When an AI start-up or automated business goes bust owing you pay: UK rules

Start-ups built around AI products can grow fast and fail fast, and businesses that automate heavily can still run out of money. When an employer becomes insolvent and staff are owed wages, notice pay, holiday pay or redundancy pay, the Employment Rights Act 1996 lets employees in Great Britain claim certain debts from the Secretary of State, paid out of the National Insurance Fund. This page sets out what the Act covers and its limits.

The short answer: if the employer has become insolvent in the statutory sense and the employment has ended, the employee can apply in writing for certain debts: up to eight weeks' arrears of pay, statutory notice pay, up to six weeks' holiday pay from the last twelve months, a basic award for unfair dismissal and some apprentice fees (ss182 and 184). Amounts tied to a period of time are capped per week (s186). Statutory redundancy pay is claimed under a separate route (ss166 and 167).

When the employer counts as insolvent

The Secretary of State pays if satisfied, on a written application by the employee, that the employer has become insolvent, the employment has ended, and on the appropriate date the employee was entitled to be paid a debt covered by this Part (s182). Insolvency has a defined meaning. For a company it includes a winding up order or a resolution for voluntary winding up, administration, the appointment of a receiver or (in England and Wales) a manager, possession taken by floating charge holders, or an approved company voluntary arrangement (s183(3)). There are separate tests for individuals, limited liability partnerships and other employers (s183(1), (2) and (4)). A business that has simply stopped trading, without any of these events, may not meet the test.

Debts covered

• Arrears of pay: for one or more weeks, but not more than eight (s184(1)(a)). Guarantee payments, paid time off under Part VI, remuneration on medical or maternity suspension, paid time off for trade union duties and remuneration under a protective award count as arrears of pay (s184(2)).
• Notice pay: the amount the employer is liable to pay for the statutory notice period, or for failing to give it (s184(1)(b)). See statutory notice periods.
• Holiday pay: for holidays not exceeding six weeks in all, to which the employee became entitled in the twelve months ending with the appropriate date (s184(1)(c)). Holiday pay covers pay for holiday taken and accrued holiday pay that would have become payable under the contract (s184(3)).
• Basic award: any basic award of compensation for unfair dismissal (s184(1)(d)).
• Apprentices: a reasonable sum to reimburse a fee or premium paid by an apprentice or articled clerk (s184(1)(e)).

The appropriate date is the date the employer became insolvent for arrears and holiday pay; the latest of the insolvency date, the termination date and the award date for a basic award or a protective award; and the later of the insolvency date and the termination date for other debts (s185).

The weekly cap

Where a debt is referable to a period of time, the total paid cannot exceed a set amount for any one week, or a proportionate amount for a shorter period (s186(1)). The text on legislation.gov.uk gave £751 when this page was written. The figure is normally changed each year, so check the current amount. For how a week's pay is worked out for other rights, see a week's pay.

Statutory redundancy pay

If the employer is liable to make a statutory redundancy payment and is insolvent, with the whole or part unpaid, the employee may apply to the Secretary of State (s166(1)(b)). The same route applies where the employee has taken all reasonable steps, other than legal proceedings, to recover the payment and the employer has refused or failed to pay (s166(1)(a)). If the requirements are met, the Secretary of State pays out of the National Insurance Fund, less anything the employer has already paid, and takes over the employee's rights against the employer for the amount paid (s167(1) and (3)). For entitlement and the amount, see statutory redundancy pay.

If the payment is refused or too low

A person who has applied can complain to an employment tribunal that the Secretary of State has failed to pay or paid less than should have been paid (s188(1)). The text on legislation.gov.uk now gives six months from the date the decision was communicated, with a further reasonable period where it was not reasonably practicable to complain in time (s188(2)). That period was changed from three months on 1 October 2026 with transitional provisions, so check which period applies (SI 2026/954, regs 3 and 4). If the complaint succeeds, the tribunal declares that a payment should be made and its amount (s188(3)).

Practical steps

• Employees: keep your contract, payslips, holiday records and any letter ending your employment. Find out who has been appointed to deal with the insolvency, and apply in writing for the debts listed above.
• Directors and founders: keep payroll, holiday and contract records accessible, including any held in HR or payroll software that may be switched off when subscriptions lapse. Staff and the insolvency practitioner will need them to establish what is owed.

These provisions extend to England, Wales and Scotland. This page is general information on the law in Great Britain as at 1 November 2026, not legal advice.