Employee Rights Explained: What Happens When a Company Goes into Administration

A Practical Guide to Your Rights and What to Do Next

Finding out that your employer has gone into administration can be unsettling. Employees are often left with urgent questions about whether they still have a job, whether they will be paid, and what rights they have if the business closes or is sold.

This guide explains what administration means for employees, what steps you should take, and what you may be entitled to if your employer is insolvent.

What Does It Mean When a Company Goes into Administration?

When a company enters administration, it means it is insolvent and unable to pay its debts as they fall due. A licensed insolvency practitioner, known as an administrator, is appointed to take control of the business from the directors.

The administrator’s role is to:

• Try to rescue the company as a going concern
• Achieve a better outcome for creditors than immediate closure would allow
• Or, if rescue is not possible, manage the orderly wind-down of the business

For employees, it is important to understand that administration does not automatically end your employment. Your contract continues unless and until you are formally dismissed. However, administrators may need to make quick decisions about staffing levels, particularly where the business cannot afford to keep paying wages.

Does Employment Continue During Administration?

Yes, in most cases, employment continues initially.

Until you are told otherwise, you remain an employee, and your existing terms and conditions remain in place. This includes your contractual pay, hours, holiday entitlement and notice period.

That said, administration often brings uncertainty. Some employees may be asked to continue working while the administrator assesses the viability of the business, while others may be placed at immediate risk of redundancy.

Clear communication does not always happen straight away, so it is sensible to seek clarification as early as possible.

What Is ‘Adoption’ of an Employment Contract?

A key concept during administration is whether your employment contract has been “adopted” by the administrator.

If an administrator allows you to continue working for more than 14 days after the start of administration, your contract is generally treated as adopted. This means the administrator becomes personally responsible for paying your wages and certain employment liabilities arising after that point.

Adoption can provide reassurance that ongoing wages will be paid, but it does not guarantee long-term job security. Even an adopted contract can later be terminated if redundancies become necessary.

If the administrator decides not to adopt contracts, employees may be dismissed within the first 14 days to limit financial exposure. In these situations, employees may still have redundancy and notice pay rights, but these are often claimed through the government rather than paid directly by the employer.

If you are unsure whether your contract has been adopted, you are entitled to ask the administrator for confirmation.

What Should Employees Do If Their Employer Goes into Administration?

If you are told that your company has entered administration, there are several practical steps you should take.

Seek written confirmation

Ask for confirmation that the company is in administration and request the administrator’s contact details. This information is essential if you later need to make a claim.

Clarify your employment status

Find out whether you are expected to continue working, whether your role is at risk of redundancy, and how you will be paid. If this information is unclear, ask for clarification in writing.

Continue working if instructed

If you are told to continue working, you should generally do so unless there is a genuine reason not to, such as health and safety concerns. Continuing to work may help protect your entitlement to wages.

Keep detailed records

Retain copies of your contract, payslips, rotas, holiday records and any correspondence relating to the administration. These documents may be needed if you later claim unpaid wages or redundancy pay.

Can You Be Made Redundant During Administration?

Yes. If the administrator decides that your role is no longer required, you may be made redundant.

Even during insolvency, employers are expected to follow fair redundancy procedures as far as possible. This usually includes informing you that your role is at risk, consulting with you and confirming your notice entitlement.

In practice, consultation periods may be shorter due to financial pressures, but employees still have the right to fair treatment. A failure to follow a fair process may give rise to an unfair dismissal claim, although recovery can be limited if the employer has no funds.

What Notice Are You Entitled To?

You are entitled to either your contractual notice period or statutory notice, whichever is greater.

Statutory notice is:

• One week if you have worked for between one month and two years
• One week per year of service, up to a maximum of 12 weeks, if you have worked for two years or more

If your employer cannot afford to pay notice pay, you may be able to claim it through the government.

How to Claim Redundancy Pay and Other Entitlements if Your Employer Is Insolvent

If your employer is unable to pay what you are owed, you can apply to the Redundancy Payments Service, which pays certain employee entitlements from the National Insurance Fund.

You may be able to claim:

• Up to 8 weeks of unpaid wages
• Up to 6 weeks of accrued but untaken holiday pay
• Statutory notice pay
• Statutory redundancy pay, if you have at least two years’ continuous service

All payments are subject to a weekly cap set by the government.

Claims must usually be submitted within strict time limits, and you will normally need a reference number from the administrator. If you do not receive this, you should request it.

Any sums owed above the statutory limits may still be claimed from the employer, but these claims rank as unsecured debts and are often only partially recovered, if at all.

What Happens If the Business Is Sold?

In some cases, a business in administration is sold to a new owner.

If this happens, your employment may transfer to the new employer under TUPE regulations (Transfer of Undertakings (Protection of Employment)). Where TUPE protection applies, your continuity of employment and existing terms and conditions usually transfer with you.

There are special rules around TUPE where insolvency is involved, and changes to terms may be possible in limited circumstances. Employees should seek advice if they are unsure whether TUPE applies to their situation.

What About Pensions?

Administration does not automatically end pension schemes. However, contributions may be affected if the employer cannot continue paying into the scheme.

You should check with HR, the administrator or your pension provider to understand how your pension will be handled and whether any action is required on your part.

Michelle Shore, consultant solicitor in our employment law team, explains:

“If the employment is transferred via TUPE, rights in relation to occupational pension schemes will not transfer.  However, the transferee (the new employer) has an obligation to provide employees with access to pension benefits, albeit not necessarily identical to those they had previously benefited from.

When Should You Seek Legal Advice?

Often claims can be made without an employment solicitor; however, you may wish to seek legal advice if:

• You believe you have been unfairly dismissed
• You are owed significant sums beyond statutory limits
• There is a dispute about your length of service or employment status
• You believe TUPE should apply, but has not been properly considered

Early advice can help you understand your options and avoid missing important deadlines.

Key Takeaways for Employees

• Administration does not automatically end your employment
• You should clarify your status and pay arrangements as early as possible
• Redundancy rights still apply, even during insolvency
• Unpaid wages, notice and redundancy pay may be claimed through the government
  Legal advice may be appropriate in more complex cases

Michelle adds:

“Hearing that your employer is going through insolvency can be incredibly unsettling, but it’s important to know that your employment does not automatically end when a company enters administration. Until you are formally dismissed, your contract and employment rights usually continue.

“Employees should seek clarity as early as possible about whether they are expected to continue working and how they will be paid, and keep careful records of hours worked, pay and any communications. If redundancies do follow, workers may still be entitled to notice pay, redundancy pay and unpaid wages, which in many cases can be claimed through the government if the employer cannot afford to pay. Acting promptly and understanding your rights can make a significant difference during an uncertain time.”

References 

https://www.gov.uk/claim-redundancy 

https://www.gov.uk/transfers-takeovers