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What does Liquidation mean for employees?

Published: 21/02/2019 By Sylwia Starzynska

Liquidation of a company in the UK can mean that employees lose their jobs, and in some cases, the employer may not able to pay them the wages and entitlements they are owed.

It should be remembered that an employee of a Limited Company has a right to claim monies owed from the Redundancy Payments Service ("RPS"). RPS was established to provide a way in which ex-employees could receive some of the payments they are due in a much shorter timescale than if they had to wait for the assets of the employer to be realised before any payments can be made.

These payments are made from the National Insurance Fund and are subject to statutory limits.

What can be claimed by the employee from the RPS?

  • Unpaid wages or salary for up to eight weeks.

  • Holiday pay for days not taken, but due under employees contract, up to a maximum of six weeks.

  • Statutory notice pay, which starts at 1 week for a month of service, and rises to 1 week for every year of service (up to a maximum of 12 weeks).

  • Redundancy pay which is calculated by the length of the employee’s service, their salary and their age. The entitlement considers a maximum of 20 years employment. To receive a payment for redundancy an employee must have had at least two years continuous employment since the age of 18.

Compensation for the above claims can be applied for by employees completing and submitting an online form called an RP1 form to the RPS. It will be the responsibility of the appointed liquidator to inform employees of their rights and send the appropriate forms/links giving advice on what allowances they can claim.

It should be noted that employees who’ve been made redundant only pay tax on redundancy payments over £30,000. They do not pay any National Insurance. Tax and National Insurance are deducted from other termination payments, for example payment in lieu of a holiday or notice.

Are you looking for further advice on how your business and employees could be affected by liquidation and insolvency? Please contact us for a free consultation on 020 8661 7878 or by e-mail insolvency@turpinba.co.uk

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