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Employee Rights in Administration or Insolvency

11th April, 2023
Robert Moore

Written ByRobert Moore

Marketing Manager


Rob has over a decade of experience in web and general marketing. He has extensive knowledge of the Insolvency sector and has helped many worried directors with their questions.

Rob is now working with the Board at KSA Group Ltd to develop strategic marketing programmes to support the business plan and drive more company rescues.

Robert Moore
  • What are my employee rights in company administration?
  • More Detailed Guide to the Calculation of the Employees Claims in Administration / Insolvency:
  • The claims and current statutory limits are as follows:
  • Please watch the video below to explain more about your rights

What are my employee rights in company administration?

If your employer has gone into administration, what are your employment rights?

Click here for a guide to administration and see our infographic on who gets paid and in what order when a company enters this process and owes money to its creditors.  Your rights will depend upon your employment status and the plans for the administration.

If you are still employed: the administrator may take on your employment rights for a period and then choose to sell the business, close the business or put it into a CVA (company voluntary arrangement).

Generally speaking, if an administrator employs you for more than two weeks, your employment rights have been adopted. These may then be transferred when the business is sold on, known as TUPE or transfer of an undertaking – employment rights.

In the case of the company going into a CVA, you may or may not retain your job. Your rights can be affected.

If you are a subcontractor, make sure that you contract with the company in administration. Generally speaking as an administrator, he or she will have to pay this but won’t pay the arrears of any payments you are owed.

Be aware that if you are on Furlough your redundancy rights are unaffected in any way.

If you have lost your job, SIGN ON as soon as you can.

This can be a real shock to you and we know that many people get very little help from the administrator. So read our guide below and or visit the DBEIS (Department of Business, Energy and Industrial Strategy) site.

Guide for Employees

More Detailed Guide to the Calculation of the Employees Claims in Administration / Insolvency:

Once the total claims have been worked out, you can claim directly from the DBEIS who then stands in the employees’ (your) 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 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 £643 per week, the cap is reviewed annually.

The claims and current statutory limits are as follows:

Arrears of pay:

Most employees are paid weekly or monthly in arrears. This claim is limited to 8 weeks at the statutory limit of £643 per week and includes salaries, wages and sales commissions. In administration you should be paid for work done if employment continues.

Holiday pay:

Holiday pay is limited to 6 weeks of holiday pay due  in the last 12 months, at the statutory limit of £643 per week.

Payments in lieu of notice:

Under the contract of employment between the employer and employee, any required notice amount due from the employer is payable at the statutory limit of £643 per week.

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 £643 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,
  2. The employee’s week’s pay at the calculation date.

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.

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 or her 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. Useful guides exist on the DBEIS’s web site for employees in redundancy DBEIS guide for employees.

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 DBEIS 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 DeBEIS will seek to reduce 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.

