Redundancy is difficult for all parties involved. It’s hard for employers to let someone go, make financial arrangements, and fill the skills gap they’ve left behind. On the other hand, the redundant employee now has to find a new job!
So, let’s take a difficult situation… and make it worse. Let’s say the employee has been made redundant and their financial security and stability hinge on receipt of the redundancy payment as they transition into a new role. However, to add salt to the wound, the employer can’t pay the employee redundancy.
So the question is who does? The answer to this question comes in two parts. The first is the payment & employer, and the second is your Statutory rights & entitlements.
When the Employer can’t pay redundancy
The term used for employers who can’t pay their debts (which include redundancy) is known as someone who is “insolvent”. Insolvency comes in many forms, administration, liquidation, bankruptcy, and receivership.
When someone becomes insolvent, they will have someone assigned to them to handle their affairs regarding their insolvency. These people are usually labelled as “Insolvency Practitioners” (IP) or “Official Receivers”. They’ll also be the ones who can inform the redundant employee of what they can claim and how.
So where does the money come from?
Let’s say that the reason behind insolvency is that the employer went out of business. You are still entitled to receive your Statutory Redundancy Pay. The only catch is that you will have to claim it from the Government. They will be willing to pay out your statutory redundancy, but they won’t pay for anything that is considered “contractual” redundancy pay. This begs the question for a redundant employee:
What can I claim and what should I do?
1. Statutory Redundancy Payments
Your statutory entitlement is calculated based on a number of criteria: age, weekly pay and years worked. Another entitlement that a redundant employee has is to be paid a Minimum Statutory Notice Period. These come with a caveat. Yes, it’s your employer’s responsibility to pay these. However, these payments are capped.
The limits are as follows:
- Your length of service is capped at 20 years
- Your weekly pay is capped at £538
- This means that the maximum Statutory Redundancy Pay an employee will receive is £16,140
The fine print is also riddled with eligibility requirements. For example, in order to even be eligible for Government payments. You have to meet the following criteria:
- You must have worked a minimum of 2 years of continuous employment with that employer
- You must be a UK National
- If you are not a UK national, you must have permission to work in the UK and refer to any post Brexit changes
- Your employment type plays a big role too, if you are a freelance worker or contractor, you will need to register as a creditor with a whole host of different regulation
2. Contractual Redundancy Payments
You might be under the impression that the terms of your contract regarding your redundancy payment will be in full effect. However, the Government are not required to pay out anything more than your statutory entitlement. If your contract does not mention redundancy payments, you’re most likely only entitled to statutory redundancy payments anyway.
3. What to do if you’re told you’re not entitled to payment?
You may not be eligible for any number of reasons; the Redundancy Payments Service will give you the specific reasons behind it. That or it’s possible you weren’t paid the amount you had in mind. This could be because when they checked with your employer, it was found that you are not entitled to some of the money you have claimed. The only other option you have in this scenario is to bring a claim to an Employment Tribunal, which we highly recommend seeing a professional for legal advice unless you want to have migraines for days on end.
So, to answer the question…
Who pays for redundancy when an employer can’t?
It’s the National Insurance Fund that covers your redundancy payments up to a set amount. It takes them up to 6 weeks before rolling out your payment.
If you are a small business in need of help with your redundancy process, please get in touch with a member of our team who will be able to offer you a friendly ear and assistance. Click here to book a time convenient to you or follow the button below.