Insolvency Payment Claims From The National Insurance Fund : A Brief Guide

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The National Insurance Fund is made up of National Insurance Contributions (NICs) paid by employees, employers and the self-employed, as well as any voluntary contributions that are made. These funds are kept separate from all other revenues raised by national taxes, and are used to pay social security benefits, such as the State Pension. The National Insurance Fund is also used to guarantee payments to employees when their employer becomes insolvent. It will also cover some payments to directors in this instance.

When a company becomes insolvent, there is naturally a lot of anxiety among those involved in the company as to what the future will hold financially. That’s why the National Insurance Fund is so important for ensuring that employees receive the money that they are entitled to from their insolvent employer

The insolvency practitioner that is responsible for winding the company up will advise employees and employers on claiming payments from the National Insurance Fund. The claims that can be made include:

Redundancy Payments

If your employer is insolvent and makes you redundant then you should be able to claim statutory redundancy pay. In order to claim this, employees must have worked under a contract of employment with their current employer for at least two years. It’s not just employees who have access to this, the directors of a limited company can also claim National Insurance Fund redundancy payments if the company is insolvent. Directors will need to apply within  a specified period (preferably before liquidation, or up to a maximum of 12 months after the process starts), and can use the money to contribute to liquidation costs if necessary.

Arrears Of Pay

Up to a maximum of 8 weeks arrears of pay can be claimed from the National Insurance Fund, currently capped at £571 a week (£544 if you were made redundant before 6 April 2022). This covers:

  • Salary
  • Contractual commission or bonus payments
  • Overtime 
  • Contractual sick pay
  • Contractual maternity pay
  • Protective awards (where this has been awarded by an employment tribunal)

Holiday Pay

Holiday entitlement is also included in the director and employee claims that can be made in insolvency. This includes holiday accrued in the 12 month period prior to the start of insolvency proceedings. This is currently capped at £571 per week (£544 per week if your employer went insolvent before 6 April 2022). 

Statutory Notice Pay & Basic Award 

Statutory notice pay, or ‘pay in lieu of notice’ as it’s sometimes referred to, can also be claimed from the National Insurance Fund for up to £571 per week’s pay (£544 if you were made redundant before 6 April 2022). This means that employees will receive full pay for any work completed during their notice period. When a claim for unfair dismissal has been confirmed by an employment tribunal, then the basic award payment can also be claimed.

Unpaid Pension Contributions 

If the insolvency practitioner is notified that employee or employer contributions have not been paid over to the pension scheme provider, they will lodge a claim with the Redundancy Payments Service for unpaid contributions. This includes arrears accrued in the 12 month period before insolvency. 

Any claims that are above the cap will be counted as unsecured claims in the liquidation process and will only be repaid if there are sufficient funds leftover to do so.

If you are the employee of a company that is facing insolvency, or are the employer, My Liquidation will ensure that you maximise claims from the National Insurance Fund. If you have any concerns that you would like to discuss, or if you would like to know more about how to place your company into liquidation, please don’t hesitate to get in touch with the team. 

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