Please watch the video below to explain more about your rights


Making Employees Redundant

Do you need to make a member(s) of your staff redundant? When facing business debt problems, one of the key decisions to make as owner or directors is this: do some roles need to be made redundant to save costs. Is the business going to be smaller if you use a CVA, or sell it through administration for example.Here are some key things to take into consideration. If you fail to act appropriately and correctly redundant employees can make a claim against your company. You could also face tribunals and fines for not acting correctly.If you don’t think your company can afford to make redundancies then read this page for information on how you can do it at NIL COST What is redundancy? Redundancy is the act of an employee losing their job as the job or role they perform is no longer needed. So, when is redundancy necessary?Cost cutting reasonsFor example resizing the company, closing certain departments or branches, perhaps due to an insolvency event such as administration or a company voluntary arrangement. When there is no longer a need for the full time role In this case where a full time role may no longer be available but there may be a new part time role, then the employer must offer the part-time position to the current full-timer.If the employee refuses, usually because the part-time position is not as convenient or suitable as an alternative, then the employee must be paid redundancy pay.Full business closure, either temporary (COVID-19, refurbishment) or permanent So, remember, it is vital to only proceed with redundancy when appropriate as it will impact the employees and your business significantly.A number of alternatives can always be looked into, if trying to cut costs; reducing overtime, freezing any increases to salary/wages, putting a halt on any further recruitment, terminating contracts of temporary or agency staff.When redundancies are compulsory, for example, when employees need to be let go to save business costs and avoid insolvency there are certain criteria you can use to ensure the staff you choose to make redundant is fair. Typically use;Standards of work produced Attendance and disciplinary records Length of employment/service (it is important to avoid age discrimination here) Skills, experience and appraisal data (be careful to avoid sex/disability discrimination)Some employees may self-select and volunteer to be made redundant (usually if they are close to retirement age anyway and their redundancy pay will be worthwhile). Be sure to use previously agreed redundancy procedures made with unions if applicable too.It is vital for you as an employer to…Keep the employee informed with what is happening. Consult the employee and give an honest explanation as to why they have been selected to be made redundant. There is a period of consultation based on the amount of employees being made redundant.For between 20 and 99 employees being made redundant at once, there is a minimum obligation of 30 days and no less, to consult with employees. For 100 or more this period extends to 90 days and for any less, no set amount is required.Look into all other options and discuss this with the employee; are there any alternative employment positions you can offer? Can they be transferred to a different department of the company? Or a different branch? Alternative employment positions must be of a similar nature.The three key aspects of making an employee redundant are;consultation selection offer alternatives.What rights do redundant employees have? When dismissed due to redundancy, employees are entitled redundancy pay, provide the following conditions apply:they are a actual employee of the company, not a subcontractor they have had at least two years of continuous service they have been dismissed for redundancy purposes only.The sum of redundancy pay they will receive depends on their age at dismissal, weekly gross salary and length of service completed. Please note the Government caps the amount at £643 a week, with the maximum statutory redundancy pay at c.£17000.Do also check the employment contract for the employee as they may have alternative conditions. For example, one month’s pay per year of service. If this is the case, the contract entitlement would be followed instead. In any situation, the highest amount is always paid, be it the contractual or statutory amount. Before a staff member can be made redundant, their notice period must be served and this must usually be paid for. You can have more than the statutory minimum, so long it is agreed, but not less. Currently the notice periods are, at least one weeks’ notice if employed between one month and 2 years, one weeks’ notice for each year if employed between 2 and 12 years and 12 weeks’ notice if employed for 12 years+. Be aware that in some situations the employee can be paid in lieu instead, depending on their employment contract entitlements. When employees serve their notice period, allow them paid time off to look for alternative employment.Any accrued, untaken holiday pay will need to be paid for. This is capped at £643 a week and at a maximum of six weeks. Although redundancy payments are tax-free up to £30,000, for holiday pay, both income tax and national insurance are applicable. More about employee rights when being made redundant can be found here.If your business or company cannot afford to make redundancies then your business or company is in effect insolvent. As such, you will need to act and take advice from specialist advisors such as KSA Group the owners of this webpage, who are licensed insolvency practitioners.If the business could be viable after costs such employee roles can be made or other costs can be cut, then a company voluntary arrangement might be the best way to rescue the situation. Any redundancy pay or lieu of notice post an insolvency event may be paid though the RPORedundancy Payments Service Insolvency Service Telephone: 0330 331 0020 Monday to Thursday, 9am to 5pm Friday, 9am to 3pmSee the video below for more information

Making Employees Redundant

Notice of Intention To Appoint Administrators

A notice of intention to appoint administrators is when the company files a document to the court to outline that it intends to go into administration if a solution cannot be found to its immediate financial problems. It can be used as part of the pre-pack administration process as well as used to restructure a failing business to avoid its liquidation.

Notice of Intention To Appoint Administrators

What happens to me if the company goes into administration?

What happens to me if the company goes into administration? Answering simply, nothing. However, as a director of the insolvent company, if you have not acted properly, as you go through the insolvency process, you may face personal issues in the future.When administrators are appointed then the directors’ powers cease. They are still responsible for their previous actions though. Usually the administrators will either sell the business quickly or if they trade the company in administration they will make the directors redundant as employees. So you will be sent home.  Can I be a director of a company in the future if this company goes into administration? Yes, you can be a director of as many companies as you would like.  You may be part of a new company that is going to buy the business from the administrators. In which case you must get personal legal advice on conflicts of interest.Make sure that the company name is acquired before re-using it. And it is obvious, what you shouldn't do is to act irresponsibly when acting as a director of the old company and then set up another company and do the same silly things again.Facts:The law requires directors to keep up-to-date financial information and to understand the financial position of the company. If you fail to do this, legal action may be faced by a future administrator or liquidator. Taking cash out of the company as drawings (not dividends) means that you owe the company money. This becomes an asset, a debtor and the administrators or future liquidators must collect that money or do a deal. If I have provided personal guarantees will these be called in if the company goes into administration?The answer is yes. It is very likely that if the company enters into administration, if you have provided security for company debts in the form of a personal guarantee , then this may be called in. If you're in any doubt about this please call us . We can help directors with any related problems or queries.  Will I be disqualified as a director is our company goes into administration? NO – as long as you have acted suitably, rapidly and responsibly . If you haven't, and you knew the company was in serious financial difficulty then YES you may be disqualified…Take back control and protect yourself by asking for expert free help today! - call 0800 9700539By failing to act and making creditors debts worse or running the company’s cash down to £0 to pay yourself, when other creditors are not being paid; likewise if you are taking some of the firms assets which do not belong to you, legal action by the future liquidator may be faced. But to do that, you would have to be extremely silly!If you are thinking that the business will soon run out of cash then you must take advice now. Take back control and call us on (0800) 970 0539

What happens to me if the company goes into administration?

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