What About Your Employees/Staff?

If your company is made insolvent, how do you deal with your employees? It's a sad day when staff are made redundant as a company ceases trading. But, if dealt with correctly, the process can be made far less painful for all involved.

The first course of action is to advise employees of their rights.

Explain that they will be preferred creditors for up to four months' arrears of wages/salaries, holiday pay and occupational pension contributions owed (up to £800). They can also claim from the DTI some of the money the insolvent company owes them and are paid before other creditors. If there is not enough money to pay all employees £800, each employee will be paid an equal portion.

The Redundancy Payments Service (RPS) will also provide them with payments immediately. However, the RPS is entitled to claim back payments it makes from money recovered by the liquidator. This means that any money owed to staff above the RPS limits must also be claimed from the liquidator and may therfore not be paid for some time and then not necessarily in full.

The DTI also has the power to pay to ex-employees specific monies owed to them, such as:

Up to 8 weeks' arrears of pay
Your statutory notice period
Up to 6 weeks' holiday pay
Any basic award of compensation for unfair dismissal
A reasonable sum, as reimbursement for fees/premiums paid by an apprentice.
If the insolvent company has failed to pay their employees certain payments, the DTI has the power to make a payment into the ex-employee's new occupational payment scheme.

You could also tell your staff about the following factsheet or download a batch/request some be sent to you for distribution to employees. www.insolvency.gov.uk

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Business failure: What happens to your employees?

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