Facing redundancy in difficult times

When a business becomes insolvent, the human impact of that insolvency is felt most keenly by its staff. Directors often carry the burden of knowing that their people have given years of service, only to find that the company can’t meet its obligations. At Parker Walsh, we see this heart-wrenching dilemma too often: employers unable to pay statutory redundancy and yet desperately reluctant to see their teams go without what they’re owed. In these situations, understanding what employees can claim from the Redundancy Payments Service, part of the UK Government’s Insolvency Service, is vital. Molly Monks F.I.P.A of Parker Walsh, a licensed Insolvency Practitioner, often stresses that early awareness of statutory entitlements helps both employers and employees navigate this difficult transition.

What the Redundancy Payments Service can cover

When a company has become insolvent and cannot pay its staff, the Insolvency Service’s Redundancy Payments Service can step in to make certain statutory payments directly to employees. This is not a substitute for all contractual entitlements, but it does provide a safety net for people who have lost their jobs because their employer can no longer trade. Crucially, staff must apply to the Redundancy Payments Service to receive these payments because insolvency means the employer no longer has the means to pay them directly.  

Employees can apply for statutory redundancy pay if they have been continuously employed by the business for at least two years. The amount they receive is worked out based on age, length of service and weekly pay, with limits set by Government guidance. There are caps on the weekly rate and on the total amount an individual can receive under the statutory scheme.  

But redundancy pay is only one element of what might be owed. The Redundancy Payments Service can also make separate payments for holiday pay that has accrued but not been paid, and for arrears of pay such as unpaid wages, commission or bonuses up to legal limits.  

In addition, employees may be eligible for payments for notice worked but not paid, and in some cases loss of notice compensation where statutory notice was not given. These are paid under specific rules and require separate claims as part of the insolvency application process.

Another potential source of compensation is a protective award, which may arise if the employer failed to consult properly with employees before making redundancies. Where this has been awarded by an employment tribunal, the Redundancy Payments Service can include it within the overall payments.  

Timing, limits and conditions

The process of claiming from the Redundancy Payments Service is structured. There are time limits to consider: for example, redundancy pay claims generally need to be made within six months of the employment ending. The scheme also applies statutory caps; both on weekly pay rates used in calculations and on the total amount of redundancy pay that can be awarded.  

It’s also important to recognise that some deductions are applied. Tax and National Insurance may be taken from elements such as holiday pay or arrears of pay, though statutory redundancy pay itself under the Government scheme is not subject to Tax and National Insurance deductions in the same way.  

Practical guidance for employees

For staff affected by insolvency and redundancy, understanding these entitlements can make a very real difference to financial stability in uncertain times. Ensuring all relevant information is provided when making a claim, such as employment dates, pay details and accrued holiday, helps the Redundancy Payments Service calculate what is due more quickly and accurately.  

Molly Monks F.I.P.A of Parker Walsh emphasises that clarity and communication are key. When directors engage early with insolvency professionals, both they and their employees are better prepared for the practical implications of redundancy, and employees are guided on how to apply for payments they are legally entitled to.

The safety net in context

It’s easy to see the Redundancy Payments Service merely as a statutory safety net. In reality, it represents a structured way of meeting certain employment entitlements when a business no longer has the funds to do so. For employees, it turns an impossible situation, losing both job and unpaid remuneration, into one where there is an orderly assessment and payment of what they are owed. For directors and insolvency practitioners alike, understanding this system not only fulfils legal duties but also acknowledges the human impact of business failure.

In the midst of insolvency and redundancy, the entitlements provided through the Government scheme ensure that employees have access to payments for redundancy, unpaid wages, holiday and notice, offering a degree of security when it’s needed most.

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