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These are tough times. There is no doubt about it. Sadly some businesses may not survive them. This is especially true of businesses that were experiencing financial difficulties prior to the coronavirus pandemic. So what happens if your employer closed? How do you get your entitlements? Keep reading to find out.

Business liquidation

In many cases, a struggling business falls behind on its financial obligations. What begins with a few late payments quickly spirals out of control. As profits continue to decrease and debts keep increasing, the business gets to a point where it is no longer sustainable. When this happens and the business can no longer pay its debts, it may be ordered to go into liquidation or administration. Liquidation may also be done voluntarily.

Whether liquidation is done voluntarily or otherwise, employees are among the first and hardest hit. They are confronted not only by the loss of their jobs, but the prospect of going unpaid for work they have already done.

The Fair Entitlements Guarantee

Even if this happened to you, all is not necessarily lost. This is because you may be able to get relief through a federal government program called the Fair Entitlements Guarantee (FEG).

As long as you are eligible, you may be able to recoup:

  • Unpaid wages for a maximum of 13 weeks
  • Annual leave and long-service leave
  • Payment in lieu of notice for a maximum of  five weeks
  • Redundancy pay for a maximum of four weeks per year of service, or on a  pro-rata basis for less than one year of service as long as your contract (or governing instrument) allows it.

However, there are some types of pay and benefits you cannot recover through this program. These include superannuation, reimbursement payments, or one-time or irregular payments. Furthermore, you cannot recoup any bonus payments, one-time commissions or intermittent commissions.

Eligibility for FEG

Your eligibility for making claims through FEG is based on meeting the following criteria:

  • Your employer owes you outstanding pay or other entitlements.
  • You are an Australian citizen, or you hold a permanent visa or special category visa that allowed you to work in Australia at the time of termination.
  • You make a claim within 12 months of the date that you lost your job, or the date your employer went bankrupt or entered liquidation.
  • Your job loss stemmed from the employer’s liquidation or bankruptcy, or your job loss occurred less than six months prior to the liquidation or bankruptcy.

Who is ineligible?

You cannot make claims for entitlements through the FEG if you are:

  • Contractors (with possible exceptions)
  • A company director
  • A company director’s relative, if the director held his or her title within a year of the company going into liquidation

More often than not,  you will also be ineligible to make a claim for entitlements through the FEG  if:

  • You were employed for no more than six months
  • You were a contractor with the employer prior to that time

The FEG claim process

To be valid your claim must be made within 12 months of the employment ending or the liquidation. You can make claims through FEG Online Services. As part of this process, you must submit certain material along with an application. This includes evidence of your citizenship status. You may also have to provide additional supporting material such as:

  • Your employment contract
  • Payslips
  • PAYG summaries
  • Bank statements
  • Evidence of wage/salary rates
  • Letters of termination

If you prefer, you can fill out the claim form and sending it (along with supporting documents) to the Department of Employment by mail, email or fax.

Securing funds from the liquidation

There is another way you may be able to secure the money that your employer owes you. This is because you have a right to receive outstanding entitlements in the event of liquidation in certain circumstances. Specifically, you have this right as long as there is money left over after liquidation costs are paid.   That being the case, you could receive these payouts in the following order:

  • Unpaid wages and superannuation
  • Any unpaid leave of absence
  • Redundancy pay

In other words, unpaid and superannuation must be paid in full first. Only then can the unpaid leave of absence amounts be paid, and so on. If there aren’t enough funds, funds, each payment category is paid on an adjusted basis. Any remaining categories will not be paid.

To claim funds from the liquidation, you must give the liquidator “proof of debt” when asked.  This helps prove you are entitled to unpaid wages,  superannuation, or other entitlement. Liquidators will advise you if there should be enough funds to cover the entitlements.

Effects on your FEG claim

In this context, you should be aware that receiving funds from liquidation can influence your FEG claim. Specifically, it could result in a reduction in your FEG advance or payout if:

  • there is reason to believe there will be enough money to pay your  entitlements within 112 days of you making an FEG claim; or
  •  there is reason to believe there will be sufficient funds to pay your entitlements with 112 days from the date of liquidation  (whichever date is later).

If you need advice about which option to pursue, or you have any other questions or concerns about employment law, we are here to help. Contact Law By Dan to set up an appointment, today.