End of employment, redundancy and insolvency of employer
Updated 10 December 2014
Words you may need to know
Redundancy - A person is made redundant when the job they are doing is no longer needed, or less hours are needed..
Insolvency - this is where a company is being wound up or the company has gone bankrupt. The company does not have enough money to pay its debts. It may however own things that can be sold and a qualified person called an insolvency practitioner or Liquidator is put in charge of the company's affairs to try and get as much money in as possible to settle their debts.
In lieu - instead of
Liquidator - this is someone who has been given the job of sorting out a company's affairs. They are often an accountant with knowledge of insolvency.
Creditor - someone owed money by a company or an individual
The Social Security Department has a leaflet called "If you lose your job, Social Security may be able to help you" which you can get from Citizens Advice Jersey or the Social Security Department.
Have you been dismissed or made redundant?
You need to be clear if you have been dismissed (this happens when the person leaves employment but the job stays) or made redundant. (When both the job and the person go)
The States approved in January 2011 the Employment [Amendment No 5] [Jersey] Law 2003 - which gives redundancy payments for employees who have at least 2 years' un- broken employment. The law allows an employee to claim one week's pay for every year that has been worked. This money is paid by the employer. The most you can get under the law is £670 per week which was set on the 1 October 2014 unless your contract of employment says your employer will give you more. The amount changes each year and is based on the reported weekly average earnings figure provided by the Statistic's Unit. For example; If you earn £350 per week and you have worked for more than 4 years, your redundancy pay will be £1,400
The Amendment also reduced the minimum notice periods that an employer had to give to employees to the same as in the UK. Your contract may say that more notice is required to be given so you must check it.
Do you have a contract of employment?
All employees should be given a contract of employment within 4 weeks of starting work or within 4 weeks of any changes made to a contract. This is sometimes called a Statement of Terms or Terms of Employment Statement. Sometimes the contact is between you and the employer, but sometimes the employer has agreed terms with a Union or Works Council. This is called a collective agreement. If you work for the Public sector or a big organisation, always ask if there are any collective agreements that apply to your job. There are also terms in a company handbook which might be contractual. That means it is as if they were in the contract itself.
Contracts given by UK-based firms may have redundancy clauses in them. Collective agreements may include the Jersey Hospitality Association, UNITE, NASUWT or similar unions.
When your employment ends you should check that the correct periods of notice have been given to you. Don't forget any holiday pay that might be due or if a week in hand was paid at the start of your employment. If you have taken more holiday than your contract or the law allows, some money may be kept back to cover that. The Jersey Advisory and Conciliation Service (JACS) on 730503 can check your details and advise you.
Registering with the Work Zone at the Social Security Department/ Contribution Credits
You should register as unemployed straight away. You will need to show that you are trying to get other work, so that social security contributions can be covered and your benefits protected.
Sometimes the Social Security Department will cover your contributions by giving you credits but these are only available if you have lost your job through redundancy from a full time post. If you were dismissed from your job, resigned or took a voluntary redundancy deal and do not find work straight away, you will be responsible for paying Social Security contributions from the time when you became unemployed. When you are not working contributions are based on your taxable earnings from two years ago.
As at November 2014, in order to have full contributions, the minimum you need to earn is £848 per month.
If you are self employed, class 2 contributions are £688.14 per month.
If you are having difficulty paying or need advice, talks to the Social Security Department.
Are you getting all the financial support you are entitled to?
You should check if you qualify for Income Support Benefit. Redundancy pay is treated as savings for the purposes of working out income support benefit. Pay given in lieu of notice and holiday pay received at the end of employment is treated as income.
Is redundancy pay treated as taxable income?
Actual Redundancy Pay which is based on years of service is taxed by the Tax Department if it is over £50,000.00.
See the following link;
Pay in lieu of notice
If an employee is entitled to notice [either under the law or in their contract] then they are entitled to be able to work out their notice unless the contract says otherwise. The employer may not want the employee to work out the notice and so may offer a payment in lieu (instead) of notice. This means that the employee can leave immediately and take other work if they want to.
There are four different types of notice:-
a] The employer gives proper notice to the employee, and tells them that they do not have to work their notice. They will then pay the employee their usual wages for the whole of the notice period. This might be in the form of a lump sum at the end of the notice period or a weekly/monthly wage until the end of the notice period. This payment is wages whichever way it is paid and there is therefore no breach of contract. When paid in this way it is often called garden leave and the person remains an employee of the company until the end of the notice period.Wages will have Social Security deducted and be taxed in the usual way.
b] The contract of employment allows for termination of the employment with a lump sum of pay in lieu instead of the employee having to work out his notice. If the employer dismisses the employee without allowing them to work their notice, there would be no breach of contract provided the employee was paid in lieu. This pay is payment for the notice period which the employee has been denied the right to work and it would have Social Security deducted and be taxable.
c] The employer and the employee together agree to end the employment on payment of a lump sum in lieu of notice, when the contract itself does not allow for pay in lieu of notice. Such an arrangement does not form part of the contract and the lump sum being paid is a termination payment and not any type of wage. You do not have to pay tax on this type of termination payment. It is often called an ex gratia payment.
d] The employer summarily dismisses the employee [that is, dismisses the employee with no notice] and pays the employee pay in lieu of notice. If this is done without the employee’s agreement, and if there is no term in the contract which allows for a payment in lieu of notice, this type of pay in lieu is deemed damages for breach of contract and is not taxed.
Insolvency of Employer-Monies due to employees
If an employee can't get all the money due under their contract of employment or under the law, the only thing they can do is to file their claim with the liquidator appointed by the shareholders/creditors to wind up the affairs of the company or the Viscount, if the employer has been declared "en desastre".
People who are owed money by a company or individual are paid out in order of priority ( there is a list of who gets paid first) Some money due to employees are judged to be priority claims such as wages not paid, holiday pay and bonuses but claims for notice pay, redundancy pay and unfair dismissal awards are not priority claims. The maximum amount payable under a priority to an employee where the business has gone en desastre is £3,500, for arrears of wages for up to 6 months before the company went en desastre, plus holiday pay and bonuses that were in the contract due to that date, up to a maximum of £1,000.
If more than that is owed, then the employee will have to make a claim in the same way that others will claim and join the list of people owed money. How much money they get back, will depend on how much money the Liquidator is able to get in to pay the creditors.
The States agreed an insolvency benefit scheme on 1 December, 2012, the details of which can be found here