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Employee Rights in Administration or Insolvency

6 April 2022

workers rights in insolvency

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 £571 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 £571 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 £571per 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 £571 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 £571 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,
  3. The employee's age at the relevant date (if he is aged over 64 it is subject to reduction) and during his employment.

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. 

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


Categories: Administration, What is administration

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