Opinion
Redundancies aren’t always bad. Here’s what to do if it happens to you
Victoria Devine
Money columnistAs someone who has sat next to a partner going through redundancy, I know how terrifying the experience can be. Innately, we humans are averse to change – particularly when said change is not of our own making.
But being made redundant doesn’t have to be a terrible thing. In fact, it can be the push for positive change you didn’t know you needed, and come with serious financial benefits.
Being made redundant doesn’t have to be a bad thing, especially if you know how to negotiate your way out the door.Credit: Dionne Gain
First, let’s talk about what a redundancy is – and what it isn’t. More often than not, redundancies happen following a restructure, either across the entire company or in a specific section, where it’s deemed the role you’re employed to do is no longer needed.
According to the Fair Work Ombudsman, the most common reasons for redundancies are a slowdown in sales or production, a company closing, the introduction of new technology, restructures relating to mergers or takeovers, or a business relocating interstate or overseas.
Being made redundant is not the same as being fired, for a few important reasons. When you’re fired, you’re only legally entitled to a payout of your annual leave. When you take a redundancy, you receive a lump sum and have the power to negotiate an exit package, which is essentially a leaving fee.
A redundancy also looks much better on your resume than being fired because leaving this way suggests a level of commitment and loyalty to your employer, which we all know is an extremely attractive trait.
A redundancy is symbolic of your employer and what they are experiencing, not a reflection on your self-worth or your capabilities.
While specific redundancy entitlements vary across companies and sectors, generally you’re required to be employed for a minimum of 12 months to be considered eligible. Other caveats exist for employees who are ineligible (or at least likely to be) such as contractors, casuals, trainees and apprentices, and employees of a small business with fewer than 15 employees.
There should be a specific section in your employment contract laying out your company’s redundancy options, and I urge you to read this carefully before signing – it’s very important.
So, what happens if your manager comes to you and announces that you’re being made redundant? Here is where numerous variables come into play, and this knowledge will pay dividends.
Depending on the circumstances of the redundancy, you may be allowed to wrap up immediately, at the end of the week, or work out a leave period. While your first instinct might understandably be to leave that day, consider that the longer you work out your notice, the more time you’ll have to plan your next move without having to eat into your savings.
According to the latest figures from the online job vacancy index, the number of jobs being advertised is slowing down, which means that more time to look for a new job while still earning money will be financially beneficial. Having said that, if the environment is toxic and you need to get out, then absolutely prioritise your wellbeing.
The next thing to do is figure out how much you’re likely to be paid out. There are a number of redundancy calculators available online, including one provided by the Fair Work Ombudsman.
At a minimum, your package will be made up of your base rate of pay for ordinary hours worked using a formula that translates your years of employment into weeks. For example, if you’ve been employed between one and two years, your redundancy will equate to four weeks of your standard salary, and if you’ve been working there for four years, this will go up to a minimum of eight weeks.
But it’s important to stress that each company and industry has different calculations, some of which are often above the minimum. I once met a woman who took a redundancy after 25 years at a company, where the calculation was a base of four weeks, with an additional two weeks for every year.
This equated to an entire year’s salary, plus her annual leave balances and long-service leave. No wonder she referred to her redundancy package as the mortgage buster. You can also ask to negotiate for any perks you have, such as a work phone or work car.
When it comes to taxation, the good news is that the usual salary rules do not apply. The bad news is that you will still have to pay some tax. Because you’re being made redundant, the government assumes there will be at least some time between jobs, and as such, there is a redundancy tax-free threshold.
The base payout limit for this is $11,985, and there is an additional $5994 for every year of service. So, say you’re made redundant after four years of work, the most you can make tax-free is $35,961. And that, my friends, is a massive windfall and a money win worth celebrating.
Many companies will also offer HR support to people who are made redundant, which can include things such as resume writing, interview coaching, counselling services and insights into career opportunities or retraining options that you may not have thought about before.
You should also feel free to ask HR or your managers for a letter of recommendation that you can use to accompany your resume. This is also a great time to network – don’t be afraid to put yourself out there and let people know you’re back on the market. You might feel an internal cringe at doing this, which is completely understandable, but trust me, it will be worth it in the long run.
I really believe that when it comes to redundancy, everything about it is better than being fired. But that doesn’t mean it isn’t an emotional and daunting process.
However, if you try to reframe it as what can you get out of this, it becomes an opportunity. In doing this, you’ll be able to act more quickly and probably have a greater financial advantage.
And remember, a redundancy is symbolic of your employer and your industry and what they are experiencing, not a reflection on your self-worth or your capabilities.
Instead of being the end of the road, it’s just the opening of a new chapter, and one that starts with a nice lump sum in your bank account.
Victoria Devine is an award-winning retired financial adviser, best-selling author and host of Australia’s No.1 finance podcast, She’s on the Money. Victoria is also the founder and director of Zella Money.
- Advice given in this article is general in nature and not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
Expert tips on how to save, invest and make the most of your money delivered to your inbox every Sunday. Sign up for our Real Money newsletter.