I ask this because a Private Members’ Bill, sponsored by Lindsay Hoyle MP, is currently making its way through Parliament.  Its aim is to increase the level of statutory redundancy pay given to employees with more than two years’ service from the current cap of £350 per week per complete year of service (or £525 per week for workers over 41) in to line with average earnings, as opposed to RPI with which it is currently linked. This would mean an increase in the cap  from £350 to £500/750. The award is made up to a maximum of 20 years’ service. Over the years it has fallen behind inflation and means that the maximum an employee made redundant at the moment  can receive (in the absence of a claim for unfair dismissal or an enhanced redundancy package offered by the employer) is a maximum sum of  £7,000 (for those under 41 at dismissal) or £10,500 for those over 41 (and thus would have to be 61 at dismissal with 20 years service to receive it).  In addition employees are entitled to be given their contractual, or statutory notice, and can be asked to work the notice, be put on garden leave for the duration or be paid in lieu. If an employee has less than two years service with an employer he/she is not entitled to any statutory redundancy payment, only to notice.

The Bill passed through its Second Reading last Friday but stands little chance of becoming law.  The Government and the Tories are against it because of the additional burden it would place on hard-pressed employers. The issue is causing dissension in the Labour ranks with allegations of dirty tricks being made against government whips (see the BBC’s report of the 13th March)  and angry denials from the government. 

Business groups have said that the Bill threatens firms that are already struggling and may put them out of business.  The effect of the increase would be to make the new maximum for workers under 41 from £10,000 to £15,000 for those with 20 years service over 41.  They are significant increases but unlikely, in my view, to topple otherwise surviving businesses over the edge into insolvency.  If it would then it seems probable that the business would be going under sooner or later anyway.  It should be remembered as well that those are the maximum figures and comparatively few people will qualify for the maximums.  

In reality, it means a bigger burden on the tax-payer because if the employer does become insolvent the employee will have to apply to the Redundancy Payments Office (aka the National Insurance Fund) for the payments.

Just to recap on that, the RPO pays out the following sums to employees left high and dry by their employer going bust;

1.  Up to eight weeks wages – unpaid wages, contractual benefits like commission and bonus & overtime

2. Up to six weeks accrued holiday pay for the 12 months prior to insolvency

3. Notice monies - for statutory minimum not contractual notice periods

4. A basic award for unfair dismissal (calculated in the same way as for SRP)

In each case a week’s pay is capped at the statutory maximum - i.e the £350/525 discussed above that may (but probably won’t) be increased by Mr Hoyle’s Statutory Redundancy Payment (Amendment) Bill.

It’s a very difficult issue at a time when everyone is struggling.  In the City most businesses pay out enhanced packages, perhaps based on one month’s salary per year, or maybe two weeks’ per year and if the Bill becomes law it will be academic for them, but certainly not for the many smaller businesses being crunched at the moment.

No related posts.

Will SRP be increased? originally appeared on Jobsworth by Michael Scutt on 18/03/2009.

Hello again and all best wishes for 2009.  I have to say that I don’t feel particularly enthusiastic about life, the universe and everything at the moment but that may be because I’ve been laid low over Christmas with a most virulent gastric bug that put paid to just about all my plans.  At least I can say I had more time to spend in my bathroom but you really don’t want to know anymore about that.

Despite the continuing economic gloom life here has been fairly quiet.  I saw my first compromise agreement of the year today – not a bad package and a bonus was included (which is not something I’ve been seeing that often recently). 

The big employment issue over Christmas has been the collapse and,  in some cases closure of major High Street names – such as Woolworths,  MFI, Adams, Zavvi, The Officers Club, Whittards etc.  In the latter case private equity came to the rescue and my morning cuppa has been saved.  Adams, the kidswear chain has gone into administration, and there will inevitably be store closures.  Hopefully Woolworths can be saved, although I’ve got to be honest and say that I can’t remember the last time I went into Woolies and actually bought anything.   

From an employment point of view the perplexing issue in all these cases is where does it leave the employees involved?  Here is Jobsworth’s “noddy’s” guide to company insolvency;

The two most common forms of insolvency procedure are;

Administration - this is the option that gets used most often and can offer a glimmer of hope because the legal effect is to give the company breathing space by preventing creditors from suing.  The administrators then try to reorganise the company and/or sell off assets.  When the Administrator is appointed individual contracts of employment do not automatically come to an end.  The Administrator has 14 days in which to decide which employee contracts to adopt and which not.  Where he does adopt an employment contract the employee remains employed by the company and not the Adminstrator because he is acting as the company’s agent.

 The main issue for employees in this situation is how will they get paid. Employee salaries and wages rank in priority even above the Administrator’s own fees.  If there isn’t sufficient funds in the company then application can be  made to the Redundancy Payments Office (part of the National Insurance Fund) for unpaid wages.  The RPO shouldn’t be seen as some sort of white knight riding to the rescue though because the payments it makes (to employees only and not “workers”) are limited thus;

- notice pay: statutory not contractual.  The maximum notice payable under statute is 12 weeks and a week’s pay will be capped at £330.  So if you are on six month’s contractual notice and have only actually been with the company for, say, four years, you will only be entitled to receive £1,320 in notice monies which is hard if you are on more than about £17,000 p.a

- up to eight weeks unpaid wages prior to the company becoming insolvent, limited to £330 p.w as above

- up to six weeks holiday pay – again limited to £330 pw.

- Statutory Redundancy Pay (SRP) - for employees with two years’ service they will be entitled to receive £330 per complete year of service (rising to £495 p.a if over 41 years of age)

- Basic Award for unfair dismissal.  This is calculated in the same way as an award by way of SRP

- unpaid contributions into the pension scheme.

Employees can be left in a difficult position though when there is a dispute, such as a breach of contract because the Adminstration Order imposes a moratorium on claims against the company.  The usual recourse will be to seek the Administrator’s permission to proceed or to apply to the court to lift the stay on proceedings. 

Liquidation  - this is used where the company cannot be rescued and is to be wound up.  Either the company’s creditors will “petition” the court for a liquidation order or the company will place itself in voluntary liquidation.  Whereas with an Adminstration Order there may be some glimmer of hope that the company can be rescued, there is no such room for optimism with liquidation.  Employees caught up in a liquidation will have to apply to the RPO, as above.  The prospect of recovering any wages etc above the sums paid by the RPO are probably going to be slim:  employees rank as preferential creditors but there is a cap of a whopping £800 (!!!) on unpaid wages, accrued holiday pay etc.  Over and above this princely sum employees rank as unsecured creditors and have as much chance of recovering monies owed to them as any of the trade creditors.

It is all a bit of a minefield and the above is only the briefest of summaries.  Do seek professional legal advice if you want to know more or are unlucky enough to be caught up in either situation.  

 I’m looking forward to the weekend and the resumption of normal business on Monday.  Do call me on 0207 464 8433 or email me at michaelscutt@dalelangley.co.uk if I can help.

Related posts:

1. Happy “Red Tape” Day!
2. Happy Christmas
3. New Year, New Look

Happy New Year! originally appeared on Jobsworth by Michael Scutt on 02/01/2009.