Employment liabilities buyers must plan for
The single biggest hidden cost in a UK distressed acquisition. This is the honest employment cost model — TUPE reg 8 relief, consultation risk, redundancy budget and pension obligation — with the numbers spelled out.
TUPE reg 4 — every employee attached to the transferring undertaking moves on their existing terms.
Arrears + notice + 6wk holiday + pension conts → RPS pays. Everything else → the buyer.
Consultation failure = protective award of up to 13 weeks' actual pay. Uncapped, unfunded.
The reg 8 relief numbers (April 2024 onward)
- Arrears of pay: 8 weeks, capped £719/week = up to £5,752 per employee.
- Statutory notice: up to 12 weeks depending on service, same weekly cap.
- Holiday pay: 6 weeks max, same cap.
- Unpaid pension contributions: 12 months of employer contribution.
- Statutory redundancy pay: age-weighted, up to 20 years, £700/week cap = up to £21,000 per head.
Anything above these caps, or falling outside the categories, transfers to the buyer under reg 4.
Related
Frequently asked questions
What TUPE liabilities transfer to the buyer?
Everything not carved out by reg 8. That means: future salary, holiday accrued but not yet in-scope of the reg 8 cap, contractual bonuses, PILONs beyond statutory, discrimination claims, pension deficit obligations under s.257 Pensions Act 2004, and any post-transfer redundancy costs.
What does regulation 8 relieve?
In relevant insolvency proceedings, the Redundancy Payments Service pays: (a) arrears of pay up to 8 weeks (capped £719/week from Apr 2024), (b) statutory notice up to 12 weeks, (c) holiday pay for the last 12 months up to 6 weeks, (d) unpaid pension contributions up to 12 months.
How do I cost TUPE consultation failure?
Regulation 13 requires consultation with elected reps before transfer. Failure = protective award of up to 13 weeks' actual pay per affected employee, uncapped. On 50 staff averaging £35k, worst case = £876,923. This is why buyers demand an administrator consultation certificate.
Can I make redundancies at completion?
Only for an ETO (economic, technical or organisational) reason with a change in workforce (reg 7). Cost-cutting alone is not an ETO. Redundancies must be objectively justified and follow a fair process — TUPE-motivated redundancies within 6 months are almost always unfair.
What are statutory redundancy costs?
Statutory: 0.5–1.5 weeks' pay per year of service (age-tiered), capped £700/week from Apr 2024, max 20 years. Contractual enhancements above statutory are the buyer's problem — model these before offer. Add £3–5k per head for legal defence budget.
How does holiday pay work post-transfer?
Accrued but untaken holiday transfers under reg 4 (subject to reg 8's 6-week cap for pre-completion accrual). Post-completion accrual is the buyer's cost. UK holiday obligations are 5.6 weeks statutory including bank holidays — model at 12–14% of gross salary bill.
What about pensions?
Occupational scheme rights DON'T auto-transfer, but s.257–258 Pensions Act 2004 requires the buyer to offer a broadly equivalent alternative. If there's a DB scheme deficit, that stays with the old employer (usually). Auto-enrolment obligations DO transfer — you inherit the employer duty from day one.
Do employee claims for unpaid wages transfer?
Pre-completion arrears within the reg 8 cap → RPS. Above the cap → transfer to buyer. Undisclosed grievances (discrimination, whistleblowing) transfer in full under reg 4 — this is why an employment DD interview with the HR head matters more than payroll reconciliation.
How do I model TUPE cost end-to-end?
Formula: (headcount × avg salary × 8 weeks × 20% redundancy assumption) + (headcount × 3.5% employer NIC differential) + (holiday accrual liability at 8% of salary bill) + (consultation risk buffer at 5% headcount × 8 weeks). On 50 staff at £35k, budget ~£380k total exposure over 12 months.
Can I offer new contracts to TUPE employees?
Only where they are genuinely offered as an alternative (not a condition), for an ETO reason, and are objectively no worse. Harmonisation with your existing workforce is NOT an ETO. HMRC and tribunal case law (Regent Security v Power [2007]) block harmonisation for its own sake.