MoneyMagpie

Jan 25

Redundancy: your action plan

With the effects of the recession still hitting hard many of us will be wondering just how safe our jobs are. So – if the worst does happen and you are made redundant, how should you deal with it? And what steps can you take to get back on your feet? The good news is, there’s plenty you can do to soften the blow.

Here at Moneymagpie, we’ve put together an all-in-one redundancy action plan. Don’t forget to check our 12 top tips for coping with redundancy too – it’s full of handy hints and some key advice.

What is redundancy?

Being made redundant is not the same thing as being sacked. In a nutshell, redundancy happens when you’re dismissed from your employment because your job no longer exists.

There are lots of reasons this could happen, including staff cutbacks, a business re-location or merger, advances in technology, or because the company closes down entirely. In other words, it’s the job that has become redundant, not you as an individual – so try not to take it too personally.

What should I do straight away?

Redundancy can come as an extremely nasty shock, and you may want to get out of your place of work as fast as your legs will carry you.

As tempting as it might be to get angry at your boss or colleagues, it’s in your interest to stay calm and professional. There’s a good chance that your boss had no say in making you redundant, and probably feels awful about having to let you go. Stay on their good side because you’ll probably need a reference from them at some point.

However, there are several steps you should take which will make your situation much easier to deal with in the long run. Before you leave your employer, make sure you grab the following things (and no, I don’t mean the office furniture!):

  • Your P45
  • Written details of your redundancy package – including a statement showing how your benefits have been calculated and information on your pension rights.
  • Contact details for your line manager, trade union representative (if you have one) and the person in the human resources department who you find the most approachable.

If you face any problems getting the package and payout you’re entitled to, these details will make it much easier to get them sorted out. Which leads on to our next question…

What am I entitled to?

If you are made redundant, you’re entitled to either work out your notice period, go on ‘gardening leave’ (when an employee is required to serve out a period of notice at home or ‘in the garden’) or receive pay in lieu of notice.

Check your employment contract to find out what your notice period is. Your employer should let you know which one of the three circumstances above applies to you.

Redundancy pay

If you’ve worked for your employer for at least two complete years, you’re also entitled to redundancy pay. At the moment, the legal minimum redundancy pay is:

  • Half a week’s pay for each complete year of service below the age of 22
  • One week’s pay for each year between 22 and 40
  • 1½ weeks’ pay for each year above the age of 41

If you’d like to know how much redundancy pay you’re entitled to, check out this simple calculation tool from Directgov now.

Unfortunately, statutory redundancy pay is capped, currently at £380 per week (this amount will rise to £400 on February 1st 2011), or £350 a week if you were made redundant on or before September 30 2009.

Most employers will have their own redundancy policy and pay arrangements – which are often more generous than the legal minimum – so it’s well worth checking what they are. On the upside, you don’t pay income tax on a statutory redundancy payment, unless it’s over £30,000. Other redundancy payouts (from your employer) may be taxable however.

Have a look at this factsheet from the HMRC for more advice on tax and redundancy. And for a complete breakdown of what you’re entitled to, have a look at the Redundancy section on the DirectGov website.

If you have a grievance

If you feel you’ve been mistreated by your employer – or not received the redundancy package you’re entitled to – get in touch with one of the following:

  • Your trade union

 This is where your trade union membership will be worth its weight in gold. Your union can fight your corner, help you understand the legal jargon and could even wangle an improved redundancy package on your behalf.

The Trades Union Congress’s workSMART website is a good place to find out more about your rights.

  • Citizens Advice Bureau

If you’re not a member of a trade union, head for your local Citizens Advice Bureau, where you can get advice on your rights as an employee. Find your local office.

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What’s the next step?

Your natural impulse will probably be to rush around trying to get a new job as quickly as possible. But while it’s important to start earning again, take a few minutes to take a deep breath and weigh up your options.

