Redundancy Payment Guide and Tips

After working for a long period of time being made redundant can be an extremely difficult and challenging period in your life. When you become redundant, there are a few different things that can be done to help sort out your finances. These include:

• Getting or applying for a redundancy payment
• Making a redundancy plan
• Applying for redundancy retraining
• Applying for redundancy unemployment benefits
• Prepare yourself to return to work after redundancy

What Is A Redundancy Package?  Getting a redundancy payment
A redundancy package is designed to combine certain payments/incentives and other finances together to be given as a large lump sum amount. A redundancy package may include some or all of the following:

• A payment in lieu of notice
• A severance or redundancy payment
• An incentive payout also known as a ‘golden handshake’
• Unused long service leave and annual leave

Generally personal leave and sick leave isn’t paid to you when you leave your current organisation.

After losing their job, those who are owed employment entitlements may be able to receive financial help from the Australian Government if their employer has gone into liquidation or administration. You can find out more information by reading the Fair Entitlement Guarantee.

 
Redundancy Tax
In the guidelines of a genuine redundancy that is given out as an incentive payment and payment in lieu of notice, you may be eligible for a special tax treatment. This treatment may allow all or some of your redundancy payment to be paid to you tax free.

Generally, the tax free portion consists of:

Base amount + (completed years of service x service amount)

For the financial year of 2014/2015, the service amount was $4,758 while the base amount was $9,514. Larger portions which increase over the tax-free portion are taxed at a concessional rate of up to 32 percent. This includes the Medicare levy and if you’re below the preservation age. It’s also offered at a 17 percent rate which includes the Medicare levy if you’ve just reached the preservation age.

Any payments that are made which are over the tax-free portion are taxed as ETPs or Employer Termination Payments. Generally, those who are 65 years and older aren’t eligible for a ‘genuine’ redundancy payout. In cases such as this your payment will be assessed as an ETP.

Other payments which are taxed concessionally are your long service leave and unused annual leave. This can be up to 32% including the Medicare levy. If you would like more information, please visit the redundancy payments page at the Australian Tax Office or learn more about tax offset here.

Preparing for a Redundancy – Have a Plan
In order to create a successful redundancy plan, it’s important to work out the length of time your redundancy payment will last you when paying your weekly or monthly expenses. This helps to plan your next steps.

Emergency Budget Planning Preparation
Although it can be very tempting to spend your large payout, it’s still important to be cautious. Unless you are at retirement age, your redundancy payout will need to last until you acquire another ongoing job. Like any other job searching session, this can take a lot longer than you may expect it to.

To create an emergency budget plan, you need to first list all your essential expenses that you pay throughout the month. These expenses can include anything including, but not limited to:

• Insurances
• Transport costs
• Food
• Utilities
• Mortgage payments
• Budgeting (bill smoothing)

After adding all your expenses together, you can create or buy a budget planner that will help to organise your finances to get you through this tough period of time. Once your budget is organised, you will then be able to see how long it will last before you need to get another job.

For those who’ve received a larger redundancy payment, it might be wise to think about the following:

• Placing a large portion of it into a savings account which features a high interest rate.
• If you have a redraw facility, use it to make one large extra repayment on the mortgage to lower the interest rate. (Only do this if you can redraw the money back out). Upon doing this you can slowly take the money out of the account to pay off your expenses.

 
Paying The Bills
When you don’t have regular income coming in, it can be very stressful trying to manage the bills. If you find you’re having problems or struggling to pay off credit cards or loans, you can easily apply for a hardship variation from your credit provider.

You can also contact your utility providers if you’re struggling to pay for your electricity, water, gas, and phone bills. Most utility providers may be able to negotiate a better and more friendly repayment arrangement.

Don’t Forget About Superannuation
While you’re trying to find more work, don’t forget about your superannuation. Your superannuation can be effected when you have a break in a job. Don’t forget to check it from time to time to make sure nothing changes.

