What happens employee’s wages, notice pay, holiday pay and redundancy payments when their employer goes insolvent?
When a company goes into insolvency, employees have certain rights and entitlements and may be entitled to recover money from the Department of Jobs, Enterprise and Innovation under the Insolvency Payments Scheme.
The Insolvency Payments Scheme is a Scheme to protect the entitlements of employees whose employer has become insolvent.
Under the Scheme the employees may claim arrears of pay, holiday pay, payment in lieu of notice and various other entitlements that may be owed to them by their employer.
The Scheme also covers payments due to an employee on foot of a determination or decision under a range of legislation including the Unfair Dismissals Act, the Employment Equality Act, the Maternity Protection Act, the National Minimum Wage Act, the Payment of Wages Act, and the Organisation of Working Time Act.
These payments are made from the Social Insurance Fund. In most cases, the Scheme covers entitlements relating to the period of eighteen months prior to the date of the insolvency of the employer.
In order to pursue a claim from the Scheme, the employees should contact the person legally appointed to wind up the business (normally the liquidator or receiver), who certifies the payments due and sends them to the Insolvency Payments Section of the Department. Payments are then made out to the liquidator or receiver, who pays the employees concerned.
Payment will be made from the Social Insurance Fund only where the employer becomes legally insolvent: this means the employer must be in liquidation, receivership, or bankruptcy. If the business simply shuts down without becoming legally insolvent, the employees will have to pursue the employer for their pay and other entitlements.
The Insolvency Payments Scheme does not cover redundancy payments that may be due to an employee if they are let go as a result of a closure or shut down. There is a separate scheme in place to cover redundancy payments.
Not all employees will be entitled to a redundancy payment. In order to qualify, an employee must have two years continuous employment with the same employer.
If an employee is made redundant as a result of their employer shutting the business, and the employer cannot afford to pay the redundancy payment to their employees the Department will then make payment out of the Social Insurance Fund, provided that the Employer provides evidence that they are not in a position to pay (e.g., a letter from their Accountant/Solicitor confirming the employer’s inability to pay.).