Disaster for you as an employee.
An employer’s insolvency causes huge problems for employees, especially in relation to arrears of pay, holiday pay, sick pay, and notice entitlements.
The insolvency can fall into one of a number of categories e.g. has a receiver, liquidator, or examiner been appointed?
The appointment of an examiner or a receiver does not immediately terminate the employment relationship.
The appointment of an official or provisional liquidator may lead to termination but not in all circumstances.
So how are employees protected in a situation of an insolvent employer? Who pays arrears in wages, holiday pay, and other pay related entitlements?
The Protection of Employees (Employers’ Insolvency) Act 1984 provides that employees may claim for arrears in pay, holiday pay, pay in lieu of statutory notice entitlements, and certain other employment related entitlements from an Insolvency Payment Scheme.
The scheme also covers awards made to employees for unfair dismissal, minimum wage, working time, discrimination, and certain unpaid pension and Prsa contributions.
These claims are generally made through the receiver or liquidator, depending on the circumstances, who processes them through the Insolvency Payments Section of the Department of Social Protection.
If the employer is unable to pay statutory redundancy payments the Redundancy Payments Scheme will pay out. This is a different scheme from the Insolvency Payments Scheme even though both are funded from the Social Insurance Fund.
Insolvency Payment Scheme
For an employer to be covered by the Insolvency Payment Scheme he must be insolvent as defined in the Protection of Employees (Employers’ Insolvency) Act 1984.
The 4 broad categories are
4. deceased insolvent employer
However an employer that ceases trading but does not go into official liquidation is not covered. The employer must become insolvent within the terms of the Act.
Payments Made Under the Scheme
There are limits in respect of payments for sick pay, holiday pay, pay in lieu of statutory notices, and arrears of pay. The maximum weekly rate is 600 euro per week with a maximum of 8 weeks.
Generally the Scheme only covers entitlements arising in the 18 months prior to insolvency or termination of employment.
The payments are taxable with PAYE and PRSI being deducted by the receiver or liquidator.
If a claim is disallowed the employee may make a claim to the Employment Appeals Tribunal. This appeal is supposed to be made within 6 weeks of the decision although the EAT can extend this at its discretion.
A payment made to an employee under the Insolvency Payments Scheme does not prevent an employee from making a claim to the Redundancy Payments Scheme.