What happens if my employer can't pay?

This is usually only a problem when the company you work for is on the verge or is actually bankrupt.

The legal term for this is insolvency.  Insolvency happens when an employer has no money to pay the people they owe in full and they have to make special arrangements to try to meet these debts.

It may be that your employer wants to end your employment but can't pay or compensate you because they are insolvent.

There are different names for different types of insolvency, and for the people who handle them.

If your employer is a company, or a limited liability partnership, insolvency means one of the following:

• administration
• liquidation
• receivership
• voluntary arrangement with creditors

It is not an insolvency if your employer stops trading without one of the above happening, or a company is struck off the register of companies (dissolved).

If your employer is going through insolvency, you may be able to claim the money you are owed from the Insolvency Practitioner.  Work out what you believe you are owed first - and act quick.

Insolvency practitioners

Usually someone called an ‘insolvency practitioner’ or ‘official receiver’ is appointed to deal with the insolvency. They will be in charge of the case and could act as one of the following:

• administrator
• liquidator
• receiver
• supervisor (of a voluntary arrangement)
• trustee (in bankruptcy)

What you can claim

You can claim for all your outstanding pay from the insolvency practitioner. There is no guarantee that the full amount you are owed will be paid as this depends on whether enough funds are raised from the sale of your employer’s assets.

Some debts, including holiday pay and wages, will be 'preferential debt' when your employer’s assets are shared out. This means they must be paid before certain other debts.

As full payment cannot be guaranteed, there are special arrangements for employees to claim the basic minimum of debts owed to them from the National Insurance Fund. These claims are:

• redundancy
• wages - up to a maximum of eight weeks
• holiday pay - up to a maximum of six weeks
• compensatory notice pay - one week after one calendar month's service rising to one week per year of service up to a maximum of 12 weeks (new earnings will be taken into account)

There is a limit of £380 a week (£400 a week from 1 February 2011) on the amount you can claim for your weekly pay.

What to do next

If the business you work for has closed, you need to find out if your employer is insolvent or just in difficulty. Companies House holds trading details on its register of companies, and you can get information on people who are declared bankrupt from the Insolvency Service.  Link here to Companies House website.