Do employees get paid if their employer goes into administration?
When a company goes into administration, it can be a worrying time for employees. One of the main concerns is whether or not they will keep their jobs or continue to receive their wages. So, do employees in the UK get paid if their employer goes into administration?
The short answer is, yes. Employees are entitled to be paid for the work they’ve done, even if their employer goes into administration. The good news is the Administrator could adopt the contracts of the employees. Or an onward sale could see the employees transferred to a new owner of the business with their existing contracts.
If it’s not possible to keep the employees, wages are treated as a priority debt (alongside tax). This means employees may be paid in full, depending upon their earning level compared to statutory limits, before any other creditors receive money from an insolvent employer. The administrator will handle this process so that employees are treated fairly and in line with the law.
However, the situation can be more complex than that.
When a company goes into administration, it’s usually because they’re unable to pay their debts. The administrator’s job is to try and save the company. Or at least get the best possible outcome for the creditors. As we said above, in this case the employees are considered creditors, and their wages are treated as a priority debt.
This means that the administrator will try to make sure that the employees are paid what they are owed. But this may not happen immediately. In some cases, it may take a few weeks or even months for the employees to receive their wages.
The good news is that the UK government has a scheme in place to help employees who are owed wages by an employer in administration. This is called the Redundancy Payments Service (RPS), and it’s part of the Insolvency Service.
If the employer is unable to pay the wages owed to their employees, the RPS can step in and pay them instead. The amount that the RPS will pay is capped depending on earning level. But it can be a lifeline for employees who are struggling financially.
It’s worth noting that the RPS will pay employees but redundancy pay will only be available to those who are legally entitled to it. This means that if they have been with the company for less than two years, they will not be eligible for this payment.
If you’re concerned about whether your employees will be paid should your company enter administration, it’s important to understand all the options available to you. Including any possible alternatives to administration. Our licensed insolvency practitioners can explain and guide you through whichever solution you decide on.