Redundancy: making the money stretch

Ten steps to sorting out your job loss

1. Your employer has to follow a fair redundancy process so long as you’ve worked for them (on staff, not as a contractor) for at least two years. You should get at least one meeting where you can discuss the reasons for the redundancy and if other jobs are available. 

2. You should get a redundancy payment, either statutory (the legal basic) or contractual (as specified in your employment contract). The latter may be greater than the former but must not be less.

3. An alternative to the above is a settlement agreement whereby you get more cash in return for promising to take no further legal action. You should get a solicitor to check it over, for which your employer will normally pay or contribute.

4. Current statutory payments are: half a week’s pay for each full year you were under 22; one week’s pay for each full year between 22 and 41; and one and half week’s pay for each full year you were older than 41. There are caps on length of service at 20 years and weekly pay at £489.

5. You will also get a paid notice period. This also depends on length of service. There’s one week if you’ve worked between one month and two years, one week for every year between two and 12 years, and finally 12 weeks for longer than 12 years.

6. The first £30,000 of redundancy pay is tax-free in most circumstances. The rest is taxed in the year it's paid, not the year in which you’re made redundant. You might be able to reduce the tax by putting the cash into a pension. Changes from 6 April 2018 may see money paid in lieu of notice taxed at your marginal rate and national insurance deducted.

7. If you’re lucky enough to get a big pay-off, don’t spend it all at once. Concentrate on paying off debts first and then see a financial adviser about what to do with the rest. Remember your pension contributions and medical insurance may have stopped with the job and you'll have to fund them yourself.

8. Not so fortunate? Check out what benefits are available at your local JobCentrePlus such as Job Seekers Allowance. For housing costs, you could be eligible for Support for Mortgage Interest (now a loan) or try switching to an interest-only mortgage. If you receive tax credits, inform the tax office within a month that you’ve been laid off or face a fine.

9. Look for that payment protection insurance (PPI). You may have been missold it a few years’ back but it could come in handy. It’s too late now but think about whether additional insurances are needed when you find a new job, such as mortgage payment protection.

10. When you leave the workplace, as well as your humorous calendar/mug/mousemat, make sure you have a P45, written details of your redundancy payment and a reference or the contact details of managers who will vouch for you.

 

More stuff:

  • Being laid off purely because of your religion, sexuality, disability, gender, trade union membership or pregnancy is NOT allowed. Find out more about your legal rights here
  • A government calculator to work out your redundancy pay is available here
  • Click here for more information about unemployment Citizens Advice. 

 

Last updated 20 March 2018.