Q&As

Does holiday pay rank as an expense of administration for furloughed employees?

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Produced in partnership with Eleanor Stephens
Published on LexisPSL on 13/05/2020

The following Restructuring & Insolvency Q&A produced in partnership with Eleanor Stephens provides comprehensive and up to date legal information covering:

  • Does holiday pay rank as an expense of administration for furloughed employees?

Does holiday pay rank as an expense of administration for furloughed employees?

The first thing to consider is what is the usual position for employees in an administration, outside of the Job Retention Scheme (JRS)?

Paragraph 99 of Schedule B1 to the Insolvency Act 1986 (IA 1986), provides that salary payments under contracts of employment ‘adopted’ by the administrators are given super-priority in an administration, ranking before expenses and secured creditors. IA 1986, Sch B1, para 99(6), defines ‘wages or salary’ as including holiday pay or sums paid in lieu of holiday pay. See Practice Note: The 14-day rule and adoption of employment contracts in administration and administrative receivership.

The decision as to whether to adopt employee contracts is ordinarily made during a 14-day grace period after appointment, after which salary and wages under adopted contracts will rank as an expense of the administration (see below). Alternatively, administrators have the ability to make such staff redundant.

If employees are made redundant, they fall under the usual administration rules ie they rank as unsecured creditors except to the extent that some of their claim is preferential. For more information see Practice Note: How a company's insolvency affects its employees. Employees may also be able to make a partial recovery from the National Insurance Fund.

The question, then, is whether administrators are deemed to be ‘adopting’ staff by applying for or

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