My company cannot pay staff wages
Not being able to pay your staff is one of the clearest and most distressing signs that a company is in serious trouble, and it carries specific risks for directors. At the same time, employees have strong protections: if the company becomes insolvent, staff can claim unpaid wages, holiday pay, notice pay and redundancy from the government-backed Redundancy Payments Service, within statutory caps. Insolvency Service; gov.uk
- What it signals
- A serious sign the company may be insolvent
- Director risk
- Trading on while unable to pay deepens exposure
- Staff protection
- Wages, holiday, notice and redundancy claimable from the RPS
- What to do
- Take advice immediately, do not just carry on
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Act now, and the staff are protected
Employees are preferential creditors for certain amounts, and continuing to take on work or deductions while knowing you cannot pay wages can deepen insolvency and increase your personal exposure to wrongful trading claims. If you cannot pay wages this month, do not simply carry on hoping: apply the insolvency tests honestly and take advice from a Licensed Insolvency Practitioner straight away. Missing payroll is not the catastrophe for staff that directors often fear, provided the company is dealt with properly through a formal insolvency. If the company is wound up, employees, including director-employees, can claim from the Redundancy Payments Service, so a proper process protects them. See director redundancy for your own potential claim.
The order things go wrong in, and what employees are entitled to
Missing payroll is not simply a late payment; it changes your relationship with a preferential class of creditor. Unpaid wages, holiday pay and pension contributions rank ahead of ordinary unsecured creditors in an insolvency, within statutory limits, and where the company cannot pay them the Redundancy Payments Service can meet certain claims from the National Insurance Fund once a formal procedure is under way. That last point matters for timing: employees are often better served by a properly conducted procedure than by a company continuing to trade while unable to pay them. Practically, tell staff before the payment fails rather than after, keep PAYE and pension obligations visible rather than quietly unpaid, and take advice the same week, because a business that has missed one payroll rarely makes the next one without something changing.
Common questions
What happens to staff if I cannot pay wages?
If the company enters a formal insolvency, employees can claim from the Redundancy Payments Service within statutory limits. A proper process is how those protections are triggered, which is why employees are often better served by a properly conducted procedure than by a company trading on while unable to pay them.
Can I claim as a director-employee?
Often yes. If the company is wound up, director-employees can claim from the Redundancy Payments Service as well. See director redundancy for how to check your own potential claim.