Claims from workers seeking unpaid wages have reached their highest level in eight years as rising insolvencies leave growing numbers of employees out of pocket, according to new figures obtained from the Insolvency Service.
More than £57 million was paid out to employees for unpaid wages during 2025/26, the highest total recorded over the past eight years. Payments covering pension entitlements also reached an eight-year high at £29 million.
The data, obtained under the Freedom of Information Act by law firm Nockolds, reflect mounting financial pressure across UK businesses as high borrowing costs, inflation and weak economic growth continue to strain employers. In total, the Insolvency Service paid out £472 million to employees of businesses in liquidation or administration during the past year, including £242 million in redundancy payments.
HR teams warned over risks during financial distress
Employment lawyers said the figures exposed growing risks for HR departments because many financially distressed employers continue trading for months before formally collapsing.
During that period, businesses may delay wages, fall behind on pension contributions or rush redundancy processes while attempting to stabilise finances.
Joanna Sutton, principal associate at Nockolds, said increasing numbers of workers were being left owed substantial sums after business failures.
“The surge in business failures over the past year has led to a sharp rise in the number of staff losing their jobs. In many cases former employees are left owed thousands of pounds in unpaid wages, redundancy and pension entitlements.”
She said the collapse of National Car Parks earlier this year illustrated the scale of the risks facing employees when large businesses fail.
“With interest rates expected to remain high and inflation rising, a significant uptick in financial distress and insolvencies is highly likely over the remaining months of the year.”
Under current rules, workers can claim a maximum of eight weeks of unpaid wages through the Redundancy Payments Office, capped at £751 per week. Statutory redundancy payments are capped at £22,530.
That means some employees may recover only part of what they are owed after an employer collapses.
Employers face growing legal exposure
Nockolds warned that businesses surviving periods of financial distress may still face significant legal liabilities linked to employment decisions made during attempts to cut costs.
The firm said employers under pressure often rushed consultation and redundancy procedures or failed to follow due process properly while attempting to avoid insolvency.
Sutton said those liabilities could continue long after a business had stabilised or been refinanced.
“We are seeing increasing numbers of cases where employers cannot afford to pay wages and redundancy pay, which can lead to breach of contract claims. Once a business is at risk of insolvency, reducing costs by making staff redundant is one of the likely first steps a business will take to avoid collapse.”
She warned that employers frequently skipped proper consultation because of financial urgency, increasing the risk of employment tribunal claims.
“The danger zone for HR is the period of financial distress, which may or may not lead to eventual insolvency, when cash is tight and decisions are rushed. That is when consultation gets skipped, payroll slips, and pension contributions fall behind.”
The warning comes amid wider concerns over the health of the UK economy, with insolvency levels remaining elevated across retail, hospitality and consumer-facing industries.
Employment specialists said HR teams increasingly face pressure to balance urgent cost-cutting measures with legal obligations around consultation, redundancy and employee pay.
William Furney is a Managing Editor at Black and White Trading Ltd based in Kingston upon Hull, UK. He is a prolific author and contributor at Workplace Wellbeing Professional, with over 127 published posts covering HR, employee engagement, and workplace wellbeing topics. His writing focuses on contemporary employment issues including pension schemes, employee health, financial struggles affecting workers, and broader workplace trends.
- William Furney
- William Furney
- William Furney
- William Furney
