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Do you need to make staff redundant but cannot afford the cost?

Published on:July 15, 2020Author:darcey

Employers Obligations

Employers must make statutory redundancy payments to redundant employees who meet the qualifying criteria for redundancy under the Employment Rights Act 1996. In most cases this will be employees who have worked continuously for their employer for 2 or more years.

You are required by law to consult with your employees about potential redundancies and must notify The Insolvency Service in advance of any proposal to dismiss 20 or more employees at an establishment.

RPS funds redundancies and claims this back from the company

If your company cannot afford to fund the redundancy payments, it is possible to apply to the Insolvency Service for financial assistance. If approved the RPS will make payments direct to the employees and then seek to recover the monies advanced from your company. If your company does not reimburse the RPS, enforcement action will be taken.

Claims by Insolvent companies

If your company has debts it cannot afford to repay and it is appropriate to consider one of the range of formal insolvency procedures available, The RPS will pay employees claims for arrears of wages, holiday pay, payment in lieu of notice and redundancy (up to certain limits) and will then stand in the employee’s shoes as a creditor in the insolvency.

What Insolvency Processes are covered?

As long as your company enters into a formal procedure, the RPS will cover employees’ claims as long as the company properly operated payroll for its staff which is either PAYE or the CIS scheme.

The formal procedures include:-

  • Creditors voluntary Liquidation
  • Compulsory Liquidation (winding up by the court)
  • Company Voluntary Arrangement
  • Administration

If you chose instead to take action for your company to be struck off the company’s register, your employees will lose out and will not be able to claim their entitlements from the RPS.

What are the statutory limits?

The  RPS will pay out employees substantiated claims which is based on their gross earnings but capped at a limit which is currently £547 per week. The other caps that apply include:-

  • Wages for a maximum of 8 weeks
  • Holiday pay limited to a maximum of 6 weeks
  • Payment in lieu of notice based on 1 week for every completed year of service up to a maximum of 12 weeks
  • Redundancy pay – half a week’s pay for each full year under the age of 22, one week’s pay for each full year between the ages of 22 and under 41, one and a half week’s pay for each full year over the age of 41. Length of service is capped at 20 years for statutory redundancy.

Help with advice and calculations

Acas operate a helpline on 03001231100. The Insolvency Service provide guides to help calculate your employees entitlements.

Help from The Business Debt Advisor team

It’s vital to get practical and sensible advice if your business is facing challenging trading conditions which needs to include downsizing some or all of your team. We appreciate how stressful it is and with our experience and skill, we will help you get through the process.

For more advice please contact a member of our team on 0333 9999 689.