A Basic Guide to Redundancy - By: SallyN

Getting made redundant is, for most people, no fun. It usually comes as a shock, even if employees already suspected something wasn’t right at their place of work. Of course, for a few people, getting made redundant is the best thing in the world and presents them with an opportunity to reinvent themselves or go off and discover the world. But assuming you are not one of those people and it has all come as a bit of a shock, here are a few tips about redundancy that just might come in useful:

The first question on every ones mind is “am I going to get any money?” The answer to this is yes if….

• You are being made redundant and being dismissed from the company and not resigning. If you are invited to leave the company by taking voluntary redundancy - this usually qualifies as a dismissal by reason of redundancy
• You have at least 2 years continuous service
• You are working under a contract of employment, which can be either written, verbal or a combination of both

So the next question is “how much am I going to get?”

This can vary enormously depending on your employer. It can range from the statutory minimum to whatever the employer has put in the contract. Whatever the payment amount, the first thing to know is that only the first £30,000 is exempt from tax. If you are lucky enough to receive any more than this then the tax man will want a share and your redundancy payment will be taxed at your highest rate.

If you are being paid the statutory minimum there are a number of factors taken into consideration. The final amount will be governed by…..

• How long you have been continuously employed by your employer but with a cap of 20 years for calculating redundancy pay
• Your age and how it relates to your continuous service
• Your weekly pay but with a cap of £380 per week being the maximum allowable when calculating redundancy pay

If you are wondering what your age has got to do with all this then you should know that the final payment calculation is based upon the following….

• You will receive half a weeks pay for every full year you have worked if you are less than 22 years of age
• You will receive one weeks pay for every full year you have worked if you are more than 22 but less than 41
• You will receive one and a half weeks pay for every full year you have worked if you are over 41 years of age

But don’t forget the maximum amount that can be used for your weekly pay calculations is £380, no matter if you earn more than this and the maximum length of continuous employment is capped at 20 years no matter how long you have worked for your employer.

There are a number of websites including ‘DirectGov’ and ‘BIS’ that provide ready reckoners so that you can work out how much redundancy pay you should receive. Simply follow any of the links below and then follow the simple instructions and you will end up with a final figure.

“When will I get my money?”
Your employer should make your redundancy payment on the last day you work or as soon as possible after that. If they want to make the payment later then they must discuss this with you and get your agreement. If you feel they are being unreasonable then you may be able to take them to an Employment Tribunal.

What next?
If you haven’t been able to get another job straight away but are looking for work, you should be able to claim jobseeker’s allowance. If you have paid enough class 1 national insurance contributions, you are eligible for contributions-based jobseeker's allowance worth £47.95 a week between the ages of 18 and 24, and £60.50 from age 25 onwards. The self-employed typically do not pay class 1 contributions so do not qualify.

Unlike most state benefits contributions-based jobseeker's allowance isn't means-tested, so any statutory redundancy payout won't affect your entitlement. But you won't receive any benefits until the period covered by any pay you received in lieu of notice has expired.

The contributions-based payout only lasts six months, after which you can claim income-based jobseeker's allowance, which is targeted at people who haven't made enough NI contributions, and is means-tested - you will receive less if you have savings over £6,000, and nothing if you have savings over £16,000.

These benefits are complicated, so visit your local job centre or go online at Job Centre Plus.

And remember, as clichéd as it sounds there is life after redundancy……
The first thing is to try not to panic. Think about what you might say to people if asked “what do you do?” and you are not comfortable with the word “redundant”. If money is your immediate concern then draw up a list of what you are spending and then look for ways to cut costs. There are plenty of tips on the internet to help you do this. Try and make sure that you have a minimum of 3 months living costs put away.

Try and stay positive and keep a routine. Get up at a regular time, look after yourself and see if you can find places where you can meet and talk with other people, so that you have regular contact with the outside world. Give yourself a bit of time to come to terms with what has happened and then be proactive in deciding what you want to do next. Whether you decide to follow the same career or try something completely new start looking for opportunities.
If you decide to become self employed make sure you find a good accountant. They will be able to give you advice about setting up your company and ensure that you pay the appropriate taxes at the lowest rates.

About the Author

For more information about redundancy, finance and online accountancy issues just visit Net Accounting.

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