may be entitled to, along with trying to obtain alternative employment.  If employees do not apply for benefits when they lose their job, the notice payment from the government may still make deductions for these, so redundant employees are encouraged to check their benefit entitlements and make sure they apply for those they are entitled to.

When will I receive the money?

The Insolvency Service aim to deal with 95% of claims within 6 weeks of receiving the applications. You provide your bank details when making the application and monies are paid direct into your bank account.

MHA Henderson Loggie’s Business Recovery & Insolvency team are happy to answer any questions you have on this topic.