Insolvency Payment Scheme Frequently Asked Questions

Q1. What is the Insolvency Payments Scheme?

The Insolvency Payments Scheme is a scheme to protect entitlements of employees whose employer has become legally insolvent as defined in the Scheme. Under the Scheme, employees may claim - normally through the liquidator or receiver - arrears of pay, holiday pay, pay in lieu of statutory notice and various other entitlements that may be owed to them by their employer. Where a payment is made to an employee under the Scheme, his or her claim against the employer for that debt is transferred to the Minister for Enterprise, Trade and Innovation. All payments are made from the Social Insurance Fund, and certain conditions and limits apply to payments under the Scheme.

Q2. How does someone qualify for payment of entitlements under the Scheme

The Scheme applies to employees employed in Ireland in employment that is fully insurable for social insurance purposes (this covers most employees) and whose employer is insolvent as defined in the legislation under which the Scheme operates. (See Q4 for more details.) The Scheme also covers employees who would be fully insurable but for the fact that they have reached 66 years of age.

Q3. What entitlements are covered by the Scheme?

Apart from arrears of pay, holiday pay and pay in lieu of statutory notice, the Scheme covers a wide range of entitlements that might be owed to employees by the employer, including awards made to them under employment rights legislation covering such issues as unfair dismissal, discrimination, working time and the minimum wage. Certain unpaid pension scheme and personal retirement savings account (PRSA) contributions are also covered.

Q4. When is an employer insolvent as defined in the Scheme?

• An employer is insolvent for the purposes of the Insolvency Payments Scheme if:
• The business is in liquidation
• The business is in receivership
• The employer is legally bankrupt
• The employer has died and the estate is being administered under the relevant legislation
• The employer is insolvent under the legislation of another EU Member State.*

*Applies to insolvencies occurring on or after 8 October 2005

Q5. If a business shuts down without becoming legally insolvent as defined in the Insolvency Payments Scheme, can an employee obtain payments under the Scheme?

The Insolvency Payments Scheme does not cover such cases. For an employee to come within the Scheme, an employer must be legally insolvent under the legislation under which the Scheme operates. If a business shuts down without becoming legally insolvent as defined for the purposes of the Scheme, the employer is responsible for the payment of employees’ pay and other entitlements.

Q6. Are there any limits to the payments that may be made under the Scheme

Some limitations and conditions apply to payments made under the Scheme. All entitlements based on pay are limited to a maximum weekly rate which is revised periodically. The current limit where insolvencies occurred on or after 1 January 2005 is €600 per week. There is also a limit of eight weeks’ pay for arrears of pay, sick pay or holiday pay. In most cases, the Scheme covers entitlements relating to the period of eighteen months prior to the date of the insolvency of the employer or the termination of employment. In the case of an award made to an employee - for example, an unfair dismissal award – the eighteen-month period applies to the date of the award. An award may also have a date that is later than the date of insolvency.

Q7. Are payments under the Insolvency Payments Scheme taxed?

Payments under the Insolvency Payments Scheme are generally taxable. Tax and PRSI deductions are usually made by the liquidator or receiver.

Q8. How can entitlements be claimed?

Claims are made through the person legally appointed to wind up the business (normally the liquidator or receiver) and who will certify them from the records available, then send them to the Insolvency Payments Section of the Department of Enterprise, Trade and Innovation to be processed. When the claims have been processed, payments are made to the liquidator, receiver, etc., who will pay the employees concerned, having made any statutory tax or other deductions. Claims are made on forms available from the Department of Enterprise, Trade and Innovation or its website, but in many cases, the liquidator or receiver provides them.

Q9. How long does it take for a claim to be paid?

The Insolvency Payments Section aims to process claims that are valid and do not have to be clarified or queried within eighteen weeks of receiving them from a liquidator or receiver. However, this can vary, depending on the level of claims on hand at any particular time. This does not, of course, include the time it takes for a liquidator or receiver to collect, process and verify claims before sending them to the Department for payment, or to process and distribute payments received from the Department.

Q10. If a claim is refused, can a person appeal?

An employee who has submitted a claim for a payment under the Scheme in relation to arrears of pay, sick pay, holiday pay or outstanding occupational pension scheme or PRSA contributions and whose claim has been disallowed may appeal the decision to the Employment Appeals Tribunal. An appeal may also be made to the Tribunal if the employee considers that the payment made is less than the amount that should have been paid. Decisions concerning claims for unpaid pension contributions may also be appealed to the Tribunal. The appeal should be made within six weeks of the decision being communicated, though the Tribunal may extend the period in certain circumstances.

Q11. Who can answer queries about a claim?

The liquidator or receiver, who has access to the employer’s records and certifies the claim, would normally be able to answer queries about the amounts due to the employee. Other queries can be directed to the Insolvency Payments Section of the Department. General enquiries about the Insolvency Payments Scheme should be directed to Employment Rights Information Unit of the Department. Contact details for the Department may be found on the “Contacts” page.

Q12. How is the Insolvency Payments Scheme Funded?

Payments from the Insolvency Payments Scheme are made from the Social Insurance Fund, which also funds the Redundancy Payments Scheme. Where a payment is made to an employee under the Insolvency Payments Scheme, the employee’s claim against the insolvent employer for that entitlement is transferred to the Minister for Enterprise, Trade and Innovation. Any part of that claim that is recovered in the final winding-up of the business is paid back into the Social Insurance Fund.

Q13. Does a claim under the Insolvency Payments Scheme affect an employee’s statutory Redundancy entitlement?

No. The Redundancy Payments Scheme is quite separate from the Insolvency Payments Scheme and does not affect an employee’s statutory Redundancy entitlement.