What happens if employer cannot pay redundancy

If you are concerned about any personal liability, seek independent professional advice. Under the Enterprise Act , businesses may be able to use other, more appropriate sources of aid to help recover from financial distress. As a business in financial difficulty, it is your responsibility to consider whether it remains appropriate to continue trading and to seek professional advice if you are unsure.

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Accept additional cookies Reject additional cookies View cookies. Hide this message. Home Business and industry Financial assistance for employers unable to pay statutory redundancy payments. The Insolvency Service. Contents Financial assistance for employers unable to pay statutory redundancy payments 1. What you must pay when making employees redundant 2.

Who can apply 3. What we can pay 4. Eligibility 5. How to apply 6. Your continued liability for redundancy payments 7. Other things to consider Print this page.

Financial assistance for employers unable to pay statutory redundancy payments If you cannot afford to pay your employees redundancy pay, you can apply to the Redundancy Payments Service RPS , part of the Insolvency Service, to make payments directly to your employees. What you must pay when making employees redundant Most employees who have worked continuously for a business for 2 or more years will be entitled to statutory redundancy pay.

Who can apply Any employer not subject to formal insolvency proceedings can apply. Any employer who is not subject to formal insolvency proceedings can apply, so this includes businesses that:. To be eligible for financial assistance from the RPS, an employer must provide evidence that they cannot afford to pay their employees statutory redundancy pay. The RPS must also be satisfied that the former employees are eligible for statutory redundancy pay.

A person will normally be entitled to redundancy pay if they:. What payments can the RPS make? A person will receive:. The RPS cannot make any other types of payments unless the employer enters into formal insolvency proceedings. These payments include, but are not limited to:.

How to make an application to the RPS. FA insolvency. The RPS will then provide the person who is the applicant with further details on what the minimum requirements are for proving that they meet the qualifying criteria.

But what happens when an employer finds themselves in a difficult financial position where they are unable to pay their employees statutory redundancy payments? With many businesses still facing the impact of the pandemic, staff across the UK are facing the real prospect of being made redundant. Employment law entitles those that have worked for a company for at least two years to be paid statutory redundancy pay.

You calculate this based on employee age and length of service. Whilst companies are free to provide an enhanced rate of redundancy pay, they cannot provide less than is stated in the statutory minimum. This is how the statutory minimum rate is calculated:. However, who pays redundancy when the employer cannot? Individuals are able to apply for their payments associated with redundancy if company goes bust if they meet certain eligibility requirements.

This means that they need to be an employee of the company for at least two years prior to being made redundant, a UK or EEA national or a foreign national with permission to work in the UK. Applications will be processed on the government website and can be made as soon as the individual is made redundant. More information on making a claim can be found on gov.

It should be noted that the government will only provide payments in relation to statutory redundancy pay. Any additional, contractual pay is not included in this.

Employers must remember that if they remain in business, they must facilitate these payments themselves. Failure to do so could result in costly claims to an employment tribunal. Usually, someone called an 'insolvency practitioner' or ' Official Receiver' is appointed to deal with the insolvency. They will be in charge of the case and could act as one of the following:.

The above is if your business has gone into liquidation. As mentioned before, you still must pay employees statutory redundancy payments if not. You must demonstrate that you have exhausted all other funding options available before applying for this scheme. When you apply, they will require written evidence that you have done so. As the employer, you are financially liable for payments to your employees.

If the service makes payments to your employees, it will create a debt to the government. If you apply for payments through this scheme, they cannot make any other types of payments such as arrears of pay, holiday pay, or notice pay unless you enter formal insolvency proceedings. Redundancy payments made by the RPS are subject to statutory limits.

Any employer not subject to formal insolvency proceedings can apply. This includes businesses that:. Handling redundancies is rarely a simple process.