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INSOLVENCY - Employee Rights
Employees of a business, whether a limited
company, partnership or sole trader, that enters into a formal
insolvency procedure are creditors of that business in respect
of any of the following that have not been paid:
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Arrears of Pay |
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Holiday Pay |
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Compensation for
lack of notice |
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Redundancy Pay |
Under the terms of the Employment Rights Act 1996 these entitlements
can be met in part or in full by the National Insurance Fund
through the Redundancy Payments Service. There are a number
of limitations that will effect the claim. The following provides
brief details of the stipulations on the most common claims
received and should not be considered a full description of
the elements that can be claimed or the conditions placed on
them.
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Arrears of
Pay - limited to a maximum of 8 weeks arrears. |
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Holiday Pay
- limited to six weeks unused holiday or holiday taken
but not paid. The holiday entitlement covers that which
the employee was entitled to by their contract of employment
for the last 12 months only, unless the contract specifically
allows for holiday to be carried over. |
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Compensation
for lack of notice - if no notice is given then
compensation is based on one week for every completed
year of service up to a maximum of 12 weeks. It is considered
the employee's duty to mitigate the notice claim as much
as possible. The purpose of the claim is to compensate
for the actual loss incurred. The claim is therefore adjusted
for any earnings, usually in the form of either state
benefit or wages from alternative employment, and is then
further adjusted for notional basic rate tax. |
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Redundancy
- the entitlement for redundancy is based on length of
service and the age of the employee. The employee must
have completed two years continuous service to qualify.
Employment under the age of 18 does not count, between
18 and 21 the employee is entitled to 0.5 weeks for every
completed year, rising to 1 week between 22 and 40 and
1.5 weeks between 41 and 64. For employees over the age
of 64 the entitlement is reduced by one twelfth for every
completed month over the age of 64, once the employee
reaches 65 the entitlement ceases. A maximum of 20 years
service is applied to the redundancy calculation. |
The above are calculated at the employee's usual gross weekly
wage. If the weekly wage fluctuated due to piecework, productivity
bonus arrangements or shift work an average of the last 12 weeks
is taken. Overtime will only be included in the calculation
if it formed part of the normal working hours.
At present the Employment Rights Act 1996 places an upper limit
on any claims to be paid by the National Insurance Fund. For
those employees earning over this limit the balance of the entitlement
can be submitted as a claim in the insolvency proceedings of
their employer.
There is no minimum length of service required to be considered
as an employee under the terms of the Employment Rights Act
1996. The only occupations that do not qualify are fishermen
paid by a share of the catch, merchant seamen and those who
normally work outside of the European Union, Norway or Iceland.
There are additional criteria to be met by Directors of limited
companies who claim under the Employment Rights Act 1996. Directors
need to work under a contract of employment, if they have a
controlling interest in the company or only deal with company
policy and attend board meetings in return for fees then their
claims will probably be rejected. The directors on each insolvency
who submit a claim are considered individually, the details
given above are a basis guideline only.
Any employee can complain to the Industrial Tribunal if they
have been refused payment they consider due, or have received
less than they believe they should have had.
The Redundancy Payment Service offers a range of booklets available
to both employers and employees providing additional information
to that shown above.
They can be contacted on 0500
848489. |
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