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The prospect of a liquidation or administration is a fearful thought for most directors of companies, but what often adds to their woes is the thought that they could also be letting down long serving employees.....

Redundancies have always been a big talking point in the media and a major concern for directors of companies and rightly so, but the true position of the result that it will have on the individuals involved is sometimes misreported. Redundancy is often misunderstood by directors, employees and the media.

Dealing with insolvency procedures and staff redundancies with sensitivity

At Portland, as part of our sensitive approach to dealing with an administration or liquidation, we provide assistance to the directors who are often as concerned about their employees’ futures as their own financial affairs. In these cases, often employees are not just employees, they are also friends and sometimes family and we regularly see directors delaying the insolvency procedures or investing personal funds into an insolvent business, in an attempt to avoid disappointing these employees.

For example, we often hear directors say;
‘What about Julie? She is 62 and has been with the company for 25 years. This job is all she knows, she cannot afford to retire, what will she do?’.

This is a highly emotive example, but not untypical of the type of situation that we face.

Portland and the Redundancy Payments Office are there to assist you

In these circumstances, we will take time to discuss with the director the financial support that Julie would be entitled to from the Redundancy Payments Office in the event of a closure of the business. The Redundancy Payments Office is in place to pay statutory entitlements to employees including redundancy and associated payments when an employer cannot or will not pay its employees. These funds are paid from the National Insurance Fund. There are four main types of claims that the employees may make to the Redundancy Payments Office; redundancy, money in lieu of notice of termination of employment, arrears of wages and unpaid holiday pay.

When we explain how the employees will be dealt with by us, the directors are often surprised and regret not contacting us sooner. Each employee’s circumstances are different and therefore the payments may vary. We have illustrated below the funds that Julie could be entitled to based upon her details.

Age:  62
Length of employment:  25 years
Annual salary:  £22,000
Notice given of redundancy:  None
Arrears of wages:  4 weeks
Outstanding holiday:  5 days

Julie's claim:

  • 30 weeks redundancy pay of £12,692 (payments under £30,000 are untaxed)
  • 12 weeks notice pay totalling £5,077 before tax – should the director make her redundant with immediate effect and alternative employment is not found within 12 weeks.
  • 4 weeks arrears of wages of £1,777 before tax
  • 5 days holiday accrued but not taken of £423 before tax

Julie would be entitled to claim a total of around £20k from the Redundancy Payments Office. Tax and National Insurance will be deducted from some of the payments and receipt of the funds directly paid into the individual’s bank account takes on average between four and six weeks from the date the company enters into an insolvency procedure.

The sooner you contact us, the sooner we can help your business and your employees

Directors often consider their employees’ welfare before their own. For this reason it is important that directors considering the closure of a company understand the help the Redundancy Payments Office can provide to employees facing redundancy and that often, in cases such as Julie, could result in significant compensation.

If your company is struggling and you are worried about the effects the closure of a business could have on your employees contact us to discuss what their entitlement could be and how we could help.

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