Unemployment Benefits When Made Redundant

Waiting Periods
In a situation where you’ve been made redundant, you’ll find that your payment is generally based upon the months or weeks of your earning which are made ordinarily if you were still at the job. Your unused annual leave will also be accounted for and you will receive a payout based on how much time you have up. However, if you’re applying for Centrelink benefits, you won’t be eligible for the length of time that you’ve been paid for.

As an example, if you’re redundancy payment equals to 3 weeks unused annual leave and 8 week of payment, you won’t be eligible for any benefits from Centrelink for at least up to 11 weeks. This is known as the ‘income maintenance period’.

Depending on your assets which could be used as income you may also have a ‘liquid assets waiting period’. Learn more about unemployment here or info on waiting periods at The Department of Human Services website.

Your Partner’s Income/Wage
If you are married, your partner’s income will also be taken into consideration when calculating any entitlement to income support payments. You may not be eligible for income support benefits if your partner’s income is high. For more information about the income tests for allowances, please visit the Department of Human Services.

Redundancy Training
To help improve your skills to help get a new job, you may have the opportunity to pursue qualifications or have the opportunity to complete a short course. If you’re eligible for Centrelink benefits, you may also have the opportunity to gain help with retraining costs. Visit the Department Of Human Services redundancy webpage.

Working After Redundancy
For those who’ve gone through a redundancy period, finding a new job is exciting and a big relief. What you will do with your new income will depend solely on whether your finances are in check or way out of balance. Here are some tips to manage your money after returning to work.

Pay Outstanding Bills
While you’ve been unemployed, if you have bills that have gotten out of hand, it’s now crucial to first prioritise repaying these bills to get them back under control. The first bills to start paying off are the most urgent bills. While paying off your bills it’s also important to leave enough money over and above to cover your ongoing living expenses. During this period, you must be very disciplined with your money until you have finally caught up all your bills.

Money That’s Left Over
After you’ve returned to work, if you’ve been fortunate enough to have some of your redundancy left, it’s advisable to think very carefully about the opportunities that you can get from this. The following are a few different things you can do with any redundancy money which is left over.

• Reduce Debt – Paying off your debts is a great way to become financially independent. Loans, credit cards or any other debts can help to take the pressure off your income and savings.
• Emergency Saving Account – Creating an emergency savings account with the left over money is a great plan to help cover unexpected bills in the future. It can also help to keep you out of debt.
• Take A Break – With the stress of not having a job and finding a job, it can be wise to take a small break for you or your family before you restart your new job. This helps you to distress and feel positive about your new job.
• Start An Investment Portfolio – Another thing you could do is invest your money. You could start a managed fund or buy some shares. Building an investment plan is ideal for being successful in the future.

If finances are tight, there are Centrelink loan or benefit options to provide additional assistance whilst retraining or job hunting – learn more here

Reactions On Being Made Redundant
There are many emotions that you may experience when being made redundant. These include:

• Shock
• Anger
• Disappointment
• Fear
• Anxiety
• A sense of loss

 
Tips To Coping With Redundancy
Because redundancy can be a trying time, there are a few things that you can do to help cope with your situation. These include:

• Talk to friends and family if you’re feeling down.
• Seek professional help from your doctor if you’re feeling suicidal.
• Avoid being impulsive to reduce unneeded expenses.
• Stay positive as best you can and in time it will work out for the best.
• Make the most of your time when you’re not working by completing odd inexpensive tasks around the house.
• Keep an open mind when applying for jobs. Search daily for work by reading the paper, searching the internet and visiting local businesses. Remember it will take time.
• Limit your spending to the things you need and not the things you want. If you can go without it for the time being, try to avoid spending the money.
• Remember it won’t last forever, you will find a job, it just might take some time.

Conclusion
Being made redundant can be a very difficult, emotional, and challenging time in anyone’s life. When you become redundant, it’s important to keep a plan in place so you can stay on your feet as best as possible. Remember try to always be positive when applying for jobs and taking interviews. Always seek help if you feel overwhelmed.

Below is additional resource on how to get help with finances when dealing with redundancy and unemployment. There is an enormous amount of support in Australia to help you get through difficult financial and career challenges.

– Main Centrelink contact numbers
– Centrelink benefits and loan options
– Unemployment benefits
– Job and workplace programs