Redundancy pay in a company liquidation is not lost — employees can claim it from the government's Redundancy Payments Service (RPS), which steps in when an insolvent employer cannot pay. This covers statutory redundancy pay, unpaid wages, holiday pay and notice pay, up to set legal limits. For directors, understanding how the RPS works is the fastest way to reassure staff during a difficult period.
Liquidation ends a company's ability to trade and, in almost every case, ends employment too. But UK law has a specific safety net for exactly this situation, funded through the National Insurance Fund and administered by the Insolvency Service. Employees do not need to chase the company for money it no longer has.
This guide explains what happens to staff, what they can claim, how the caps work, how to apply, and what role a director plays in helping the process run smoothly.
What happens to employees when a company is liquidated
When a company enters liquidation, the liquidator's job is to close it down and deal with its assets — not to keep it trading. As a result, employees are usually made redundant, either immediately or shortly after the liquidator is appointed.
Employment contracts can end automatically when a company goes into compulsory liquidation (a court-ordered winding-up under the Insolvency Act 1986). In a creditors' voluntary liquidation, the liquidator typically dismisses staff soon after appointment, once it's clear the business will not continue.
- Employees stop being paid by the company from their dismissal date.
- They become preferential or unsecured creditors of the company for money owed to them.
- Most of what they're owed is recoverable separately through the RPS, regardless of whether the company has any funds left.
For a fuller picture of what happens on day one, see What Happens to Employees in a Liquidation?.
The Redundancy Payments Service (RPS) and what it covers
The RPS is a government service that pays certain debts owed to employees when their employer becomes insolvent and cannot pay them. It exists precisely so that redundancy pay in company liquidation does not depend on how much cash is left in the business.
The RPS pays out from the National Insurance Fund, then becomes a creditor of the company itself, recovering what it can through the liquidation process. Employees do not need to wait for that recovery — the RPS pays them directly first. Full guidance on eligibility and the claims process is available from the government's claim money owed by an insolvent employer service.
It covers a defined list of payments, all subject to statutory limits, rather than everything an employee might feel they're owed under their contract.
Redundancy pay in company liquidation: what employees can claim
Employees with sufficient qualifying service can typically claim several separate elements from the RPS. Each is calculated and capped differently.
- Statutory redundancy pay — for employees with at least two years' continuous service.
- Arrears of pay — unpaid wages owed before the company stopped paying, up to a set number of weeks.
- Holiday pay — accrued but untaken statutory holiday.
- Notice pay — payment in lieu of statutory (or contractual, up to limits) notice not worked.
- Unpaid pension contributions — in some cases, contributions the employer failed to pay into a workplace pension scheme.
Not every employee qualifies for every element — for example, redundancy pay depends on length of service, while arrears of pay may apply even to shorter-serving staff. For a breakdown by payment type, see What Are Employees Owed When a Company Closes?.
The statutory caps and how amounts are calculated
All RPS payments are capped. This is one of the most common sources of confusion for directors, because staff sometimes expect their full contractual entitlement rather than the statutory maximum.
How statutory redundancy pay is calculated
Statutory redundancy pay is based on three factors: age, length of continuous service (capped at 20 years), and weekly pay (capped at a government-set limit). The formula gives:
- Half a week's pay for each full year worked under age 22.
- One week's pay for each full year worked aged 22 to 40.
- One and a half weeks' pay for each full year worked aged 41 and over.
Because weekly pay is capped for this calculation, higher earners will not receive redundancy pay based on their full actual salary — only up to the statutory limit in place at the date of dismissal. The exact weekly pay cap is reviewed and can change each year, so it should always be checked using the government's redundancy pay calculator and current rates before quoting a figure to staff.
Caps on other payments
Arrears of pay, holiday pay and notice pay are each subject to their own weekly cap and maximum number of weeks covered. These limits mean the RPS is a safety net, not necessarily full replacement of every sum an employee might otherwise have been contractually owed.
