Redundancy and Insolvency

What is redundancy?

Redundancy is generally where an employer needs to reduce his or her workforce. It may happen because a work place is closing down, or because fewer employees are needed for work of a particular kind. Normally your job must have disappeared. It is not redundancy if your employer immediately takes on a direct replacement for you. It will not matter if your employer is recruiting more workers for work of a different kind, or in another location.

What is a redundancy payment?

The statutory redundancy payments scheme aims to ensure that those who are dismissed through no fault of their own receive compensation. Employees with more than 2 years service over the age of 18 are statutorily entitled to a lump sum from their employer, based on their age, length of service and contractual earnings up to a maximum limit which is currently £450 per week. This limit is reviewed annually.

What can I do if my employer cannot or will not make a redundancy payment?

You can claim your payment from the Redundancy Payments Office (RPO) if your employer is declared legally insolvent. This generally means liquidation, administration, receivership, bankruptcy or a voluntary arrangement with creditors. The insolvency practitioner dealing with the affairs of your employer will give you an applications form RP1 and information publication.

If your employer is not legally insolvent and you have an employment tribunal award which he or she has not paid, you can apply to the RPO for payment.

Who can and who cannot claim?

You can receive payment only if you are an employee working under a contract of employment whether written, verbal or implied. Self-employed people and members of a partnership do not qualify.

Directors may be employees if they work under a contract of employment. Directors may not qualify if they only have a controlling interest in the company. That is, for a director to qualify he or she needs to show that they are also an employee working under a contract of employment and that their relationship to the company is similar to that of other employees. They will not qualify if they deal only with company policy and go to board meetings in return for fees.

How do I claim a redundancy payment?

By law, your employer must make the payment when or soon after you are dismissed. There is no need for you to make a claim unless your employer does not pay or says that you are not entitled to a payment. If this happens, you should write to your employer asking for payment or take the matter to an employment tribunal, or both. You must act within six months of the date your employment ended. If you do not make a written claim, or do not apply to an employment tribunal within six months, you may lose the right to a payment. But a tribunal will still have the power to decide whether you should receive a payment if you apply for it within a further six months and it is satisfied that there were good reasons for the delay.

How much money can I get?

  • Redundancy pay – the amount of your redundancy payment is your weekly pay (but only up to a limit imposed by the law – currently £450 a week) multiplied by the number of ‘qualifying weeks’. You will find a ready reckoner in the RP1 form which will enable you to calculate your qualifying weeks.
  • Unpaid wages – the number of weeks (or part weeks) for which you were not paid (up to a maximum of 8) is multiplied by your weekly wage up to a maximum of £350 per week. Income tax and national insurance is deducted from this amount.
  • Compensation for not receiving notice that you were due – you are entitled to one weeks notice after one month’s service with your employer, two weeks after two years and then one week for every complete year up to a maximum of 12 weeks. Your compensation is the number of week’s notice you were entitled to but did not receive, multiplied by your weekly wage, up to a maximum of £450 per week. Income tax and state benefits will be deducted from this amount. If you get another job during all or part of this notice period, any wages you earn will be deducted. If you do not get another job, you should claim any state benefits you are entitled to. Any state benefits you are entitled to will be deducted even if you have not claimed that benefit.

How will I know that my claim is being dealt with?

When your claim has been received by the RPO, you will be sent an RP5 form. This shows that your claim is being dealt with and you can check that the information they have is correct. If you do not receive the RP5 form within 3 weeks of sending your claim, please call the RPO.

When will I get my money?

The RPO, on average, pay 4 out of 5 claims in 6 weeks or less.