Being made redundant or fearing you may be in the near future can be an extremely stress-inducing time.
With the loss or impending loss of your job, you may suddenly be faced with fears about how your redundancy will impact your financial world, anxiety about the process of finding a new job or perhaps even confusion about whether or not to continue working.
According to HR Advance, redundancy is defined as the termination of employment and is a form of dismissal by an employer. It has implications that the termination of the employee’s employment is involuntary on the employee’s behalf. However, rather than being a fault-based dismissal like being let go, redundancy is usually caused by external factors such as economic conditions, business efficiency or technological development.
In other words, there may be a number of reasons why you may be currently facing redundancy – many of which are completely out of your control.
Even so, I understand how personal and hurtful being made redundant can feel. And as you begin to think more about the impact your redundancy will have on your financial wellbeing, it can be easy to feel overwhelmed.
That’s why we just wanted to remind you: take a deep breath, then another, and then keep reading.
In fact, that’s why we decided to create this guide on what to do if you’ve recently been made redundant or expect a redundancy in the near future, covering the following topics:
Facing a redundancy doesn’t have to mean saying goodbye to your plans for achieving financial success and security. This guide is the perfect place to start getting back on track to achieving the financial future you deserve.
A legal redundancy, which is sometimes referred to as a “genuine” redundancy, can only occur if your employer no longer requires any person to perform the specific role you currently perform. We mentioned it before but this can occur for a number of reasons, such as a shift in business direction, external economic factors and even the insolvency of the company itself, and usually isn’t personal. Essentially, since the role you perform is no longer needed, you by extension are no longer necessary as well within the company.
Redundancies can also occur if your employer has decided to divide and redistribute the responsibilities of your role to others within the workplace.
What is most important to keep in mind is that a redundancy has nothing to do with your personal performance and so shouldn’t feel like a reflection on your ability to do your job well.
If you feel that you’ve been unfairly let go under the guise of a redundancy – which may be the case if the role you previously performed is still in existence at your workplace – further information is available on what options are available to you on the Fair Work website.
Okay now that we’ve covered why redundancy may occur, let’s take a look at what your employer is obligated to offer you as part of your redundancy.
Under the National Employment Standards (NES), your employer must make the following minimum payments if you are made redundant:
However, it should be noted that depending on your type of employment or how long you had been working for your employer, you may not be eligible for redundancy pay.
If you’ve experienced a genuine redundancy and are eligible, you may receive a number of payments from your employer.
While there are many parts of an overall redundancy-related payout, the payments are usually broken down into:
The tax-free portion of your redundancy payment will only be accessible to those aged below preservation age. If you are aged 65 or over, you are not eligible for a ‘genuine redundancy’ payment and your entire payout will be treated as an ETP and taxed concessionally as a result.
If you’d like to know more about what your personal redundancy pay-out may look like, Fair Work currently offers a redundancy calculator that may assist you.
Just like many aspects of your financial world, your redundancy payment is also subject to a number of tax rules that may make calculating your payment more complicated than it may first appear.
To start with, while your ‘genuine redundancy’ payment is tax-free up to a certain point, after this point your payment will then become taxed according to two elements: a base amount and an annual amount for each year of service. These two elements are indexed annually and thus are constantly changing. For the year 2019-2020, the base amount is $10,638 and the annual service amount is $5,320. That means that if you were made redundant after 10 years of service, your tax-free limit for the year ending on the 30th of June 2020 is $63, 838 (or $10,638 + [5,320 x 10]).
Any amount left-over after reaching this tax-free threshold will be counted as part of your ETP and taxed at your usual marginal rate. Similarly, any unused annual leave and long-service leave paid to you on being made redundant will be taxed concessionally, up to 32%.
And for any of you that may be thinking about funneling your ETP into your super fund to avoid these tax implications, unfortunately your ETP must only be taken as a lump sum and cannot be rolled into super. However, you can make a post-tax or non-concessional contribution to super with all or part of your ETP. Just remember to seek the advice of a financial professional to understand what your superannuation contribution cap limit may be and how making these contributions may affect your overall superannuation strategy.
