Updated: 8th January 2020
Published: 10th June 2015
No matter what your company circumstances are, making staff redundant is a difficult decision to make. Usually businesses make people redundant when they’re in financial difficulty and unfortunately, for employers there are costs involved with redundancy. If you can’t afford to pay the redundancy costs, there may be options available to you, but these will depend on your company’s situation.
If you’re still trading, but you can’t afford to pay your staff their redundancy pay, be open with them and explain the situation. Could you afford to pay some of the money now and the rest next month? Communication with your staff is vital. During redundancy, employees will naturally be worried about paying their own bills and their own future, so try to keep them informed as much as possible. Let your employees know that even though the company is going through some challenging times, you’re still trying to do your best for them. You may be able to put a payment proposal to them, giving you more time to pay. If they understand the pressures that you’re under, they may be more willing to receive the money in stages. If they’re entitled to redundancy payments and you don’t make them, your employees can take you to a tribunal to try and get their money that way, so it’s best to try and keep things as amicable as possible.
Providing your employees have been with you for at least 2 years, they’ll normally be entitled to statutory redundancy pay. The amount they’ll be entitled to will depend on their age and length of service. There may also be clauses in their employment contract about redundancy payments that the company had previously agreed to, so double check your contracts.
However, if you’re legally insolvent and you’ve entered into a Company Voluntary Arrangement, liquidation, administration or receivership then your staff may be able to claim statutory redundancy pay from the National Insurance Fund operated by the Insolvency Service’s Redundancy Payments Office. However, it is not guaranteed that employees will get everything owed to them and they won’t be able to claim for any contractual redundancy pay. Depending on length of service, your employees may be able to claim for up to eight weeks of unpaid wages, up to six weeks holiday pay for days not taken, compensation in lieu of receiving statutory notice, plus redundancy pay. The insolvency practitioner handling your company’s case will be able to advise both you and your staff and can provide your staff with the appropriate application forms. The insolvency practitioner will then claim it from the National Insurance Fund.
If you have redundancy costs to pay, but can’t see a way to pay them, speak to an insolvency practitioner who’ll be able to advise you on the best course of action for your company.