Employee Claims In Insolvency - Part 1

News and Blog

Following the recent case of Palmer v Northern Derbyshire Magistrates' Court where the Administrators were facing criminal prosecution through failure to file a HR1 form; now would be a good idea to produce a two part blog on Employee Claims.  This is the first blog and it will deal with what claims the employees have...

Unfortunately when a Company finds itself in an insolvent situation, it generally means that its employees will be dismissed without them being paid everything that they are entitled to.

When this happens however employees are able to lodge a claim with the Redundancy Payments Service (“RPS”) in respect of the following statutory entitlements:

·         Arrears of wages (Up to 8 weeks)

·         Unpaid Accrued Holiday (Up to 6 weeks)

·         Payment in Lieu of Notice (Up to 12 Weeks)

·         Redundancy (Up to 20 Years of Service)


These claims are paid parallel to the liquidation out of the National Insurance Fund and provide a level of financial security to employees of insolvent companies.

The amounts that can be claimed are currently subject to a cap of £538 per week and any shortfall suffered by an employee as a result of that cap may be claimed in the insolvency proceedings.

How is the average weekly wage calculated?

For employees that receive a variable rate of pay, their weekly wage is calculated by taking an average of the employee’s gross pay in the twelve weeks prior to the last day that was worked and that average is applied to claims for redundancy, payment in lieu of notice and arrears of wages.

In so far as unpaid accrued holiday pay is concerned however, the employees’ weekly wage is instead calculated by taking an average of their gross pay in the 52 weeks prior to the last day that was worked.

For further information on employee rights in insolvent situations, please click here.  

If you are reading this and have recently been made redundant due to your employer being insolvent, it is always best that you contact the appointed Insolvency Practitioner first with any queries that you may have regarding the specifics of your claim.

Don't forget to keep your eyes peeled for the second part of this blog next week.

For further advice on Corporate or Personal Insolvency matters, please do not hesitate to contact us on 01326 340579 and book a free no obligation telephone meeting with one of our licensed Insolvency Practitioners.