What happens if a company cannot afford redundancy pay? Here we discuss a new government initiative aimed at solvent companies entitled “Financial assistance for employers unable to pay statutory redundancy payments”, launched on 11th March 2021.
An overview of the financial assistance to pay statutory redundancy payments initiative
- Payment to employees only - companies can make applications to the Redundancy Payments Service (RPS). The RPS will then pay employees directly. Payments will never be sent to the company directly. Applications to reclaim a redundancy payment already made by a company to an employee, will not be accepted
- Written proof is required – a company must be able to prove that it has investigated a range of financing options to pay redundancy payments. Written evidence will be required to support this, as well as showing that the employee has worked for over two years
- A debt is created – payments from the Redundancy Payment Service will constitute a debt for which future payments will need to be made
- Employment Tribunals – for some applications there may be a requirement for the employee to apply to an Employment Tribunal in order to be eligible for a payment
Help with redundancy pay for solvent companies - making an application
Companies that can’t afford redundancy pay can apply in the following circumstances:
- They are not subject to formal insolvency proceedings at the time of application
- The company is:
- still actively trading or
- has ceased trading and has not yet entered into formal insolvency or
- is going to cease trading soon, but does not expect to enter into formal insolvency
How much redundancy pay will employees be entitled to?
As with all redundancy pay, the employee must have worked for the company for a minimum of two years to be eligible. In paying redundancy, the exact amount an employee will be entitled to, depends upon multiple factors such as the number of years of service (limited to a maximum of 20 years) and their rate of pay and their age.
Can employees be paid other statutory entitlements?
Statutory entitlements such as holiday pay, unpaid wages and notice pay are not a part of the initiative. For these to be payable, the company would need to enter into formal insolvency proceedings.
How to make an application for redundancy payments?
Companies can make an application for paying redundancy by emailing RPS.FA@insolvency.gov.uk the following information:
- Completion of an evidence checklist
- Completion of a solvent case set up form
- Details of all the employees being claimed for
Company liability for redundancy payments
As a debt is created to the RPS, should the company not be able to pay it back in the future they should contact a licensed Insolvency Practitioner (like ourselves) asap as it’s likely the company is insolvent and in need of urgent professional help.
Call Greenfield Recovery to discuss help with redundancy pay
Redundancy pay is an important matter to get right, and the government can help when solvent companies can’t afford redundancy pay in specific circumstances. However, before making an application and creating a debt to the RPS, speak to a restructuring and insolvency expert at Greenfield Recovery for regulated advice and help on your company’s current financial position. Call (0121) 201 1720 or send us an enquiry below (confidential and no obligation).