Why the caps sometimes surprise long-serving or higher-paid staff
Employees who have worked for the company for many years, or who earn well above the capped weekly figure, often assume their payout will match their full salary and full length of service. In practice, the combination of the 20-year service cap and the weekly pay ceiling means the statutory maximum is lower than many expect. It's worth explaining this gently and early, rather than letting staff discover it only once a claim comes through.
How employees make an RPS claim (and the reference they need)
Once a company is formally insolvent — including in liquidation — the appointed insolvency practitioner or liquidator gives employees the information they need to claim, usually including the company's insolvency reference number.
- Employees claim online through the government's redundancy claim service.
- They'll need their employer's name, the insolvency reference, and details of their employment (start date, pay, hours).
- Claims for redundancy pay, arrears, holiday and notice pay can often be made together in one online form.
- The RPS assesses the claim against the company's records and statutory limits, then pays the employee directly.
Employees without a P45 or clear pay records can still claim, but the process may take a little longer while the RPS verifies details with the liquidator.
How long RPS payments take to come through
Timescales vary depending on how complete the company's records are and how quickly the liquidator can confirm employment details. A straightforward claim, with accurate records provided promptly by the liquidator, is often processed within a matter of weeks. More complex cases — missing paperwork, disputed dates, or a large number of claims at once — can take longer.
For a fuller explanation of realistic timescales and what can speed things up or slow them down, see RPS Redundancy Claim: How Long It Takes.
Employees can generally check the progress of a submitted claim online, and the RPS will contact them directly if further information is needed. Chasing repeatedly rarely speeds things up — the main factor is how quickly the liquidator can confirm the underlying employment records.
The director's role in supporting staff claims
Directors are not responsible for paying redundancy pay themselves in most liquidations, but they play an important practical role in helping staff get paid promptly.
- Keeping accurate, up-to-date payroll and HR records the liquidator can hand to employees.
- Communicating clearly and early with staff about what is happening and what they need to do.
- Cooperating fully with the liquidator, who needs employment data to confirm each employee's claim.
- Signposting staff to the government's official guidance on redundancy rights and entitlements rather than guessing at figures.
Clear, calm communication from a director — even when the news is difficult — tends to reduce staff anxiety and speeds up the claims process considerably.
Can directors themselves claim from the RPS?
In some circumstances, directors who were also employees of the company — for example, working under a genuine contract of employment and paid through PAYE — may be able to claim from the RPS in the same way as other staff. Eligibility depends on factors such as whether the director had an employment contract distinct from their role as an office-holder, and their level of control and shareholding in the company.
This is assessed case by case, and it is exactly the kind of question a regulated insolvency practitioner or employment solicitor can properly review, rather than something to assume either way.
Frequently asked questions
Who pays redundancy pay if there's no money left in the company?
The government's Redundancy Payments Service pays eligible employees directly from the National Insurance Fund. Employees do not need to wait for the company itself to have funds available.
What's the cap on redundancy pay in liquidation?
Statutory redundancy pay is capped by age-based multipliers, a maximum of 20 years' service, and a weekly pay limit set by the government, which is reviewed periodically. Check the current limit on gov.uk before relying on a specific figure.
Do employees need to do anything if they haven't received a P45?
No — a P45 is not essential to make a claim. The RPS can still process a claim using other employment details, though it may take a little longer to verify.
Can employees claim redundancy pay if they resign before the liquidation?
Generally, employees who resign voluntarily before being made redundant are not entitled to redundancy pay, since redundancy pay depends on being dismissed by reason of redundancy.
Is redundancy pay in liquidation the same as normal redundancy pay?
The calculation method is the same statutory formula used in any redundancy. The difference is who pays it — the RPS, rather than the employer directly — because the company cannot pay itself.
This article is general information, not legal, financial or insolvency advice, and directors should speak to a regulated specialist about their own circumstances.
If you'd like to talk through what liquidation means for your staff and your own position, Harbourfirst can introduce you to a regulated insolvency practitioner or solicitor — start an enquiry.