What happens to my pay if my employer goes bust?
When an employer is formally insolvent, the state pays certain debts out of the National Insurance Fund. What is covered, the two separate applications, the number you cannot claim without, and what happens if there is no formal insolvency at all.
- Difficulty
- intermediate
- Time
- 14 min
- Read
- 5 min
- Safety
- caution
Short answer
If your employer is formally insolvent, apply to the Redundancy Payments Service for statutory redundancy pay, arrears of pay and holiday pay — you need the case reference number from the insolvency practitioner and must apply within six months of dismissal. Notice pay is a second, separate application made later using a different reference. Each element has its own cap in weeks, and the cash caps are on GOV.UK.
The National Insurance Fund exists because an insolvent employer usually has nothing left to pay wages with, and it covers a defined list of debts up to defined limits. The two things people get wrong are that it is two applications rather than one, and that 'the business closed' is not the same as 'the employer is insolvent' — the second is a formal legal status, and without it most of the fund is unavailable.
Safety
Step by step
- Find out what has actually happened.Liquidation, administration, receivership, a company voluntary arrangement, bankruptcy of an individual employer, or simply ceasing to trade. Only formal insolvency opens the full route. Companies House shows the position for a company.
- Get the case reference number.The insolvency practitioner issues a case number and an information sheet to employees. You cannot make the online claim without the number, so chase the practitioner for it if it has not arrived.
- Make the first claim within six months.The redundancy, arrears of pay and holiday pay claim is made online and must be made within six months of the date your employment ended. Late claims can be considered in limited circumstances but do not rely on it.
- Know what the first claim covers, in weeks.Statutory redundancy pay based on age and length of service, with service capped at twenty years; arrears of pay for up to eight weeks; and holiday pay for up to six weeks, accrued or taken in the twelve months before the insolvency.
- Make the notice pay claim separately, and later.Statutory notice pay is a second application, made once the notice period would have ended, using a separate reference issued at that point. Ticking a box on the first claim is not an application. Notice pay covers up to twelve weeks and is reduced by benefits you received or could have claimed.
- Find the current caps.Every element is limited by a statutory maximum for a week's pay, which is uprated each April. The cap that applies is fixed by the date of the triggering event, not the date you claim. The current figures are on the GOV.UK insolvency and redundancy pages.
- Claim what the fund cannot pay from the insolvency itself.Anything above the caps, and debts the fund does not cover, becomes a claim in the insolvency, where employees have preferential status for certain amounts. The practitioner will send a claim form. It is worth submitting even where the return is likely to be small.
- Deal with unpaid pension contributions separately.Unpaid contributions to an occupational pension scheme can be claimed from the fund through a different process, usually initiated by the scheme trustees. Tell the trustees and the practitioner.
- If there is no formal insolvency, act to create one or claim in the tribunal.Where an employer has simply stopped trading, the Redundancy Payments Service can generally only consider statutory redundancy pay. The routes for the rest are an employment tribunal claim against the employer, or — where there is a proven debt — petitioning to wind the company up, which creates the insolvency. Take advice before spending money on either.
- Appeal a refusal to the tribunal.If the Redundancy Payments Service rejects a claim you can bring an employment tribunal claim naming both the Secretary of State and the former employer. Time limits apply from the decision.
- Northern Ireland: use the Department for the Economy.Northern Ireland has its own Redundancy Payments Service run by the Department for the Economy rather than the Insolvency Service, with its own forms. Use nidirect for the process.
Tips
- Download payslips, your contract and your P60s before you lose access to any systems. You will be asked to evidence pay and service.
- Diarise the date your notice period would have ended. That is when the second claim becomes possible and it is easy to forget.
- Submit the insolvency practitioner's own claim form too. It is separate from the state claim and it is how anything above the caps gets paid if funds allow.
Common mistakes
- Treating notice pay as part of the first claim — It is a separate application made later with a separate reference. People assume it was included and only discover otherwise months on.
- Waiting to see whether the business restarts — The six-month deadline runs from the end of your employment. Claim, and deal with a restart if it happens.
If it doesn't work
You cannot get the case reference number
Cause: The insolvency practitioner has not written to employees — Fix: Find the practitioner's name on Companies House or from the notice at the workplace and contact them directly. They are required to provide information to employees and the number is the key to the whole claim.
Notice pay was refused because you found another job
Cause: Notice pay is reduced by earnings and benefits during the notice period — Fix: That reduction is part of the scheme. Check the arithmetic against what you actually earned, and appeal if it is wrong.
The employer just disappeared
Cause: No formal insolvency, so most of the fund is unavailable — Fix: Apply for statutory redundancy pay, and take advice from Acas or Citizens Advice about a tribunal claim for the rest and whether a winding-up petition is proportionate.
Questions people ask
How long does payment take?
Typically several weeks after a complete claim, and longer where the practitioner has not yet supplied information. Incomplete claims are the main cause of delay, so send everything at once.
Is what I receive taxed?
Arrears of pay, holiday pay and notice pay are treated as earnings for tax. Statutory redundancy pay is not taxable. The payments are made net where tax is due.
Can I claim if I was self-employed for them?
The fund is for employees. Whether you were genuinely self-employed or in fact an employee or worker is a question of substance, and if you were wrongly labelled the tribunal can decide it. Take advice rather than assuming you are excluded.
What if the business has been sold rather than closed?
That may be a TUPE transfer, in which case your employment and your continuity transfer to the new employer and there is no redundancy at all. Establish which it is before claiming.