When a business undergoes compulsory or voluntary liquidation, it will immediately cease to be a legal entity. This will result in the unfortunate loss of all jobs, meaning every employee will have to be made redundant through no fault of their own.
If the assets of the closing firm have already been liquidated and the proceeds distributed, there are insufficient funds left over to pay employees – the former workers will be entitled to claim redundancy. All of these claims are calculated according to government guidelines.
Redundancy payments will be capped at a specified limit, which is regularly reviewed every year. Currently, this limit stands at £538 per week.
Calculating Redundancy Pay when a Company goes into Liquidation
Any member of staff that has worked for the company for a period of two years or more is eligible to claim redundancy payments. They can do this by submitting an online claim form to the Redundancy Payments Office (RPO).
The actual amount they can claim is based on two factors: their age and total length of service. Any amount that is paid will be capped at £538 per week and the first £30,000 of this will be completely tax-free.
There is also a cap on the number of full years’ employment that can be used as part of the redundancy calculation. This currently stands at 20 years.
The entitlement is calculated as follows:
- One half-week’s pay for each complete year served when the employee was less than 22 years old
- One week’s pay for every complete year served when the employee was less than 41 years old, but not less than 22
- One week and a half’s pay for every complete year served when the employee was 41 years old or more
If the employee is over 64 years of age, their claim will be reduced by one twelfth for each month following their 64th birthday. This carries on until they turn 65, at which point redundancy payments will stop.
Employees must also be able to prove they have achieved two calendar years of continuous employment before they were made redundant. Only time periods after the employee turned 18 years old will be counted – so if they worked for the company between the ages of 17 and 19 before their employment was terminated, they will not be eligible to claim redundancy.
For a term of employment to be considered valid, the employee must have worked at least 16 hours each week, or they were under a contract that normally involved 16 hours per week or more.
Redundancy payments can be extremely complicated to calculate, so it is important to seek expert guidance at the earliest possible opportunity.
Other Forms of Employee Compensation
When an employee has been made redundant, there are other benefits they can claim, on top of statutory redundancy. These include:
Employees can claim for any holiday pay that they are owed, whether this be for days not yet taken, or for vacation time that has been taken but not yet paid for. This can be for up to six weeks’ holiday pay, up to a maximum of £538 per week.
Tax and National Insurance Contributions (NIC) will be deducted before these payments are made.
Arrears of Pay
A company’s workforce is entitled to claim up to eight weeks of wage arrears, based on their weekly salary rate. This is again capped at £538 and will have tax and NIC deducted beforehand.
Pay in Lieu of Notice
Under normal circumstances, employees will be given notice by their employer that they are about to be made redundant. Unfortunately, this is usually not possible if the business is put into liquidation.
The amount of notice employees are entitled to depends on the amount of time they spent with the company. After one month, they will be entitled to one week’s notice, rising to two weeks after two years of service. They will then be granted an additional week’s notice for each subsequent year of continued employment – up to a maximum of 12 weeks.
Any state benefits, such as Universal Credit/Jobseekers’ Allowance, that the employees are entitled to claim for will automatically be deducted from any pay in lieu of notice – whether they actually claim for them or not. It is therefore extremely important for them to lodge claims as soon as possible to avoid missing out. In addition, if they manage to find new employment while redundancy is still being claimed, these wages will be deducted from their claim.
Unpaid Pension Contributions
If the business stopped making payments into its employees’ occupational pensions scheme, the RPS will cover any money that was deducted from wages for this purpose, but not actually paid into the scheme. This contribution is solely limited to 12 months prior to the liquidation of the company.
In addition to this, they will cover whichever is lower of:
- 10% of the employee’s wage
- The employer’s total unpaid contribution
Both of these are limited to the 12 months prior to liquidation.
How Inquesta can Help
Having to put a business into liquidation can be a stressful time for any company director. To get through the process, it is essential that you seek independent and specialist advice as soon as possible. This is where Inquesta can help.
We’ve amassed decades of experience in assisting companies from all areas of industry in performing an orderly liquidation and achieving the best possible result for them. We’ll take the time to gain a thorough understanding of your circumstances so we can provide a tailor-made service for you.
For more information about how Inquesta can help you with liquidating your business, contact a member of our team today or book a free consultation.