5 Reasons Why You Shouldn’t Let Work Redundancy Affect Your Financial Plan

Mark, a 45-year-old Manufacturing Technician for over 10 years, finds himself in a situation he had not planned for in this uncertain world. As the company he works for finds ways to cut costs and reorganise, he is one of the people who could be let go.

Mark, along with many of his colleagues, is among those contemplating an uncertain future.

Work redundancy is a stark reality in today’s ever-changing job market, and the fear of losing one’s livelihood can be paralysing. However, it’s important to remember that redundancy should not be the end of one’s financial plan; rather, it should be viewed as an opportunity for a new beginning.

Join us as we discuss 5 reasons why you shouldn’t let work redundancy affect your financial plan. We’ll also discuss your rights and entitlements while dealing with redundancy and seeking financial advice.

Understanding Work Redundancy

Redundancy occurs when an employer’s business no longer requires an employee’s role to be performed by anyone. When an employer renders a job redundant, the employee may be entitled to severance or redundancy pay.

Genuine Redundancy vs. Unfair Dismissal

Work redundancy in Australia takes various forms, encompassing scenarios such as the implementation of new technology automating tasks, and diminishing demand for a company’s products or services, resulting in an excess of employees in particular roles.

Redundancy can also arise from the completion of a specific project, the closure of a business or a department, or situations where a company relocates interstate or overseas. Additionally, work redundancy may occur when a business restructures or reorganises due to a merger or takeover, rendering employees in certain roles obsolete.

It is important to note that an employee who is dismissed due to a genuine redundancy cannot make an unfair dismissal claim.

A dismissal is not a genuine redundancy when the employer fails to meet the above-mentioned criteria.

Specifically, it is not a genuine redundancy if the employer still requires someone to perform the employee’s job, like hiring someone new for the position or if the employer has not taken the required steps to confer with employees about the redundancy, as stipulated in an award or registered agreement.

Moreover, if the employer could have reasonably provided the employee with an alternative job within their business or a related entity under the circumstances, the redundancy is not considered genuine.

How does redundancy work in Australia?

When an employee is laid off in Australia, the Fair Work Act 2009 and the National Employment Standards (NES) make sure that they are protected to a minimum standard. Some of these standards include requirements for consultation, notice times, and genuine redundancy payments for employees who are let go. These can help protect workers who are let go.

Consultation: Employers must engage with affected employees, providing reasons for redundancy, specifying affected positions, and outlining selection criteria. The consultation process gives employees an opportunity to provide feedback and suggest alternatives to redundancy.

Notice Periods: The redundancy notice period can vary based on their tenure with the company. For instance, less than 1 year of service entitles a minimum notice period of 1 week, while over 5 years warrant a minimum notice period of 4 weeks.

Severance Payments: The amount of redundancy pay also depends on years of service. Less than one year equals no severance pay, whereas more than ten years entitles you to 16 weeks’ pay.

Job search entitlement: Employees who have been given notice of redundancy are entitled to take reasonable paid time off work to look for new employment, up to a maximum of one day per week.

Accrued entitlements: Employees are entitled to be paid for any unused annual leave, long service leave, or other accrued entitlements upon termination of their employment.

Superannuation: Employers are required to continue making superannuation contributions for employees who are serving out their notice period, even if the employee is not actually working during that time.

Unfair dismissal protection: Employees cannot be dismissed on the grounds of redundancy if the employer has hired or intends to hire a replacement employee for the same or substantially similar work.

Voluntary redundancy: In some cases, employers may offer voluntary redundancy packages to employees as an alternative to compulsory retrenchments. The terms and entitlements for voluntary redundancy should be outlined in the relevant agreement or contract.

How is redundancy pay calculated?

In Australia, the redundancy pay entitlement of eligible employees can be determined by the following:

National Employment Standards (NES): The NES, set out in the Fair Work Act 2009, provides minimum standards of employment for all national system employees. Under the NES, employees are entitled to up to 16 weeks of severance pay on redundancy, based on their total length of continuous service within the business. This applies to employers with 15 or more employees.

