COMPLIANCE
Insolvency and the impact on employees
The CIPP policy and research teamprovide a useful reference guide
G iven the impact of the pandemic and the economic and social turbulence it has caused across the globe, it is anticipated that cases of insolvency will increase significantly. Insolvencies mean that people or companies are in positions where they are unable to pay money that they owe, on time, and have to make special arrangements to try to pay these debts. It is particularly important at this time that employees of companies that become insolvent know what their rights are, and also that they are aware of the processes which they need to follow in order to receive the help to which they are entitled. There are different types of insolvency, such as: administration; liquidation; bankruptcy; receivership; company or individual voluntary arrangement; debt relief order (see table on opposite page). An employer that is insolvent may make employees redundant, request that employees continue to work, or transfer them to a new employer if the business has been sold. Employees may apply to the government for financial support, and may request a redundancy payment, holiday pay, outstanding payment for elements such as unpaid wages, overtime and commission, and any money that they would have earned from working their notice period (known as statutory notice pay (SNP)).
on the actions of their employer. If an employer makes employees redundant, they must have a consultation to discuss why redundancies are happening, and if there are any alternatives. This does not necessarily need to be done directly with employees. The person responsible for dealing with the insolvency, who will be referred to as the ‘insolvency practitioner’ or ‘official receiver’ must advise affected employees how their job is affected and what the next steps to take are. They must also provide a RP1 fact sheet and a ‘CN’ (case reference) number for use when applying for any monies owed. Employees can apply to court for compensation in scenarios where they believe that they were either dismissed unfairly or where they were not consulted in the correct way. They can make claims to the employment tribunal and can claim for a ‘basic award’ if they were dismissed unfairly or a ‘protective award’ where there was no consultation about the redundancy. If an employer requests that an employee continues to work for them after they become insolvent, the employee still has the option of claiming for redundancy pay and any other monies owed at a later date. They cannot, however, claim holiday pay, wages, bonuses or commission that is owed between the date of the insolvency and the date that they were dismissed. If an employee is transferred to a new employer, then that employee cannot claim any money from the government, in cases where they were transferred prior to the former employer becoming insolvent.
Where employees were transferred afterwards, they can make an application.
Employee entitlements An employee’s entitlement will depend on a variety of factors, including how long they were employed for, what was in their employment contract and their age. Employees are ordinarily entitled to redundancy pay where they were continuously employed by the insolvent business for two years or more and have been made redundant. The statutory payment structure is as follows: ● half a week’s pay for each full year employed, and under 22 years old ● one week’s pay for each full year employed, and aged between 22 and 40 years old ● one and a half week’s pay for each full year employed, and aged 41 and above. These payments are capped at a maximum of £538 per week for tax year 2020/21, and employees can receive payment up to a maximum of twenty years that they were employed at the business. Employees can receive up to eight weeks of money they are owed. Employees may be paid for holiday pay accrued and holiday days taken that they were not paid for in the twelve months prior to their employer becoming insolvent. Payments are capped at a maximum of six weeks of holiday days, and also at £538 per week. Employees are entitled to a paid notice period in scenarios where they are made redundant, even if this is not in their contract. They may claim for SNP if they didn’t work a notice period, worked some of their notice period or where they worked an unpaid notice period. SNP consists of one week’s notice for each
Employee rights Employees have different rights depending
...important at this time that employees of companies that become insolvent know what their rights are...
| Professional in Payroll, Pensions and Reward | November 2020 | Issue 65 26
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