How can employees secure their wages if the employer becomes insolvent?
In the event that an employer becomes insolvent and does not have sufficient funds to pay outstanding wages due to employees, the Insolvency Act 1986 provides that employees become "preferential creditors" in respect of remuneration payable for the four-month period immediately preceding the insolvency of the employer, up to a maximum of £800.
Remuneration in these circumstances will include: wages or salary, including commission; sick pay; guarantee payments; payments for time off work; payments due on account of medical or maternity suspension; a protective award; contributions to an occupational pension scheme; and accrued holiday pay. Pension contributions and holiday pay are not included in the £800 limit.
Employees can make a claim to the Secretary of State (in practice the Redundancy Payments Service) for a payment from the National Insurance Fund to cover some of the outstanding debts, subject to maximum amounts. The Secretary of State will assume the employee's role as a creditor in respect of the amounts paid to the employee from the National Insurance Fund.