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Redundancy when a business stops trading

Published 04 February 2019

There is a lot of uncertainty when faced with redundancy and if a business is closing down an employee can be forgiven for thinking ‘where does that leave me?’

In such a situation an employee not only has to come terms with losing their job, but there will no doubt be an additional, and understandable, worry about if they will get paid.

There can be many different reasons that force a business to cease trading.

These are challenging financial times and a period of uncertainty for British industry and employers have to review products, consider different ways of working and also adapt to challenges posed by new technology in order to remain competitive.

It is something, which affects all business regardless of size or stature.

The UK’s largest supermarket Tesco recently announced that up to 9,000 jobs are at risk as it reportedly looks to ‘simplify’ the business (1)

And according to a survey carried out by the British Retail Consortium 70,000 retail jobs were lost in the final months of 2018 and nearly a third of retail businesses plan to shed staff in the coming months (2)

While bigger businesses can often absorb such large scale job losses, restructure and then carry on, it is not always possible to do so.

There can be a number of circumstances in which a genuine redundancy situation occurs when a business, or a part of it, closes. This includes situations where the business has become insolvent or gone bust, or when another company takes over and in restructuring shuts a part of the business  

If an employer does cease trading employees can often be left in limbo, not get paid all money owed and be left out of pocket.

In such a situation an employee will normally be made redundant. If the company is insolvent there is unlikely to be enough money to make redundancy payments.

If this is the case then workers can apply to the National Insurance Fund (3) for any money owed, but they may not get everything that they are owed.

Special arrangements are in place to make sure that an employee will at least receive a basic minimum of the debts owed from the National Insurance Fund.

The Department for the Economy's Redundancy Payments Service (RPS) is responsible for paying the following claims:

  • redundancy pay
  • wages (including protective awards)
  • holiday pay
  • notice pay
  • basic award for unfair dismissal
  • unpaid pension contributions

If a new owner takes over a business it is likely to be a time of transition. They will usually have new and different ideas about how to run it, and about how to make it profitable.

This may mean reviewing how the business was run previously, and closing any part of it considered to be underperforming.

If this is the case, and an employee is informed that they are surplus to requirements, the individual could be entitled to a redundancy payment.

Any member of staff who has worked for an employer continuously for two years is entitled to redundancy pay. The amount that will be paid will depend on the employee’s age and length of service.

Redundancy pay is calculated using an employee’s earnings before tax (gross pay) (4

An employer must pay those who are eligible for redundancy:

  • half a week’s pay for each full year of work before your 22nd birthday
  • 1 week’s pay for each full year of work from your 22nd birthday (up to 41)
  • 1.5 weeks’ pay for each full year of work from your 41st birthday onwards

The government provides a redundancy calculator to help employees work out the statutory redundancy payment they are entitled to (5)

An employee does have rights if a business is closing and in such situations employers are required to treat employees fairly and follow the correct process. ACAS provide guidance for employers on how to conduct a fair redundancy process (6)


1 Tesco confirms job cuts [Internet] [Cited 4th February 2019]

2 John Lewis [Internet] [Cited 4th February 2019]

3 National insurance fund [Internet] [Cited 4th February 2019]

4 Redundancy pay calculation [Internet] [Cited 4th February 2019]

5 Redundancy calculator [Internet] [Cited 4th February 2019]

6 Acas redundancy guide [Internet] [Cited 4th February 2019


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For free employment law advice or if you are affected or want information and support by any of the issues in this article please give us a call. 0333 772 0611

A reputation built on success

For employment law advice or if you are affected or want information and support by any of the issues in this article please give us a call. 


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