When a company experiences serious financial difficulties or goes into liquidation, employees may understandably be concerned about what happens to their unpaid wages and other employment entitlements.
What happens if your employer cannot pay your outstanding wages? What about unused annual leave, notice or redundancy pay?
A company going into liquidation does not necessarily mean that employees automatically lose their outstanding employment entitlements. Depending on the circumstances and the employee’s eligibility, there may be options available to recover some unpaid entitlements.
What entitlements may be owed to employees?
When employment ends because an employer becomes insolvent, employees may have outstanding entitlements such as:
- unpaid wages;
- accrued annual leave;
- eligible long service leave;
- payment in lieu of notice; and
- redundancy pay, where applicable.
The entitlements available will depend on the employee’s individual circumstances, including their employment contract, any applicable award or enterprise agreement, length of service and relevant employment laws.
The fact that a company has stopped trading does not necessarily mean that these outstanding entitlements disappear.
What if the company cannot afford to pay?
Where an employer has entered liquidation or bankruptcy and does not have sufficient funds to pay employee entitlements, eligible employees may be able to seek assistance through the Australian Government’s Fair Entitlements Guarantee (FEG).
FEG is a government scheme designed to provide financial assistance for certain unpaid employment entitlements where an employee loses their job because their employer has entered liquidation or bankruptcy.
Depending on eligibility, FEG may cover:
- up to 13 weeks of unpaid wages;
- unpaid annual leave;
- long service leave;
- up to 5 weeks of payment in lieu of notice; and
- redundancy pay of up to 4 weeks for each full year of service.
However, FEG does not guarantee payment of every amount owed to every employee. Eligibility requirements apply, and the amount that can be recovered may also be subject to statutory limits.
What about unpaid superannuation?
Importantly, unpaid superannuation is not covered by FEG.
If an employer has failed to make required superannuation contributions, employees may need to pursue this separately, including by reporting unpaid superannuation to the Australian Taxation Office (ATO).
This means that where an employee is owed wages, leave, redundancy entitlements and superannuation, different processes may apply to different types of outstanding amounts.
Can every employee claim under FEG?
Not necessarily.
Eligibility for FEG depends on a number of factors, including the circumstances in which the employer entered liquidation or bankruptcy, how the employee’s employment ended and whether the employee satisfies the relevant eligibility requirements.
For example, independent contractors are generally not covered by FEG in the same way as employees. Different rules may also apply to certain categories of employees.
There are also time limits for making a FEG claim. Employees should therefore consider their position promptly rather than assuming there is nothing they can do once the employer has ceased trading.
What if you are not eligible for FEG?
Being ineligible for FEG does not necessarily mean that there are no other options available.
Employees may be able to lodge a claim for amounts owed to them with the liquidator as part of the company’s liquidation process.
The appropriate course of action, the amounts that may be claimed and the prospects of recovery will depend on the circumstances, including the company’s financial position and the nature of the employee’s outstanding entitlements.
Has your employer gone into liquidation?
When an employer experiences financial difficulties or enters liquidation, employees may face several issues at the same time, including unpaid wages, leave entitlements, redundancy pay and superannuation.
Different types of entitlements may be subject to different rules and recovery processes, and FEG has specific eligibility requirements and time limits.
Obtaining advice at an early stage can help you understand what you may be entitled to and what steps may be available to protect your position.
If your employer has stopped trading, entered liquidation or failed to pay your employment entitlements, contact our team to discuss your circumstances and the options that may be available to you.