M4.5 Employee claims

Question 1

What are ordinary preferential claims

Answer 1

ARREARS OF PAY
 Due in last four months before appointment
 up to limit of £800 gross

HOLIDAY PAY
 Without limit
 Amount due at relevant date whether dismissed before, on or after relevant date

EMPLOYEES’ PENSION CONTRIBUTIONS
 Deductions from employees’ salaries made in previous 4 months, not then paid over into the scheme

Question 2

What are employee related ordinary unsec creditors?

Answer 2

BALANCE OF ARREARS OF PAY
 Any amount over £800 gross in the four months before appointment
 Plus anything due from before the four-month period

PAY IN LIEU OF NOTICE [PILN]
 As stated in contract of employment
 Or if enhanced amount not specified, then subject to statutory entitlement per Employment Rights Act [Statutory Notice Pay]

REDUNDANCY
 As stated in contract of employment
 Or if enhanced amount not specified,then subject to statutory
entitlement per Employment Rights Act

OTHER OUTSTANDING PENSION CONTRIBUTIONS
 Any sums deducted from employees outside of previous 4 months
 Any sums due from the employer that were not paid

UNFAIR DISMISSAL
 Basic award
 Protective award

Question 3

What are ERA 1996 arrears of wages?

Answer 3

 Up to 8 weeks arrears, if incurred within the 4 months prior to insolvency, at the statutory weekly limit
 Employee can designate weeks if unpaid for more than 8  So can use weeks with highest pay
 Max £643 per week, per claim from April 2023
 May not cover all outstanding wages where employee is a higher earner

Question 4

What is ERA 1996 holiday pay?

Answer 4

 6 weeks at statutory weekly limit accruing within last 12 months  Can’t claim from the RPS unused holiday carried forward from previous
years

Question 5

What is ERA 1996 compensation for lack of statutory notice? (PILN)

Answer 5

Statutory entitlement:

 More than 1 month – less than 2 years service = 1 week notice

 Over 2 years service = to 1 week notice for every full year of employment, up to a maximum of 12 weeks

 Contract may provide for more, but not covered by ERA
 Claim must be mitigated first
 Notional tax is applied after all deductions for mitigation
 Statutory weekly limit applied after deductions for mitigation and notional tax have been made £643 per week, per claim from April 2023

Question 6

How to calculate PILN

Answer 6

 Number of weeks entitled times wage A

Less mitigation (B)
 E.g. benefits /wages in period
 Claim after mitigation C
 Tax at basic rate (D)

Claim subject to weekly ERA Limit E

Question 7

How do you calculate redundancy entitlement?

Answer 7

 0.5 a week’s pay for each full year you were employed and under 22 years old
 1 week’s pay for each full year you were employed and between 22 and 40 years old
 1.5 week’s pay for each full year you were employed and 41 or older

ERA redundancy payments are capped at £643 a week

Question 8

What is the relevant date for ERA claims?

Answer 8

For arrears of pay and holiday pay the relevant date is the date of commencement of the insolvency

NB: If work continued during the insolvency (e.g. trading on), the wages for this period would be an expense of the insolvency

For all other debts (e.g. PILN or redundancy), the date is the latest of:
 date of insolvency; or
 date employment ended;
 date on which tribunal award is made

Question 9

When do you need to apportion preferential dividends?

Answer 9

May need to apportion between RPS and employee’s preferential claim for wages.

Eg
 Employee has a claim for £2,000 for 2 weeks’ arears of pay
 RPS pays out £1,076 (2 weeks at maximum rate of £538)
 Employee has residual claim of £924 for the amount the RPS didn’t cover (£2,000 - £1,076 = £924)
 Dividend of 30p in £ paid to preferential creditors
 BUT: only one lot of £800 preferential entitlement to share:
 RPS gets 1076/2000 x 800 = £430.40 x 30p = £129.12  Employee gets 984/2000 x 800 = £369.60 x 30p = £110.88 £800.00 x 30p = £240.00

Question 10

When can employees claim for unfair dismissal against the co/ RPS?

Answer 10

Employees can make a claim to an employment tribunal if:
 they were dismissed unfairly (‘basic award’); and/or
 there was not a proper consultation about their redundancy (‘protective award’)

Question 11

What is the position re unpaid pension contributions?

Answer 11

Amounts deducted from employees’ salaries in the previous 4 months but not paid into their pension scheme rank preferentially

Outside this time - ordinary unsecured claim

Employer’s outstanding contributions ordinary unsecured debt

Pension Protection Fund may compensate the fund

Subrogated creditor for any amounts paid (i.e. stand in the shoes of the employee)