Turning Redundancy into Opportunity
Turning redundancy into opportunity
If you are offered redundancy, how can you turn a potentially bad situation into a new opportunity?
In the first instance, make sure that you negotiate a good redundancy settlement. By law you are entitled to a certain amount depending on your years of service with the company.i You may or may not come under an award, but the Fair Work ombudsman has a calculator so you can work out your entitlement.
You may even be able to negotiate an increased payment (a golden handshake) in order to keep confidential any specialist knowledge that you may have.
Your redundancy payment may include long service leave, holiday pay and sick leave, so it can be a sizeable amount and that creates opportunity.
How is it taxed?
But first, how much will you end up with after tax? There is a tax-free element for redundancy payments, calculated as a base amount (currently $10,989) plus a service amount ($5,496) multiplied by the numbers of years of service. So, if you have 10 years’ service, your tax-free amount is $65,949.ii
Any redundancy payment above this amount is your Employment Termination Payment (ETP) and subject to tax. If you are below your preservation age (the age at which you can access your super) you would pay 30 per cent plus the Medicare levy on this sum or 15 per cent plus Medicare if you are older than your preservation age. In both cases this tax rate applies up to $210,000 with the balance subject to 45 per cent tax plus Medicare regardless of your age.iii
So what should you do with this money? A large sum can present many opportunities although much will depend on your present circumstances such as how close you are to retirement and what your financial commitments are.
If you are hoping to find another job, assume this could take at least six months, so make sure you have sufficient funds.
Now is the time to take stock of your household budget and look at ways to reduce your overheads to control your immediate demands. For instance, you may look at selling your second car.
But don’t rush to cancel everything. Indeed, your income protection policy, for instance, could still play an important role. Before you act, ask your insurer if they would consider waiving the premiums for a few months. Just because you have lost your job, does not mean you will not be covered if something should preclude you from working in another job. You may well find you are still covered even if you are not currently employed.
Look to the future
Depending on your circumstances, you could consider using some of your redundancy payout to improve your overall financial situation. You could reduce your mortgage and other debts, or perhaps to make an investment or fund a business opportunity.
If you are approaching retirement age, then you might consider putting some of your redundancy pay into super. While this may still be a good idea if you are younger, remember you could be unemployed for longer than six months and you wouldn’t want your money locked in super until you reach preservation age.
If you are still expecting to have a few more years in the workforce, then take the time to seek professional help on your next move and think outside the square. So, rather than just find a similar position to the one you have lost in the same industry, look at widening your horizons. A professional career advisor can help. In many cases, employers provide such assistance as part of a redundancy package.
While redundancy can be confronting, if you think of it as a catalyst for change then you may find it’s one of the best things that has happened to you.
Call us to discuss how to make the most of your redundancy payment.