Being made redundant can be an intense and challenging time both emotionally as well as financially. That’s why we recommend taking a short period of time for yourself to grieve the loss of your job and everything it meant to you.
By taking the time to say goodbye and process the ending of this previous chapter of your life and reflect on what you would like the future to look like, you’ll be in a much better position to make decisions that are right for you and your financial needs.
Don’t be afraid to reach out to friends, colleagues, or even a professional for support if you find yourself struggling or feeling overwhelmed by the effects of your redundancy. Remember: the sooner you ask for help, the sooner we can begin to help you get back on track to achieving the brighter financial future you deserve.
Once you’ve accepted the end of the previous chapter in your working life, it’s time to ask yourself some tough questions about what you’d like to be doing next.
For those of you reaching the end of your working years, being made redundant may provide an opportunity for you to reassess your priorities in life and decide on an early retirement. If you would like to take this route, we recommend getting in touch with your financial advisor to discuss whether this would be the right move for you and your particular financial circumstances.
Alternatively, for those with time left until retirement or who would like to continue working, being made redundant can also allow you the opportunity to change career paths or head back to university to develop your skills in an area that interests you.
Redundancy doesn’t have to mean the abrupt end to all of your plans, instead it can provide the opportunity to reflect and decide on a new path forward that is right for you.
Now that you’ve decided on what your new direction should be, it’s important to make sure that your financial goals reflect this.
Your financial advisor can help you to reassess your financial goals and create a new financial plan that is tailored to your unique financial goals, circumstances and needs. They will also be able to make sure that the direction that you wish to take on your financial journey will support you in being able to achieve financial success and security.
We touched on it earlier, but any redundancy payment you receive can come with a number of tax obligations attached. That’s why we recommend reaching out to your accountant once you have received more detailed information on what your redundancy payment may look like.
Your accountant will be able to assess the impact that your redundancy payment will have on your particular financial circumstances and will provide recommendations for how you can best manage your new obligations.
Alternatively, if you do not currently have a dedicated account you’re comfortable with, the My Wealth Solutions team would be happy to assist you by connecting you to our trusted network of accountants and other financial service professionals.
All You Have To Do Is Get In Touch
If you’ve recently been made redundant you may be eligible to receive financial support from your insurance provider or through government benefits.
You may also be able to make an income protection claim through your superannuation fund or other insurance provider if you previously held this cover.
Your financial advisor will be able to help you learn more about which financial support options are available to you and how you can successfully claim them.
Depending on the terms of your superannuation fund, you may be eligible to claim early access to your super if you have experienced a redundancy.
Being able to do so will depend on how your super is classified:
However, you should keep in mind that if you are aged under 60, any super you access early will be taxed at your usual concessional rate. If you are aged over 60, your super can be accessed tax-free.
If you’re unsure about whether accessing your super early is the right move for you, considering the tax implications, don’t be afraid to reach out to a financial professional for advice based on your particular financial situation.
Being made redundant and suddenly losing access to the income on which your current financial plan was likely based may have a significant impact on your retirement plans. That’s why it’s essential that you take the time to review and adjust these plans as required once you’ve settled on a direction forward.
While we strongly believe that a redundancy doesn’t have to mean completely throwing your initial retirement plans out the window, it may mean making adjustments to accommodate the effects of your redundancy.
This could mean anything from moving your retirement age forward or backwards a few years to reassessing the avenues through which you will draw your income in retirement.
Moving forward from being made redundant can feel like an uphill battle if you try to tackle it on your own.
Having the right team of financial professionals behind you, including a financial advisor and accountant you trust, is the key to ensuring that you will successfully get back on track to achieving financial success and security.
With an experienced team at your back, you’ll never have to worry about whether an option you’re considering or a decision you have to make is right for you because access to expert financial support and guidance will only be a phone call or email away.
In other words, you’ll be able to move forward with the confidence of knowing your financial world is being taken care of.
Ready to get back on track to building a brighter financial future?
Ben is a founding partner of My Wealth Solutions and is passionate about helping his clients achieve their financial goals.
Grad. Dip. FP, SMSF
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