Understanding the Fair Entitlements Guarantee (FEG) and why it matters

I am Steven Priest, a Director in RSM’s Restructuring and Recovery division at the Wagga Wagga office. With over 20 years of experience as a registered liquidator, I’ve helped countless businesses navigate corporate insolvency, bankruptcy, liquidation, and restructuring. 

One of the most common concerns we encounter when a company enters liquidation is: What happens to employees' unpaid wages and entitlements?

For employees, the uncertainty of not knowing if they’ll be paid can be stressful. For business owners, failing to properly manage employee entitlements can lead to serious financial and legal consequences. Let’s break it down, so it’s not so scary!

The Fair Entitlements Guarantee (FEG) exists to provide financial assistance to employees whose employers become insolvent. But there are many misconceptions about what it covers, who is eligible, and how it interacts with the liquidation process.

Together, let's explore the key facts about FEG, as well as some common mistakes businesses make. We will also cover ways to minimise reliance on the scheme.

What Is the Fair Entitlements Guarantee (FEG)?

The FEG scheme was introduced in 2012, replacing the former General Employee Entitlements and Redundancy Scheme (GEERS). Unlike GEERS, which was an administrative arrangement, FEG is a legislative scheme, meaning it is enshrined in law and cannot be easily revoked by future governments.

Its purpose is simple: to provide financial assistance to employees who lose their jobs due to corporate insolvency or bankruptcy.

FEG covers certain unpaid employee entitlements, including:

• Wages – Up to 13 weeks of unpaid wages.
• Annual Leave – Full unpaid annual leave entitlements.
• Long Service Leave – Where applicable.
• Payment in Lieu of Notice – Up to 5 weeks of notice pay.
• Redundancy Pay – Up to 4 weeks per full year of service.

However, FEG does not cover unpaid superannuation, which often comes as a shock to employees expecting a full payout.

Who is eligible for FEG?

To qualify for FEG, an employee must meet specific criteria:

• Lodge a claim within 12 months of losing employment.
• Employment must have ended due to insolvency.
• The employee must be owed entitlements covered by FEG.
• At the time of termination, the employee must have been an Australian citizen, permanent resident, or eligible visa holder.

However, there are some exceptions.

• Contractors and Excluded Employees – Contractors and those classified as “excluded employees” under the Corporations Act 2001 (e.g., company directors, their spouses, and close relatives) are generally not eligible.
• Recently Converted Employees – If an individual converted from contractor to employee within six months of the employer’s insolvency, they may not qualify.
• Rehired Employees – If an employee starts a new job under the same employer’s new entity, they may lose eligibility.
• Excluded employees - as defined under Section 556 of the Corporations Act, is typically a company director, director’s spouse, a director’s relative. These employees rank lower in priority compared to regular employees and may not be eligible for FEG assistance.

These exclusions are not always well understood, which leads to frustration and confusion when employees try to access the scheme, that’s why we are here to help.

Common misconceptions about FEG

Having worked with numerous businesses and employees during insolvency cases, I’ve encountered several misconceptions about FEG.

• "FEG covers all my unpaid entitlements, including superannuation" – FEG does not cover unpaid superannuation.
• "Once I apply, my payment is automatic" – FEG requires an application process, and the government must review and verify employment records before approving claims.
• "Payments happen quickly" – FEG payouts typically take 4 to 10 weeks, depending on how quickly records can be verified. While this is faster than waiting for liquidation, it’s still not immediate.
• "If my company is liquidated and I get rehired under a new entity, I still qualify for FEG" – If an employee’s employment continuity is maintained under a different entity, they may lose eligibility.

These misunderstandings can cause frustration, especially when employees are already dealing with financial uncertainty after losing their jobs. That’s why it’s best to speak with an expert, like the team at RSM, who can provide clear guidance on entitlements, the FEG process, and the best course of action to take in an insolvency situation.

Challenges in managing FEG claims

From a liquidator’s perspective, dealing with FEG claims is not always straightforward. Some key challenges include:

• Access to employer records – If directors fail to cooperate, or if records are poorly maintained, verifying entitlements becomes difficult.
• Incomplete employee data – Without accurate records, it’s challenging to determine what employees are owed.
• Lengthy review processes – FEG conducts due diligence before approving claims, leading to delays.

To streamline the process, businesses should maintain accurate payroll records and ensure compliance with superannuation and tax obligations. Burying your head in the sand when times get tough only adds to the financial and legal risks, making it harder to rectify unpaid entitlements and potentially exposing directors to personal liability. The longer issues are ignored, the fewer options remain, often resulting in harsher consequences for both the business and its employees. Seeking professional advice early can help businesses navigate financial challenges and avoid unnecessary complications.

So what should businesses do?

To avoid reliance on FEG and ensure employees receive their full entitlements, businesses should:

• Lodge all tax and compliance returns on time – Even if funds aren’t available, keeping records up to date prevents surprises.
• Budget for employee entitlements – Regularly allocate funds for wages, leave, and redundancy.
• Encourage employees to take leave – High accrued leave balances increase liabilities in insolvency.
• Seek professional advice early – If insolvency is looming, early intervention can lead to better outcomes.

How FEG affects the liquidation process

If FEG pays out employee entitlements, the government effectively takes the employees’ place in the liquidation process. This means FEG becomes a priority creditor, ranking ahead of other unsecured creditors under Section 556 of the Corporations Act.

For employees, this ensures they receive their entitlements sooner, rather than waiting for the liquidation process to unfold.

Is FEG fit for purpose? How could it improve?

While FEG plays an essential role in protecting employees, there is always room for improvement.

• Faster access to employee data – If FEG could access ATO records, the claims process could be expedited.
• Better education for small businesses – Many business owners don’t fully understand how FEG works or how to properly provision for entitlements. Education is key!
• Stronger employer accountability – Tightening record-keeping laws could prevent businesses from underestimating their obligations.

As insolvency laws continue to evolve, I anticipate ongoing enhancements to the FEG scheme, ensuring better support for both employees and businesses facing financial distress.

Understanding FEG is critical for both employees and employers. If your business is struggling financially, it’s essential to address entitlement obligations early to minimise risk.

As a registered liquidator, I’ve seen too many businesses leave things too late—only to face major problems when insolvency occurs. Taking proactive steps now can help protect employees and stabilise your business before it’s too late.

If you need advice on FEG, liquidation, or business restructuring, we are here to help. Contact RSM to discuss your options and put a plan in place.

Don’t wait until it’s too late—let’s take control of the situation now.