When a company enters insolvency, it’s often a difficult time for both business owners and their employees. One of the most pressing concerns in these situations is redundancy pay—who is entitled to it, how it’s calculated, and crucially, who pays it when the company can’t.
At Aurora Recovery, we help businesses across the UK understand their obligations and options when insolvency impacts their workforce.
📌 What Is Redundancy Pay?
Redundancy pay is compensation owed to employees when they lose their job because the company no longer needs their role—often due to business closure or downsizing.
In the context of insolvency, employees may be eligible for statutory redundancy pay if they:
- Have worked continuously for the company for 2 years or more
- Have lost their job due to the company closing or restructuring due to insolvency
🏛 Who Pays Redundancy in Insolvency?
If a company enters administration or liquidation and cannot afford to pay redundancy (or other employee entitlements), employees can apply for payments through the National Insurance Fund (NIF), which is managed by the UK government’s Redundancy Payments Service (RPS).
The RPS can pay the following:
- ✔ Statutory redundancy pay
- ✔ Unpaid wages (up to 8 weeks)
- ✔ Holiday pay (up to 6 weeks)
- ✔ Statutory notice pay
These payments are capped at a statutory weekly limit (which is updated annually) and are based on age, length of service, and average weekly earnings.
📎 How Is Redundancy Pay Calculated?
Statutory redundancy pay is calculated based on:
- Half a week’s pay for each full year under age 22
- One week’s pay for each full year between ages 22 and 40
- One and a half week’s pay for each full year over age 41
Service is capped at 20 years, and weekly pay is capped at a statutory maximum (currently £669 as of April 2025).
❓ What About Directors?
Company directors may also qualify for redundancy pay—but only if they:
- Were on the company payroll and paid through PAYE
- Worked at least 16 hours per week
- Had an employment contract (written, verbal, or implied)
- Played an active role in the day-to-day running of the business
This is often overlooked but can be a legitimate claim, especially during a Creditors’ Voluntary Liquidation (CVL). At Aurora Recovery, we assist directors in exploring these entitlements during insolvency.
⚠️ Common Misconceptions
“Redundancy doesn’t apply in insolvency.”
✅ False – Redundancy payments can still be claimed via the RPS, even if the company has no funds.
“Only employees can claim – not directors.”
✅ False – Directors can qualify, but must meet the criteria listed above.
“The company has to pay.”
✅ False – If the company is insolvent, the government fund (NIF) typically covers statutory entitlements.
🛠 What Should Directors Do?
✔ Keep employee records up to date – This includes contracts, PAYE details, and employment length.
✔ Seek advice early – An insolvency practitioner can guide you through employee entitlements and help you avoid breaches.
✔ Inform staff promptly – Redundancy is stressful. Transparency is crucial.
✔ Check your own entitlement – Don’t overlook potential redundancy pay for yourself as a director.
🤝 Need Guidance on Redundancy During Insolvency?
At Aurora Recovery, we support business owners and directors in handling redundancy fairly and legally. Whether you’re unsure of your obligations or want to know if you’re entitled to claim, we’re here to help.
📞 Call us: 01134 800 397
📧 Email us: hello@aurorarecovery.co.uk
🌐 Visit: https://aurorarecovery.co.uk
Contact us now to see how we can help you: https://aurorarecovery.co.uk/contact/
Read more about redundancy payments in insolvency on the government’s website, here:
https://www.gov.uk/guidance/explaining-your-redundancy-payments
