Will I still get maternity pay if my company becomes insolvent?

Every new mother is legally entitled to take at least two weeks off after their baby has been born, but with the contractual maternity pay offered by many businesses becoming increasingly generous, many more mothers are taking up to one year. But what would happen if the company you work for becomes insolvent? Would you still be entitled to maternity pay? Read on for a full overview.

The different types of maternity pay

Before we discuss the situation following the insolvency of your company, it’s important to understand the different types of maternity pay you could be entitled to (see workingmums.co.uk’s guide for more information):

● Statutory Maternity Pay (SMP) – To qualify for statutory maternity pay, you must have worked for your employer for a continuous period of 26 weeks by your 25th week of pregnancy. You must have also earned an average of at least £116 a week in the eight weeks up to the 26th week of pregnancy. You can take statutory maternity leave for up to one year, but your employer only has to pay SMP for 39 weeks.

● Contractual Maternity Pay – Some employers will pay contractual maternity pay over and above what you receive in statutory maternity pay as a benefit of working there. You should check your employment contract or company maternity policy to find out what you will receive.

● Maternity Allowance – If you don’t qualify for statutory maternity pay, you may be able to receive maternity allowance, which is paid by the government rather than your employer. You’ll need to have worked for 26 of the last 66 weeks and have earned at least £30 a week for the last 13 weeks to qualify.

You can use this calculator to help you determine what maternity pay you’re entitled to.

What happens to maternity pay if the company becomes insolvent?

An insolvent business is one which can no longer afford to pay its bills when they become due. At this point, the company may not necessarily have been wound up, but it may not have the funds to pay its employees’ wages, maternity pay and other payments that are due. The stage of insolvency the company is at will have an impact on how you’ll receive your maternity pay.

If the business is approaching insolvency…

Until the week of the insolvency itself, it is the responsibility of your employer to pay all maternity payments. Once the company has formally entered insolvency, HMRC will cover the statutory maternity payments you are due.

In some cases, a company does not have the money to pay employees but is not yet formally insolvent i.e. it has not yet entered into a formal insolvency procedure, such as administration or liquidation. If your employer is not yet formally insolvent and refuses to make your statutory maternity payments, you should call HMRC’s Statutory Payments Disputes Team on 0191 225 5221.

If HMRC cannot help you resolve the situation, you will have no other choice but to wait for the company to enter insolvency. Once it does, you should request a claim form from the insolvency practitioner who takes control of the company.

If the insolvent business cannot be rescued and returned to profitability, the assets of the business will be sold to repay the creditors. You will become a ‘preferential creditor’ of the company. That means you will be paid before other categories of creditor, apart from secured creditors, who will be first in line to receive the money they are owed.

You will receive the money you are owed (statutory maternity pay and contractual maternity pay) from the sale of those assets. If the sale of the company assets does not generate enough money to repay the creditors in full, you will have to claim the money from the National Insurance Fund.

Unfortunately, contractual maternity pay is not listed as a principal debt under the National Insurance Fund. So, although you’ll be able to claim the statutory maternity pay you are owed, you will not receive the contractual maternity pay.

If the business has entered insolvency…

If the business has already entered formal insolvency, then the process should be much more clear-cut. In this case, HMRC will pay all the statutory maternity pay you are owed for the full legal term. However, it will not do so until the week of the insolvency itself. Before that date, all payments should come from the employer.

If you are also owed contractual maternity pay and the company is being closed down via an insolvent liquidation, you will again become a preferential creditor of the business. You will have to ask for a claim form from the insolvency practitioner. You will receive all, some or potentially none of the contractual maternity pay you are owed depending on the amount raised from the sale of the company’s assets and the sum owed to secured creditors.

*Simon Renshaw is an insolvency practitioner and director of AABRS, a company that provides a range of debt advice and rescue services for small and medium-sized businesses.

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