What can I claim
An employee usually has a number of claims, the primary ones being:
Redundancy;
Arrears of wages;
Holiday pay;
Pay in Lieu of Notice;
Expenses; and
Unpaid pension contributions.
In addition there may be claims for what are known as ‘Protected Rights for failure to consult and sometimes claims for unfair dismissal.
Employees claims are protected to a certain degree as some elements may be paid by the Redundancy Payment Service (Part of the DTI out of the National Insurance Fund).
Claims can be split into 2 main headings; amounts paid by the Redundancy Payments Service and those that are not.
In order to be eligible for payments of the above, it will be necessary to establish if the person made redundant was a true employee of the business. This would not affect most people but, for example, if the person was a director of the business or a subcontractor they may be required to prove employee status.
Amounts paid by the Redundancy Payments Service are capped at a maximum rate of £400.00 (from 1 February 2011). This amount changes each year.
An estimate of what you may be entitled to can be obtained using the Entitlement Calculator.
Redundancy pay
If you have been employed for over 2 years then you may be entitled to redundancy pay.
The amount is calculated by multiplying the lower of the employee’s weekly pay and the statutory limit (£400) by the number of weeks redundancy they are entitled to. The number of weeks is based upon age and length of service. A table is included in the booklet available from the DTI or can be calculated through the Entitlement Calculator
Some employees may be entitled under their contract of employment to an enhanced redundancy package. The Redundancy Payments Service will only pay the statutory amount outlined above. Anything above this will form a claim in the insolvency (see ‘how to claim’ in the next section).
A form RP1 must be completed by the employee to make a claim for payment from the Redundancy Payment Service.
Arrears of Wages
It is possible that an employee may be owed wages at the point of redundancy. These wages are paid by the DTI subject to the weekly wage limit of £400.00 and up to a limit of 8 weeks of wages.
It should also be noted that even if the business has been sold and the employee has not been made redundant that arrears of wages can be claimed from the DTI.
Arrears of pay are subject to National Insurance and Tax.
A form RP1 must be completed by the employee to make a claim for payment from the Redundancy Payment Service.
Anything amounts not paid by the Redundancy Payment Service will form a claim in the insolvency (see ‘how to claim’ in the next section).
Holiday pay
If the employee is owed holiday then they will have a claim for holiday pay.
The DTI pays holiday up to the maximum weekly limit of £400 per week and up a maximum of 6 weeks. The holidays must have also accrued within the previous 12 months in order to be eligible for payment by the DTI.
Holiday pay is subject to tax and National Insurance.
A form RP1 must be completed by the employee to make a claim for payment from the Redundancy Payment Service.
Anything amounts not paid by the Redundancy Payment Service will form a claim in the insolvency (see ‘how to claim’ in the next section).
Notice Pay
It is often the case in Insolvency situations that employees are made redundant without the notice they are contractually or statutorily entitled to. As such the employee will have a claim for pay in lieu of notice (PILON).
Following the insolvency of an employer the DTI would pay the statutory element. This is calculated as 1 week for each complete year of service up to 12 years. For length of service between 1 month and 2 years 1 week notice is due. If employed for less than 1 month then no notice pay is payable.
Since PILON is aimed to compensate employees for lost earnings, When calculating the notice pay, consideration is given to earnings during the notice period. It is important that employees minimise their losses by claiming any benefits they may be entitled to since these may be taken into account whether or not they have actually been claimed.
Notional tax is applied and if after deduction of earnings (or notional earnings if could have claimed but didn’t) the amount payable is more than the statutory limit, the amount is capped at the limit (£400).
A form will be sent to the expiration of the statutory notice period provided an RP1 form has been completed and submitted. This form must be completed to claim PILON.
If the employee is entitled under their contract of employment to notice above the statutory limits then this will form a claim in the insolvency (see ‘how to claim’ in the next section).
Expenses
These cannot be claimed from the Redundancy payments service and will form a claim in the insolvency (see ‘how to claim’ in the next section).
Pension contributions
The rules relating to pension schemes within insolvencies is complex and the treatment depends upon the type of scheme.
If the scheme is a money purchase (defined contribution) scheme, i.e. the pension the person will receive is not linked to earnings or final salary, then the pension scheme may be able to claim contributions deducted from wages but not received. There are limitations on what amounts can be claimed and it is usually the scheme administrator that would make the claim.
If the scheme is a final salary (defined benefit) scheme then the Insolvency appointment will be notified to the Pension Protection Fund. Provided that the scheme is eligible then the Pension Protection Fund will manage the pension fund and provide certain statutory benefits upon retirement.
Employees should seek clarification from the Insolvency Practitioner as to what action is to be taken in relation to the pension scheme.
Other amounts
Most other amounts form a claim in the insolvency (see ‘how to claim’ in the next section).
