Fair Entitlements Guarantee (FEG): proposal to tighten employee safety net
Posted 16 Jun 14
There has been a lot of press surrounding the belt tightening measures introduced by last month's Federal Budget, but proposed changes to cap some claims under FEG seem to have flown under the radar.
The FEG scheme is a Commonwealth funded safety net which meets certain unpaid employee entitlements in the event of the liquidation or bankruptcy of an employer. The scheme provides assistance for unpaid wages, annual leave, long service leave, payment in lieu of notice and redundancy payments.
We support the scheme by assisting the government to verify and pay employees' entitlements in the liquidations we administer so that the employees receive their money as soon as possible.
The changes propose to cap the amount of redundancy pay and freeze the maximum wage rate that can be claimed under the scheme.
At present, FEG provides for redundancy entitlements of up to four weeks per year of service. There is no cap on redundancy claims. The current entitlements under FEG mirror those provided by the predecessor safety net scheme - the General Employee Entitlements and Redundancy Scheme ('GEERS').
Read our 2014 Federal Budget Snapshot
The Government proposes to cap redundancy pay under the FEG scheme to a maximum of 16 weeks. The proposal will align the redundancy entitlement under FEG with the entitlements set out in the National Employment Standards under the Fair Work Act. The changes will take effect from 1 January, 2015.
It is also proposed to 'pause' the Maximum Weekly Wage ('MWW') under FEG. The MWW caps entitlements under FEG for employees earning more than this amount. The MWW was $2,364 when the FEG scheme came into operation in 2012 and is indexed annually in accordance with movements in average weekly ordinary time earnings. Currently, the MWW is $2,451. The freeze on indexation of the MWW will operate from 1 July 2014 until 30 June 2018. As the Budget Papers note, employees claiming an entitlement above the amount paid under FEG will maintain their rights as creditors to recoup any outstanding entitlements in the winding up of their employer's business.
The Government claims that savings of $87.7 million over four years will be achieved under these measures.
We expect the changes will only affect long serving and highly paid employees and most claims under the scheme will not be affected. FEG remains very effective in minimising the impact of insolvency on employees of failed companies.
The proposed changes to FEG will apply only to liquidations and bankruptcies which occur on or after 1 January, 2015. (Budget Paper No. 2, 2014-15).
It is ironic that with the release of the Budget proposals to reduce payments under FEG, ASIC announced that it had recently exercised its wind up powers to appoint liquidators to 13 abandoned companies to assist some employees to make claims under FEG.
These abandoned companies had ceased operations but had not proceeded into any form of insolvency administration. Employees of abandoned companies often have significant unpaid entitlements but no recourse to, or a lack of resources to pursue, recovery proceedings. Liquidation of these companies will enable employees of the companies to gain access to FEG.
This brings to 19 the total number of abandoned companies to which ASIC has appointed liquidators since it first utilised its winding up powers in August 2013. The companies wound up by ASIC to date owe in excess of $1.5 million in employee entitlements to 100 employees.
For specialist advice on all insolvency matters contact Simon Thorn and Trudy Hickey in Newcastle on (02) 4962 2688 or John Vouris, Brad Tonks and Mark Roufeil in Sydney on (02) 8346 6000.