F
or some people redundancy can
be a blessing in disguise but for
most of us it is a very stressful and
destabilising experience. Unless you’re
about to retire and have spent many hard-
working years with the one employer,
resulting in a material (and largely tax-
free) windfall at retirement, redundancy
is an extremely difficult time because of
the unknown nature of your future income
and employment prospects.
If a company is trying to cut costs, making
employees redundant is one way to achieve
this. These days to manage workforce
reductions fairly many companies offer
voluntary redundancy as a first course of
action to allow those people who may be
considering leaving in any case the ability
to do so with a payment on the way out
the door. Voluntary redundancy takes the
pressure off companies and employees, and
is a far more humane method of reducing
workforce numbers.Your entitlements
One of the advantages of redundancy is
that you will get paid to leave your work.
The amount will depend on the time you’ve
spent there. The payments will vary from
company to company but I often see three
weeks’ pay for each year of service. So if
you’ve worked in a job for 12 years then you
might expect 36 weeks’ pay. In addition tothis, you will also be paid your annual and
long-service leave.Tax breaks
The good news is that a large portion of
your redundancy may be tax free. If it is a
bona fide redundancy then you will eligi-
ble for a tax-free portion equal to a lump
sum of $9936 plus $4969 for each year of
service. In my example of an employee
who has 12 years’ service, the tax-free
portion will be $9936 + (12 x $4969), which
equals $69,564. As you can see, there may
be some gold among the angst.
It is also possible to roll a portion of
your redundancy into super and pay even
less tax on the remainder. Annual and
long-service leave will also be conces-
sionally taxed at 32% but cannot be salary
sacrificed, although next financial year
you will be permitted to make a lump-sum
contribution to super of up to $25,000
(includes the super guarantee) to reduce
your taxable income even further.
If you’ve been offered a redundancy, it’s
so important that you ask for an estimated
eligible termination payment statement,
which will give you a breakdown of the
components of your payout to help you
understand your tax position. Most com-
panies will do this without you asking but
my advice is to get in quickly and get a
copy as soon as you know your situation.Get help
My second piece of advice is to seek advice.
A good financial adviser will be able to help
you through the redundancy process and
give you an indication of your options before
you pay them a cent. Most advisers will offer
an obligation-free appointment so that will
give you some ideas of your choices.
Finally, it’s important to seek support
and start looking for a new job as soon as
possible. Many larger companies use out-
placement consultants to assist you with
counselling, further education and job seek-
ing. It’s a good idea to utilise these services,
or seek them if they haven’t been offered by
your employer.
Your speedy return to the workforce can
turn a financially and emotionally chal-
lenging time into a lucrative event, because
the ability to save a big lump sum outside a
redundancy is often unlikely. But it needs to
be used wisely. Repaying credit cards, per-
sonal loans and home loans (in that order) is
often an immediate recommendation.
So while redundancy can be a perplexing
time, by understanding your situation and
seeking advice you can turn it around and
make the most of this crisis.Sam Henderson is CEO of Henderson
Maxwell (hendersonmaxwell.com.au) and
host of Sky News Business’s Your Money Your
Call – Super.Redundancy’s silver lining
CRISIS MANAGEMENT Sam Henderson
WORKERS ARE FIRST
IN THE FIRING LINE-^ As Australia’s growth rate struggles to
break 2%, many sectors in our economy,
such as manufacturing and mining servic-
es, have been retracting, which is forcing
many companies to make changes to
their workforce to cut costs. The cost of
employment is usually a company’s single
largest expense and thus employees are
usually first in line when there’s pressure
on top-line revenue. Here are some tips if
you find yourself being made redundant.