Government support has slowed and uneasiness still remains in the economy. Understand how redudancies work, so you can make a fully informed decision.
“932,000 jobs were lost between the March and Hine 2020 quarters in the wake of COVID -19”https://www.abs.gov.au/media-centre/media-releases/932000-jobs-lost-between-march-and-june-quarters
If you are facing possible redundancy or a major restructure, this is a major life stage for you. Not only has your employment ceased, but you are more than likely the recipient of a lump sum of cash. In some instances, it may be the largest single influx of cash you may ever see.
This lump sum of cash can be used in various amount of ways. Paying off debt, provide you an income while out of work or used in your superannuation to provide for you in retirement.
For those nearing retirement this may be a welcome windfall, bolstering your retirement savings. But for others managing your cash flow through a very uncertain period, it can prove to be a stressful time.
In these instances, your Financial Adviser should be your first port of call. Their understanding of your financial position puts them best placed to know how to structure your finances.
A Starting Point
Understanding your redundancies may alleviate some of your angst. It is the uncertainty that many struggle with. Some of the main points you should understand are:
- How will your payment be taxed?
- Will you lose any other employee entitlements?
- Will it have an impact on any Centrelink Payments?
- What should you so with the lump sum?
Understanding your redundancy
Not all redundancies (and hence redundancy payments) are the same. It is very important to understand the type as the taxation of the two differ and it will affect your final take-home amount
Broadly there are two types of redundancy, a Genuine Redundancy and Non-Genuine Redundancy.
“ A genuine redundancy payment is a payment made to you as an employee if you’re dismissed because the job you were doing has been abolished.”1
“A non-genuine redundancy occurs when the employee: is dismissed because they’ve reached normal retirement age; is their pension age or older on the day of dismissal; leaves voluntarily; has their contract terminated; is dismissed for disciplinary or inefficiency reasons.”1
The differentiation is an important one, as it will dictate the amount of tax you will pay.
Genuine redundancies do have additional tax concessions, while non-genuine do not.
The most common form of redundancy is the genuine one whereby the company you work for no longer needs or can afford to keep your position.
However next most common would have to be voluntary. And it is here that we have to be vigilant. As soon as you volunteer to become redundant any payments will fall under the non-genuine category. As such certain tax concessions will no longer be applicable.
Most redundancy payments will include some sort of severance pay. A payment of a number of weeks for each year served. For the more long serving employees, this can be a very attractive number.
Other Things to think About:
Your Financial Adviser is a good sounding board. There are many financial and non financial aspects that need to be addressed.
- Based on your current cash flows, how long will your redundancy payment last?
- How to best utilise other assets (investments etc) if need be during your unemployment
- Should you be considering retirement, what does that look like? Are you mentally ready? How are you going to fill your time?
It is important to get professional advice before you proceed with any type of redundancy as there are a few pit-falls that could catch you.
Just as important is to seek advice after you become redundant. This significant amount you receive not only needs to provide for you in the short term, but can be used in certain strategies to boost your retirement savings for the long term.
If you are in a situation where you have found yourself offered redundancy or recently made redundant, schedule a no-obligation Discovery Chat with us. We’ll help your review your current situation, your needs and your goals to ensure you make the most of your redundancy payment.
Discovery Wealth – The Hills trusted name in financial advice.
The views expressed in this publication are solely those of the author; they are not reflective or indicative of RI Advice Group’s position and are not to be attributed to RI Advice Group. They cannot be reproduced in any form without the express written consent of the author. Louella Jorge is an Authorised Representative of RI Advice Group Pty Ltd, ABN 23 001 774 125 AFSL 238429. This editorial does not consider your personal circumstances and is general advice only. 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. You should read the relevant Product Disclosure Statements and seek personal advice from a qualified financial adviser before you act.