Insolvency

If the employer is insolvent, the secretary of state for the Department for Business, Innovation and Skills (BIS) assumes responsibility via the National Insurance Fund, but only for part of the award.

The National Insurance Fund will cover:

• the basic award;

• statutory notice pay;

• arrears of pay to a maximum of eight weeks; and

• holiday pay to a maximum of six weeks.

A “week’s pay” is capped at a maximum of £464 (From 6 April 2014). The employee receives a net sum after tax and other deductions (Titchener v Secretary of State for Trade and Industry [2002] IRLR 195). Contractual lay-off pay will not be paid by the Secretary of State (Benson v Secretary of State [2003] IRLR 748).

A payment by the secretary of state breaks continuity. This means that even if employees later transfer to a new employer, they will have lost their right to include previous service for the purposes of any tribunal claim. If the secretary of state fails to pay, a tribunal claim should be made within three months. Any sums owed by the employer beyond the sums guaranteed by the secretary of state will be a debt in the insolvency. For more advice, consult the government Insolvency Service at: https://www.gov.uk/your-rights-if-your-employer-is-insolvent (see also Chapters 11 and 12).

A compensation payment for unfair dismissal under a compromise agreement is tax free up to £30,000, even if the employee is reinstated, as long as it is genuinely compensation for loss of the job, rather than earnings or a payment for services (HM Inspector of Taxes v Clayton [2005] IRLR 108).