Redundancy may come with a silver lining if it prompts you to follow a career path you’ve always been tempted by. Just make sure you do your research properly and if you don’t get another job straight away, use that extra time constructively.

You could focus on updating or broadening your existing skills set – or you could gain the new knowledge needed to make a change of career. Apart from anything else, taking action will show prospective employers that you’re motivated and willing to take the initiative.

You could do voluntary work in a field that interests you, or a take a course that might help you get that job you’ve always wanted.

Some courses reduce their fees for people who aren’t in full-time employment. And others cost nothing at all! Read Boost your job prospects – for free for more on this.

It may also be worthwhile retraining or taking a different career path if needs be. Here are some useful sites to get you started:

The main thing is not to lounge around the house all day feeling sorry for yourself. Redundancy is awful but giving up on work completely will make you feel ten times worse. Structure your day as though you were still operating within work hours, and if you get stuck for things to do check out our article 45 ways to get a job.

Keep yourself busy and resist moping around in your PJs throwing darts at a picture of your boss’s head – however tempting that might be!

Finally, check out Moneymagpie’s extensive Make Money pages for plenty of ways to earn a bit on the side while you look for that dream job.

How can I safeguard against redundancy?

Redundancy is something many of us won’t be able to avoid – it isn’t your fault and isn’t necessarily related to your performance at work.

Fortunately however, there are things you can do right now to soften the blow if and when the worst happens.

the moneymagpie income insurance comparison tool

Redundancy insurance

Some people choose to take out redundancy insurance (also known as unemployment insurance). Essentially, this is designed to provide a limited level of financial cover if you are made redundant.

If you go down this route, it’s important to be aware of the limitations. Different firms provide different levels of cover, but generally speaking, the following rules apply:

  • 50% to 65% of your income is covered, up to a maximum benefit of £1,000-£2,000 a month.
  • You’ll normally only receive this benefit for 12 months (some companies also have a 24-month option).
  • To make a claim, you must be continuously in employment for six months before you’re made redundant.
  • You won’t normally be able to claim until a certain period has elapsed after taking the policy out (this varies, but is typically around 120 days).
  • Your claim will only be successful if you’ve been made redundant involuntarily. If you knew you were going to be made redundant when you took the policy out, you won’t be covered. It also won’t cover you if you resign, are sacked or if you choose voluntary redundancy.
  • There will normally be a waiting period (usually 30-60 days) before you start to receive benefits.
  • You must be actively seeking work while you’re claiming the benefits – and payments will stop when you return to work (unless you carry on paying the premiums for cover to continue).

As you can see, redundancy insurance tends to come with a heck of a lot of strings attached. On top of this, it can actually be very difficult to find a policy that just covers redundancy. Most combine accident, sickness and unemployment in one pricey plan.

The more competitive providers offer ‘unemployment-only’ plans with a monthly benefit (i.e. cover) of £1,000 for a monthly premium of around £35-£40.

That seems an awful lot to pay for benefits which only last 12 months. And of course, you may not be made redundant after all!

It’s still a good idea to protect yourself against accident or sickness that would stop you working with income protection insurance. Find out more in our article ‘Seven ways to protect your income’.

Build that nest egg now!

If you don’t want to hand your hard-earned cash to the insurers, there is another way to safeguard against financial disaster if you’re made redundant.

You can ‘self-insure’ by starting a savings pot specifically designed to tide you over if the worst does happen.

For example, setting aside £200 a month will mean you have a fund of £1200 (plus interest) to draw on if you get made redundant in six month’s time. That should tide you over for a couple of months while you’re hunting for that new job. Click here to choose the best account for you.

£200 is obviously a large savings commitment to make every month. And it does mean you have a limited window to find another job before your savings pot runs out.

On the other hand, your money will be earning interest for you all the time it’s in the savings account. You also won’t have to worry about the insurers wriggling out of paying your claim.

And if you’re not made redundant, you’ll have a great emergency savings cushion to guard against other unexpected financial problems.

Good luck!

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