Putting your redundancy strategy in your own hands
Ongoing economic uncertainty means that it’s still not uncommon to read a story about large or high profile businesses making staff redundant. The flow on effects from past tough economic times are still being felt in many sectors of the economy and redundancy remains an all too common possibility for employees of both large and small businesses.
For some, redundancy can be a real blow to self-esteem, especially if they have been happily settled in the same job for many years. Others may see it as an opportunity and actively seek out redundancy as a springboard to a change of career or lifestyle or a way to transition to retirement more rapidly.
Whatever your situation, there are ways to address the challenges that can make it easier to cope with and put you in a position to face the future with optimism.
Dealing with the emotional impacts
For those who take redundancy as a blow to their confidence and self-worth, it is important to start taking practical steps as soon as possible to build momentum and focus on the future, rather than dwelling on the past.
Financial worries can be eased
Acting swiftly and planning properly on the financial issues surrounding redundancy is also integral to getting back on your feet. Dealing with financial obstacles early on will dramatically improve your situation down the track. In fact many people report an improvement in their quality of life and financial situation after a redundancy, but you need to have a plan to make the most of it.
For many people redundancy could result in quite a significant windfall. The temptation, of course, is to use the money for a long holiday or a new car, but it is vital that you plan for both immediate income needs and your longer term investment situation, before making any rash decisions with your payout.
The first thing to get to grips with is the taxation situation. Making rash or poorly informed decisions on your payout may mean you end up paying more tax than you need to. If possible, it is better to get on the front foot, get some sound advice and take actions before a redundancy payment is made to you, so that you can make the most of any tax saving opportunities.
The timing of your redundancy payout can be crucial to the tax outcomes and opportunities may be created by delaying payment. This may allow some funds to be directed toward a salary sacrifice contribution to super, which effectively reduces tax payable to 15% rather than paying your full marginal tax rate.
Delaying a termination payment into a new tax year may allow you to take advantage of any increases in tax free thresholds that apply to your payout. It may also help reduce your taxable income for the current year and thereby reduce the amount of tax payable. Of course, you will need to talkwith your employer about whether these options exist so clarifying options early as you can is important
Centrelink entitlements may also be available and should be investigated as soon as possible. Depending on your leave entitlements and liquid assets, you may not be eligible for benefits immediately, but knowing what you can expect later on will help you budget properly. Centrelink can also assist with employment opportunities and training.
Once those initial issues are dealt with, you can then look at planning your budget and whether you need to use your payout to fund living expenses. Another possible use of payout funds is to reduce debts, but this needs to be considered in the broader context of your total financial situation. There is no one-size-fits-all answer to these questions, which is why it is so important to plan carefully and take on some professional advice.
You can contact our office on 02- 99450790 for further information.
Disclaimer:The information (including taxation) provided in this article is general information only and does not constitute financial or taxation advice. It has been prepared without taking into account any of your individual objectives, financial solutions or needs. Before acting on this information you should consider its appropriateness, having regard to your own objectives, financial situation and needs. We recommend you seek professional advice where appropriate including specialist tax advice from a financial adviser or registered tax agent.