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A guide for redundant employees in insolvency situations

6 April 2021

A guide for redundant employees in insolvency situations

I've been made redundant due to my employer entering CVA, receivership, liquidation or administration. What now?

If you just been told such bad news, email me at Please give the name of the company and I will find out what I can for you, it can be a real shock and we know that very little help is given from the receiver or administrator. Alternatively, take a look at our facebook page for redundant employees or download our employee guide for insolvency situations (below). 

In return, all we ask is for you to socially "like", "tweet" or "bookmark" this page, so others in similar situations can find out about it. Thanks.

DeBIS guide for employees 

Any queries regarding the guide should be answered by the Department for Business Innovation Skills (formerly DTI and DBERR). The DeBIS helpline is 0845 145 0004 (Calls charged at local rates).  If you cannot get through or need further assistance, please emal us and we will help as best we can.

Brief Guide to the Calculation of Employees' Claims in Insolvency:

Once the total claims have been worked out the employees can claim directly from the Department for Business Innovation and Skills, who then stands in the employees' shoes and can claim against the company. 

The purpose is to guarantee minimum payments to the employees which may not be paid out of the insolvency as a result of insufficient funds or to avoid preferences. All employees claims are calculated as per the guidelines in the legislation but the actual payments made by the Government are subject to maximum "capped" payments. The limit on the amount of a week's pay under the insolvency provisions of the Act is currently £544 per week, the cap is reviewed annually.

The claims and current statutory limits are as follows:

Arrears of pay:

Most people are paid weekly or monthly in arrears. This claim is limited to 8 weeks at the statutory limit of £544 per week and includes salaries, wages and sales commissions.

Holiday pay:

Holiday pay is limited to 6 weeks of holiday pay in the last 12 months, at the statutory limit of £544 per week.

Payments in lieu of notice:

Under the contract of employment between employer and employee any required notice amount due from the employer is payable at the statutory limit of £544 per week. However, benefits and/or money earned obtained further employment during your notice period paid to you will be deducted from your compensation. It is important to claim benefits as these will be automatically deducted from your claim even if you have not claimed them.

Redundancy Payments:

Redundancy is where the employer has ceased or intends to cease the business, or the business in the place where the employee is employed. The requirements of that business for the employee to carry out his or her particular kind of work, or to carry out a particular kind of work in the place of the employee's employment have ceased or diminished, or are expected to cease or diminish. Any amount payable is capped at a ceiling of £544 per week. This statutory redundancy payment is calculated by reference to the following factors.

  1. Length of the employee's continuous service at the relevant date and
  2. The employee's week's pay at the calculation date,
  3. The employee's age at the relevant date (if he is aged over 64 it is subject to reduction) and during his employment.

Here is a calculator to show how much is owed to you.

The maximum number of years to be taken into account for the purposes of calculating a redundancy payment is 20 and the entitlement is calculated as follows:

  1. One half week's pay for each complete year in which the employee was less than 22 years old;
  2. One week's pay for each complete year in which the employee was less than 41 but not less than 22 years old;
  3. One and a half week's pay for each complete year of employment in which the employee was 41 years old or more.
  4. If over 64 years of age the employees claim is reduced by one twelfth for each month over 64 to a maximum of 65 where there is no payment.
  5. Employees must be able to show two calendar years of continuous employment at the relevant redundancy date, but any period of continuous employment before his 18th birthday does not count. Weeks count as weeks of continuous employment if an employee actually works 16 hours or more or works under a contract normally involving 16 hours' work or more. 

As ever redundancy claims are complex and the brief outline here is not comprehensive or case specific. 
If your employer is declared insolvent, or cannot or refuses to pay, and you have done everything you can to get your payment, you can apply to the DBIS for a direct payment from the National Insurance Fund. 
But you must have applied in writing to your ex-employer for a payment within six months of the date your employment ended, or applied successfully to an employment tribunal within the six months after that. 
Please be aware that DBIS will seek to mitigate payments to redundant employees by assuming that they are claiming job seekers allowance. Any pay received in the period between redundancy and claim payment will generally be deducted. So it's probably best practice to make those claims anyway to help relieve financial hardship.

Be aware that you can lay off staff without resorting to redundancies. For more information on this see the Government site.

Categories: What is administration

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Please note that the guide includes updates due to Covid-19 For instance there have been some changes to insolvency legislation that limits creditors actions and relaxes rules regarding wrongful trading.  A new 20 day moratorium for distressed businesses has also been introduced. 

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