What happens if my employer becomes insolvent?


I think my employer may go into liquidation. What are my rights?

This note only covers companies and not employers who are individuals, LLPs or partnerships.

If your employer is legally insolvent and your employment has ended then you will be able to make a claim for your lost wages, redundancy pay and other payments relating to your work. Firstly you will need to establish whether your employer is insolvent or not. Your employer will be legally insolvent if:
  • It is in administration (i.e. an administrator has been appointed);
  • A winding-up order has been made (or a resolution for voluntary winding up has been passed);
  • A voluntary arrangement (i.e. where creditors have entered into an agreement with the company under the supervision of an insolvency practitioner) has been approved;
  • A receiver (someone appointed by the owner of a fixed charge) has been appointed over the company's undertaking;
  • Possession has been taken by the owners of a charge.
You can check on the Companies House website to discover the status of your employer.

Short-time & lay off

If your employer is not yet legally insolvent but is struggling then they may cut the number of hours you work (sometimes called short time) or lay you off, which is usually where your employer asks you not to come into work. If you are laid off then you should normally still be paid unless there are clauses to the contrary in your contract of employment or you have agreed that you won't be paid.

If you are laid off then, assuming you have been employed for more than 1 month, have made yourself available for work and have not refused to work, you will be paid the Statutory Guarantee Pay (“SGP”) of £24.20 per day. This can be paid for up to 5 days once in any 3 month rolling period. You may also be entitled to claim benefits so contact your local job centre if you are laid off. If you are not paid SGP or wages which you are entitled to then you may be entitled to bring a claim against your employer in an Employment Tribunal for deductions from wages. To do this you must apply to the Employment Tribunal within 3 months of the date you failed to receive the payment. However, there is no guarantee that an employer will pay you so you may want to petition to wind up the business and claim part of your unpaid wages from the Redundancy Payments Office (RPO) as outlined below.

Transferring or buy out of an insolvent business

Employees who are transferred to another business normally have protection under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”). This means that employees automatically transfer to the new employer on the same terms and conditions. However if it is sold to try and liquidate the business assets then some of the key aspects of TUPE are dis-applied. In particular, employees will not automatically transfer and terms and conditions can be varied. Any pre-existing debts owed to the employees will not be transferred to the new employer. If the business is transferred under administration, administrative receivership or a voluntary arrangement then although the automatic transfer principle still applies some debts owed to employees are not transferred to the new employer.

I have been told by my employer that it is in liquidation. What will happen next?


If your employer is declared insolvent and your employment has come to an end you will be able to apply to the RPO for:
  • A maximum of 8 weeks’ unpaid wages prior to the insolvency. Wages include commission, overtime, SGP, statutory payments such as maternity pay and protective awards. You can select the weeks most beneficial to you and the weeks chosen do not have to be consecutive. However, you cannot add unpaid days together to make a whole week
  • Up to 6 weeks unpaid/untaken holiday pay you accrued in the 12 month period prior to your employer being declared insolvent
  • A total not exceeding 12 weeks' notice pay etc
These payments are all subject to tax (which should be deducted at the basic rate) and will be made from the National Insurance Fund. Keep an eye out for how much tax you have paid as you may be entitled to a refund from the RPO eg if you haven't used up your personal allowance you may pay less tax. There is no age limit or length of service required to obtain the payment. However, there are limits on the number of weeks you can claim (as set out above) and also on the weekly rate you can claim. The current limit is £450 per week. You can contact your local RPO office and download the appropriate form here.

You should try to limit your losses by claiming all of the benefits you are entitled to (check with your local job centre) and applying for new jobs. Any money you do receive will be taken into account when calculating the payment you are owed. If you do not do this then the payment you receive from the RPO may be reduced. Any debts after payment from the RPO (eg weekly wage above £450, additional contractual notice) can only be paid if there are sufficient funds available from the company’s assets.

However, for some debts, such as outstanding holiday pay, wages (up to 4 months' pay or £800, whichever is less) and occupational pension contributions employees will be treated as a preferential creditors meaning that when your employer’s assets are shared out amongst the creditors the preferential creditors will receive payments ahead of other creditors. There is no qualifying period or age requirement. You should contact the appointed independent insolvency practitioner or Official Receiver to make a claim. It is unlikely that there will be enough money left for you to get paid what you are owed in full but you may recover some money.

If you are entitled to claim certain types of statutory pay, such as sick pay or paternity pay, beyond the date of insolvency then you may be able to claim these from Her Majesty's Revenue & Customs. Refer to your job centre for further information.


The trustees of the employees’ occupational pension scheme may be able to make contributions to the fund from the Secretary of State via the National Insurance Fund, subject to certain conditions. In some circumstances the Board of the Pension Protection Fund may take over the running of the scheme and pay compensation.


If you have worked for your employer continuously for over 2 years then you may be entitled to a statutory redundancy payment. The payment you will receive is based on your weekly wage (capped at £450 but this amount normally increases annually) multiplied by the number of years' service you have and an age factor. Redundancy payments up to £30,000 should be tax free. Please refer to our Redundancy leaflet for more information. Click here to be taken to the government’s redundancy calculator. You can claim your redundancy money from the RPO.

If 20 or more people are made redundant then your employer or the insolvency practitioner is required to collectively consult with the union (where there is one) or employees about the redundancies. If this is not done then affected employees have the right to claim a protective award up to a maximum of 90 days’ pay.

How do I claim?

The insolvency practitioner should send you the appropriate form or you can contact your local RPO by clicking on the links above, 92% of all claims are paid within 6 weeks.

Tax will be paid on payments arising from your contract such as wages and holiday pay. You can contact your local RPO to see if you are owed a tax refund. You may also be entitled to a tax refund on other payments so you should also contact your local tax office if you think you have paid too much tax. Contact the independent insolvency practitioner or Official Receiver to claim the preferential debts and remaining money owed but it may take some time before you receive payment.

Your rights will vary depending on the type of insolvency that is taking place with your employer and as such the above information is generic advice and we would always advise you to obtain specific advice if you are affected by issues surrounding this matter.

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