I’ve been made redundant, now what?
Understanding your redundancy options
Losing your job can be traumatic. It could throw your financial plans into chaos and may create a lot of extra worry and stress on both you and your family. Nevertheless, it may also create some unexpected opportunities and a lump sum to invest.
In the past many Australians had ‘jobs for life’. The reality is nowadays on average; you can face the possibility of redundancy up to three times in your working life. By following a few key steps and speaking to a financial adviser, the stress often felt during this period may be somewhat reduced. If you have an option of staying in employment, consider your situation carefully. It may take some time to find alternative work, and the money you receive over and above your usual entitlements may disappear quickly. It’s also very important to seek financial advice before making any major decisions with what may be a large lump sum payment.
What can you expect?
A bona fide redundancy payment is made when an employee has been dismissed because the job they were doing has been made redundant. A bona fide redundancy payment will receive tax benefits. In a redundancy payout you may receive:
Payments may vary between employers and differing award schemes, but as an example, could include four weeks’ pay up front, plus two weeks’ pay for every year of service. Whatever your situation, remember that it is likely that some of the financial inducements you may be offered come from your normal entitlements of superannuation, long service leave, annual leave and leave loading.
What about Centrelink?
The question many people ask themselves at this time is – will I qualify for Centrelink assistance? This will depend on what you own and your income. Waiting periods may also exist depending on the benefit you are applying for. You might like to think about registering for the Newstart allowance with Centrelink and checking your eligibility for income support. If you have a partner, it may also be worth your partner checking their own income support eligibility.
Your financial position
It is very important that you consider every action that you take at the time of receiving a redundancy as it may have a significant impact on both your short and long term financial security. Unfortunately, there are no hard and fast rules on what to do with a redundancy payment – it all depends on your individual circumstances.
For instance, someone with a family may have to think about how to pay bills and put food on the table until they find another job. Others may be tempted to pay off some of the mortgage. Older people may think about retiring early. Regardless of your situation, it’s important to take a look at your current financial position, work out what bills may need paying now and what you can reasonably pay each person to whom you owe money, how much you need to live, any savings you may have and the income you will need until you find another job.
By working through these questions you may hopefully have a better understanding of what to do with a redundancy payout. You might also find speaking with a financial adviser of assistance in working through these issues.
Think about tax
No matter how much you may receive in a redundancy payout some of the money will be subject to tax. The good news is that redundancy payments are usually taxed at a lower rate than your marginal tax rate, and a proportion may be tax-free.
Think about your insurance
Another important point to consider is your personal insurance. Check to make sure what (if any) insurances can continue when you are unemployed as once you leave your employer some, if not all, of your insurance cover may actually cease.
In some circumstances you may have the option to continue your insurance cover. You might like to check any insurance continuation options available and how long you have to make a decision as many continuation options cease 30 days after you have stopped employment. If you are not able to continue your current level of cover you may wish to arrange alternative cover.
Take the time to consider all your options and make sure you are fully aware of the implications of the course of action you decide to take. When you are faced with a redundancy situation perhaps think about the opportunities and challenges this will bring to your life. Redundancy is not easy. It’s often hard for people’s self esteem and confidence. On top of that, there are usually a lot of complex financial issues surrounding redundancy payouts. You may like to obtain financial advice to help in deciding on the best course of action for you based on your personal circumstances and financial needs.
Where to from here?
Thinking about your next steps you may want to consider: