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Insolvency: Don’t let slack record-keeping compound your employees’ woes

Lauren Auburn

Accurate and up to date payroll records save time and redundancy heartache for employees should a business succumb to insolvency. Lauren Auburn, director at BRI in Northampton, explains.

When a business ceases trading due to insolvency, there will usually be no funds with which to pay redundancy compensation to its employees. In such circumstances, the Redundancy Payments Service is responsible for assessing claims from the affected employees and meeting redundancy costs from the public purse.

Clearly, entitlement to redundancy, holiday pay and wages arrears will vary between claimants depending on factors such as length of service and salary. Therefore the RPS must have access to reliable, up-to-date payroll information when assessing claims in order to ensure that the correct compensation is paid.

In a formal insolvency process such as liquidation or bankruptcy, the appointed insolvency practitioner is responsible for providing RPS with the necessary details having verified payroll information provided by the insolvency party using the trading records. If the information has been maintained properly, the process is relatively straightforward. However, businesses have differing standards when it comes to recording transactions in a thorough and timely manner.

Incomplete, out-of-date personnel records can present significant problems. As RPS cannot blindly accept any claim that it receives, the claimant will not receive their compensation without this verification.

The rejection of claims by the RPS can result in disgruntled employees directing their grievances at the insolvency practitioner. Of course, these complaints would be more appropriately aimed at the employer who had failed to record their untaken holiday allowance or overdue commission payments.

While trading is healthy, it may be tempting for a small business to neglect aspects of routine record-keeping, relying, for example, on staff to maintain a private tally of their ongoing holiday allowance. Unfortunately, if that business later enters into an insolvency process, these slack habits can have a detrimental impact on employees already reeling from their dismissal.

For obvious reasons, an insolvency practitioner cannot verify untaken holiday information using handwritten notes in a redundant employee’s personal diary. And if this is the only available record, the employee’s claim will ultimately be rejected.

In short, the trading records of a business are the only tool with which to assure RPS that the taxpayer is funding no more and no less of what the employee is legally entitled to.

  • If you have concerns over the solvency of your business and the potential effect on your employees, contact BRI Business Recovery and Insolvency for a free consultation.