I can’t pay my staff redundancy pay

When a business faces financial difficulties, there might be no choice but to let some staff go. This could involve a specific number of people whose roles are no longer needed, or in extreme cases, the entire workforce if the company is heading towards closure. This is a stressful time for everyone involved.

It’s important to understand that it’s the company’s responsibility to cover any redundancy costs incurred during this process. However, in many instances, redundancies are only made as a last resort to rescue a financially troubled company, or when the company is beyond saving and has to shut down. In these situations, it’s unlikely that the company will have the funds to ensure all staff receive their owed payments.

So, if you can’t afford to pay staff redundancies, what can you do to make sure your staff don’t miss out on the redundancy payments they’re entitled to?


Redundancy when the company is still trading

1. Financial difficulty scheme:

If letting some employees go gives your business a good shot at surviving and other jobs can be saved, you might get support from the government if you can’t manage the redundancy payments.

There’s a loan scheme for companies in this situation that lets you borrow money to cover your staff’s redundancy payouts, and then pay it back over time. This can be handy, especially if you’ve reorganised your debts through company administration or a Company Voluntary Arrangement and can benefit from more favourable repayment terms on your other debts.

2. Redundancy Payments Service loan scheme:

The Redundancy Payments Service (RPS) manages the scheme. To support your loan application, you’ll need to provide strong evidence that your company can’t cover redundancy payments and that your business has a good chance of surviving after making these job cuts.

Essential documents should include management accounts and financial forecasts, covering aspects like sales, cash flow, and profits. The idea is for your company to repay the loan at a manageable rate over time, giving you the chance to boost business without the same payroll commitments.


But what if your application is turned down? What options do you have to pay staff redundancy while still keeping your business going?  


I. Talk to employees earmarked for redundancy

Effective communication is crucial when facing this tough situation. It’s a legal requirement to provide redundancy pay to eligible employees, and if you’ve agreed to pay contractual redundancy, there might be extra obligations.

Being transparent and honest with your staff about the business challenges can help pave the way for finding a solution.


II. Offer to make redundancy payments in instalments 

Tell your staff about the situation and what you’re doing to support them. They might be willing to take redundancy pay in bits if you explain the reasons behind the financial problems and show that you’re trying your hardest to assist them.


III. Seek professional assistance

At times, having a professional insolvency practitioner involved can make a positive difference – your staff will see that you’re not trying to avoid your responsibilities as an employer and are genuinely concerned about their situation.


IV. Keep staff informed

The employees you’re letting go will understandably be concerned about their own finances and whether they can pay their bills on time. Keeping them in the loop and sharing information about the company’s situation – the actions you’re taking to address it, and the assurance that you’re not simply disregarding them – can alleviate their worries.


When you’re insolvent and can’t pay staff redundancies

The situation changes a bit if your business becomes insolvent and stops trading. If the company goes into liquidation, eligible employees can claim from the government’s National Insurance Fund (NIF). 

To claim redundancy from the NIF, there are certain conditions. Employees must have worked for the company for at least two years, and their age and weekly wage decide the amount of redundancy pay. The appointed insolvency practitioner (IP) should guide on how to make this claim. It’s also worth noting that you, as an employee of the company, may be entitled to claim director redundancy. 

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Claiming redundancy from the National Insurance Fund

There’s no guarantee that staff will get all the money owed, but they might be able to claim certain payments like unpaid holidays, wage arrears, notice pay, and some pension contributions from the National Insurance Fund.

Staff can apply for these payments right after being made redundant, and they have up to six months to make the claim. The Redundancy Payments Office (RPO) handles the applications and usually pays out within a few weeks.

If you need more information on paying staff redundancy when cash flow is tight, give our expert team at Vanguard Insolvency a call. We’re specialists in insolvency and will offer the professional insight and advice you require. Our network of offices covers the entire country, and we provide free same-day consultations to quickly understand your needs. 

Senior Partner at Vanguard Insolvency Practitioners | Website | + posts

I am an insolvency professional with a distinguished career specialising in commercial insolvency, adeptly navigating Creditors Voluntary Liquidation, Company Voluntary Arrangements, and Company Administrations. With a comprehensive understanding of insolvency laws and an unwavering commitment to ethical practices.