The Impact of Insolvency on Employee Wages and Benefits in Australia

Insolvency can significantly impact employees’ wages, entitlements, and employment conditions. The Insolvency Advisory Centre can help you understand the various laws and regulations in place to safeguard the rights of employees in the event of insolvency. Let’s explore the impact of insolvency on employee wages and benefits in Australia:

Unpaid Wages and Entitlements

When a company becomes insolvent, employees may face delays or non-payment of wages, including unpaid salaries, overtime, and accrued leave entitlements. In such situations, employees become unsecured creditors of the company, and their claims for unpaid wages rank alongside other unsecured debts in the distribution of assets during insolvency proceedings.

Entitlements under the Fair Entitlements Guarantee (FEG)

To address the issue of unpaid employee entitlements in insolvency situations, the Australian government operates the Fair Entitlements Guarantee (FEG) scheme. FEG provides financial assistance to eligible employees who have lost their jobs due to the insolvency of their employer. Under FEG, employees may be entitled to receive:

• Unpaid wages for up to 13 weeks.
• Unpaid annual leave and long service leave entitlements.
• Payment in lieu of notices of termination.

Priority of Employee Claims

In insolvency proceedings, employee claims for unpaid wages and entitlements are prioritised over certain unsecured debts. The Corporations Act 2001 (Cth) establishes a statutory priority scheme for the distribution of assets in liquidation, which generally prioritises employee claims for unpaid wages and entitlements ahead of unsecured creditors’ claims.

The Role of Insolvency Practitioners

Insolvency practitioners appointed to manage the insolvent company’s affairs have responsibilities regarding employee entitlements. These responsibilities may include:

• Assessing and verifying employee claims for unpaid wages and entitlements.
• Liaising with the FEG scheme administrator to facilitate payments to eligible employees.
• Providing information and assistance to employees regarding their rights and entitlements under insolvency laws.

Employee Redundancy Payments

Employees who are made redundant due to insolvency may be entitled to redundancy payments under the National Employment Standards (NES) or relevant enterprise agreements. Redundancy payments are calculated based on the employee’s length of service and other factors and are separate from unpaid wages and entitlements.

Impact of Insolvency and Employee Wages and Benefits

Insolvency can profoundly impact employee wages, entitlements, and job security. While the Fair Entitlements Guarantee scheme provides some protection for employees facing unpaid wages and entitlements in insolvency situations, employees need to understand their rights and entitlements under insolvency laws.

Our team at the Insolvency Advisory Centre can advise on legal and financial matters to help company directors and employees navigate the complexities of insolvency and ensure everyone receives their rightful entitlements under Australian law.