What if your employer becomes insolvent

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Created: Friday, March 28 2014 09:51

Employee claims generally have preferential status in a winding up. This preferential status theoretically gives employees a certain level of protection, however, employees are only protected in circumstances where the company has sufficient assets to discharge the monies owing. 

 More often than not, if an employer has been wound up, there are not sufficient funds available to discharge even preferred claims.

The Insolvency Payments Scheme (the “Scheme”) is a scheme to protect entitlements of employees whose employer has become legally insolvent. Employees may claim arrears of pay, holiday pay, pay in lieu of statutory notice and various other entitlements that may be owed to them by their employer. In addition, the Scheme covers a wide range of entitlements that might be owed to employees by the employer, including awards made to employees under employment rights legislation.

An employer must be insolvent before a claim can be made under the Scheme. This means that the company goes into liquidation or receivership, or if the employer is an individual, enters into bankruptcy. Employees normally make their claim through the liquidator or receiver.

Some limitations apply to payments made under the Scheme. All entitlements based on pay are limited to a maximum weekly limit which is currently €600 per week. There is also a limit of eight weeks for arrears of pay, sick pay, holiday pay and pay in lieu of statutory notice.

Payments under the Scheme are generally taxable in the normal course, and PAYE and PRSI deductions are usually made by the liquidator or receiver before the payment is made to the employee.

You can make your claim through the person legally appointed to wind up the business (normally the liquidator or receiver) and who will certify them from the records available, then send them to the Insolvency Payments Section of the Department of Enterprise, Trade and Innovation to be processed.

When the claims have been processed, payments are made to the liquidator or receiver who will pay the employees concerned, once the normal PAYE and PRSI deductions are made.

Claims are made on forms available from the Department of Enterprise, Trade and Innovation or its website, but in many cases, the liquidator or receiver provides them.