The current wave of retrenchments announced from big business are expected to pick up pace and spread. To be retrenched is one of those traumatic events on an emotional par with a marriage break-up or death of a family.
It’s just horrible but unfortunately it is a fact of life in an economic downturn.
It’s easy for others to say, but you just have to pull yourself together quickly, not take it personally and get on with the job of finding another job. Australian industry is going through massive pandemic shock at the moment with some parts shedding staff.
First up, check your industrial award to make sure you receive the correct amount of retrenchment pay for the years of service and all your entitlements.
Then start talking about your situation. Many people are ashamed it they’re retrenched and don’t tell friends or relatives. Nothing could be further from the truth and generally friends want to help. So be open about it and pick their brains to see if the know of any opportunities.
I can’t stress how much you need to make finding a job like a job.
I’ve had a few mates retrenched and they would get up each day, get dressed properly, shave, shower, have breakfast and hit the phones at exactly 9am and work through to 5pm. They said the discipline and routine kept them motivated.
This is a chance to reflect on what you want to do with your working life. If you love your profession, revamp your resume and waste no time looking for a new job.
If you weren’t satisfied in the old job, what do you want to do? This is a chance to re-skill, give something else a go or even have a crack at starting that business you’ve always dreamed of.
Don’t forget to enquire at Centrelink about unemployment benefits and maybe Newstart Allowance while you’re looking and don’t have unrealistic expectations about finding a dream job.
It’s about getting any job (within reason) so the cash keeps coming in and then continue your search for a better option on your own terms.
When you leave you will receive a payout that will include any unused long-service and annual leave, any salary owing and perhaps a ‘golden handshake’ or official redundancy payment. The amount of official redundancy payment you receive will depend on your employment contract. For example, it may state you will receive four weeks salary plus two weeks pay for every year of employment if your position is made redundant.
If you’ve been with the company for a number of years you should receive a pretty big payout. If managed properly it could set you up for some time.
Redundancy payouts aren’t taxed like regular income. The government gives you a break because this money has to support you and your family until you find a new job.
Part of the redundancy benefit is tax-free up to a limit of $10,638 plus $5,320 for each year of service completed with that employer. This money can’t be rolled over into superannuation.
Amounts over that limit are classified as an Employment Termination Payment (ETP) and are taxed. You also pay tax on any unused leave.
This isn’t as complicated as it sounds. Let me talk you through an example.
If you receive a redundancy payout of $60,000 after 8 years of service at a company your tax free limit would be $10,638 + $42,560 ($5,320 x 8 years) = $53,198.
The remaining $6,802 would be classed as an Employment Termination Payment and you would have to pay tax on that amount. The tax rates for the ETP depend on whether you’re under or over 55 years of age and also the amount of the payout.
But tax rates can change depending on your circumstances and also whether you’ll be contributing that money to superannuation or not.
It really is best to seek professional help in this area because there are a lot of variables to consider and getting it right could save thousands of dollars in tax.
Most importantly, check your company handles your payout the right way and doesn’t take out too much tax. If you don’t understand how you’ve been taxed get your payroll officer to talk through the figures.
Investing your money
Deciding what to do with a redundancy payout is one of the biggest financial decisions you will ever make and will depend on your employability, age, debt and other income sources.
By all means have a dream about what you could do with this money…then take stock of your financial situation. How long are you likely to be unemployed? How long can you and your family survive without your income? How long will your payout cover your current financial commitments?
Don’t rush in to spending or investing a retrenchment payout, because you may make rash decisions you’ll later regret. Take your time and get advice. Think about putting the money in a high interest savings account for three to six months while researching your options.
If you are confident of finding another job the first priority should be to reduce debt. That should lower any monthly loan repayments as well as the amount of interest you’ll be charged in the long run. What’s the point of earning 2 per cent on a lump sum, and paying tax on the returns, if you are paying 3 per cent interest on a mortgage? If you use the money to pay off a chunk of the mortgage, check whether the loan has a redraw facility just in case you take longer than you thought to find another job.
If you’ve found a new job and paid off any debts consider a higher risk higher reward strategy, and look at investing in shares or growth managed funds.
If the job outlook is bleak, think about splitting the money between accessible cash accounts, term deposits and income-paying managed funds. Relatively low risk options that will pay some investment income.