When a company is facing financial difficulties, paying redundancies can be a significant expense that may not be affordable.
Redundancy payments can include statutory entitlements such as notice pay, holiday pay, and redundancy pay, and the cost can add up quickly, especially if a large number of employees are affected.
For some businesses, the cost of paying redundancies could be the difference between staying afloat or going insolvent.
In these cases, it may be necessary to explore alternative options, such as negotiating with affected employees to accept reduced payments, seeking financial assistance from external sources, or restructuring the business to avoid redundancies altogether.
While it may be challenging to navigate such situations, it’s crucial for companies to find ways to manage their financial pressures while also minimising the impact on their employees’ lives
I am worried that I can’t afford to pay staff redundancy costs
If you’re a business owner facing financial difficulties and considering making redundancies, it’s understandable to feel worried about the cost of paying redundancy payments to your staff. However, it’s essential to keep in mind that redundancy payments are a legal obligation, and failing to pay them can result in legal action against your business.
Therefore, it’s crucial to seek advice from a qualified accountant or financial advisor who can help you assess your financial situation and explore alternative options. You may be able to negotiate with affected employees to accept reduced payments or explore government-backed schemes to support businesses facing financial difficulties.
In any case, it’s essential to be transparent with your staff about the financial situation and to provide them with support during this difficult time. By taking a proactive approach and seeking professional advice, you can ensure that your business remains financially sustainable while also treating your staff fairly and legally.
Who pays redundancy when employer cannot?
When an employer cannot pay redundancy payments, there are several options available for employees to receive their entitlements. If the employer is insolvent, employees may be able to claim their redundancy payments through the National Insurance Fund, which is administered by the Redundancy Payments Service.
The National Insurance Fund is funded by the UK government and provides financial support to employees who are owed redundancy payments from an insolvent employer. The amount of the payment is subject to certain limits and conditions, but it can provide much-needed support to employees who may be facing financial difficulties as a result of their employer’s insolvency.
If the employer is not insolvent but is unable to pay the redundancy payments, employees may need to pursue legal action against the employer to recover their entitlements. In either case, it’s essential to seek legal advice and support to ensure that employees receive their full entitlements in a timely and fair manner.
Financial assistance for employers unable to pay statutory redundancy payments
Employers who are unable to pay statutory redundancy payments may be eligible for financial assistance through the Redundancy Payments Service (RPS). The RPS is a government-backed service that provides financial support to eligible employers who are unable to pay their statutory redundancy payments.
To qualify for assistance, the employer must be insolvent or facing financial difficulties that make it impossible to pay the required redundancy payments. The RPS can pay eligible employees up to 8 weeks’ pay as a redundancy payment, subject to certain conditions. In addition, the RPS can also provide assistance to employees in the event that their employer becomes insolvent and is unable to pay their redundancy payments.
If you’re an employer facing financial difficulties and unable to pay your redundancy payments, it’s worth exploring the options available through the RPS to see if you’re eligible for financial assistance.
Read more: Can a director claim redundancy
Frequently asked questions
If you are unable to pay your staff redundancy, it is essential to seek professional advice to explore your options. Failure to pay your statutory redundancy obligations can result in legal action against your business, so it's crucial to take proactive steps to manage your financial situation and ensure that your employees receive the support they are entitled to.
Yes, the UK government can provide financial assistance to eligible employers who are unable to pay their statutory redundancy payments through the Redundancy Payments Service.
Yes, it is possible to pay redundancy in installments as long as the agreement is made between the employer and employee, and the payment is completed within the statutory time frame. What happens if I can't afford to pay my staff redundancy?
Will the government help with redundancy payments?
Can I pay redundancy in installments?
Conclusion
If your business is unable to afford to pay redundancies for its staff, it’s crucial to seek professional advice to explore your options. Redundancy payments are a legal obligation, and failure to pay them can result in legal action against your business, so it’s important to manage your financial situation proactively.
Depending on your circumstances, you may be able to negotiate with affected employees to accept reduced payments or explore government-backed schemes to support businesses facing financial difficulties. You could also consider alternative options such as offering affected employees alternative employment within the business, reducing working hours or restructuring the business to avoid redundancies altogether.
It’s essential to be transparent with your staff about the financial situation and to provide them with support during this difficult time. By taking a proactive approach and seeking professional advice, you can ensure that your business remains financially sustainable while also treating your staff fairly and legally.
With over three decades of experience in the business and turnaround sector, Steve Jones is one of the founders of Business Insolvency Helpline. With specialist knowledge of Insolvency, Liquidations, Administration, Pre-packs, CVA, MVL, Restructuring Advice and Company investment.