Usually, if a company has entered insolvency, all the employees are immediately let go. This can be a difficult time for employees that didn’t know this was coming. Employees can file claims against the company for lost wages, vacation and holiday pay, unpaid wages and more. There is a certain amount of proof that needs to be gathered before employees make these claims. Understanding employee debt preferences can help both business owners as well as employees to understand their rights when a company has become insolvent. Principle Insolvency is here to talk about what employee debt preferences are and when or if they can expect to get paid.
What Are Employee Debt Preferences?
If an employee finds themselves working with an insolvent employer, it is important that they understand they may be able to claim money that is owed to them. Sometimes, there are monies that are owed to employees that take preference over creditors. The preferences owed to employees are laid out in the Companies Act 1993 and Insolvency Act 2006. They include:
– Wages or Salary: If there are any wages that were earned by the employees four months before the company went into liquidation or insolvency, the employee has a right to that money.
– Donations: When a donation has been deducted from the employees pay but hasn’t been transferred by the employed, this is another example of a debt preference.
– Holiday Pay: Some jobs provide holiday pay for employees. This must also be paid at the time of termination.
– Redundant: Sometimes there are monies that have been made redundant by the company’s failure and will be required to be paid to the employee.
– Child Support & Student Loan Payments: Some employers may owe their employees child support or student loan payments. Another example of debt preference.
– Reimbursements & Awards: If an employee has earned any reimbursements or awards from their employer during that four month period leading up to liquidation, they are due to the employee.
– KiwiSaver Payments: There may be KiwiSaver payments or superannuation that could apply to any of the above.
Some Employee Debts Are Not Given Preference
It is important to understand that not all employee debts are given preference like the situations listed above. Knowing what these are can help employees plan financially moving forward. Another important thing to remember is that employees are only allowed to claim on a preferential basis up to $31,820. Anything above that won’t be paid on a preferential basis. Debts that aren’t given preference include:
– Salary earned prior to the four month window before liquidation
– Wages and salary earned after the business was placed in liquidation
– Bonuses, commissions or financial incentives
Insolvency Services in Auckland, Hamilton, Levin & New Zealand Wide
If you are a business owner and you know your company is in trouble, you can turn to Principle Insolvency to help you know what your next step is. We will help you understand all your options. Call us today!