Modern awards: Modern awards are documents that set out the minimum terms and conditions of employment on top of the NES. While the NES provides the minimum entitlement for redundancy pay, modern awards may contain additional provisions that are more beneficial to employees. However, they must not exclude the NES or provide for any less generous entitlements.

Registered agreements: Registered agreements, such as an enterprise agreement, can also contain provisions for redundancy pay. Like modern awards, these agreements must not exclude the NES or provide for any less generous entitlements.

Industry-specific redundancy schemes: In some cases, industry-specific redundancy schemes may be established under awards or in enterprise agreements. These schemes can provide different or additional entitlements to employees, and in some cases, employees may be ineligible for the statutory scheme payments.

Base pay rate and inclusions: You can calculate redundancy pay based on the employee’s base pay rate for their ordinary hours of work. It does not include incentive-based payments, bonuses, or loadings.

If your registered agreement has more generous notice and redundancy entitlements than the NES, you shouldn’t use the following:

The National Employment Services (NES) provide this Notice and Redundancy Calculator.

The payout depends on factors like continuous service length (excluding periods of unpaid leaves), age, and company size. Note that exceptions apply, such as casual employees or those employed for under 12 months who may receive notice of termination or a gesture of goodwill.

*You should also be aware that if an employee began working before the implementation of the NES on January 1, 2010, their duration of service for the purposes of genuine redundancy payment calculation will commence on January 1, 2010, even if they were engaged in the business prior to that date.

*An employee’s Base Rate of Pay, excluding incentive-based payments, bonuses, loadings, monetary allowances, overtime, penalty rates, and other distinct supplementary sums, represents the compensation they earn for fulfilling their standard work hours. 

Any employee attempting to calculate their redundancy entitlement should first consult the Fair Work Act of 2009, which establishes a minimum floor for an employee’s redundancy entitlement.

According to the Fair Work Commission, the following employees don’t get redundancy pay:

• employees whose period of continuous service with the employer is less than 12 months
• employees terminated because of serious misconduct
• casual employees
• trainees engaged only for the length of the training agreement
• apprentices
• employees employed for:
• a stated period of time
• an identified task or project
• a particular season

Go to the Fair Work Commission website to check how much redundancy needs to be paid out and if there are any exceptions in the applicable Award or registered agreement. If there are, the employee may get redundancy pay no matter their length of service for the company or how big the business was.

The Emotional Toll of Work Redundancy on Financial Planning

Whether it occurs as a foreseen life event or as a surprise, the experience of redundancy has the potential to sow the seeds of severe uncertainty, stress, and anxiety.

Losing a job is a major life change, and the range of emotions that might surface during this time is extensive and varied. It’s very normal to experience shock, anger, sadness, resentment, and possibly even relief, all within a pretty short period of time.

In the wake of such a significant life change, it is paramount to afford oneself the time and space to process and articulate these emotions. The shift to unemployment can have a significant influence on one’s self-esteem and sense of self.

The most important thing to remember is that redundancy has nothing to do with your personal performance and should not be interpreted as a reflection of your ability to conduct your job properly.

When faced with redundancy, financial problems invariably loom large on the horizon. Money, or the lack of it, can be a major source of stress and anxiety, especially in these uncertain times.

This intersection of money and mental health is a profound one, as they are intricately intertwined.

Struggles with mental health can significantly impede our capacity to manage our finances, creating a vicious cycle where mental health concerns are further exacerbated by financial woes. Conversely, worries about finances can have a detrimental impact on one’s mental well-being, creating a mutually reinforcing relationship.

In essence, the challenges that accompany redundancy are not insurmountable, but they do necessitate an empathetic and multidimensional approach. Recognising the emotional, social, and financial dimensions of this journey can empower individuals to navigate this pivotal period with resilience and strength.

The 5 Reasons Why Work Redundancy Should Not Affect Your Financial Plan

While redundancy can be a challenging and emotional experience, it is vital to remain positive and devoted to your long-term financial objectives.

Here are several reasons why you should not allow work redundancy to impact your financial plan:

1. Redundancy is often beyond your control

Job redundancy can result from various factors. Recognizing that redundancy is not a reflection of your capabilities can help you maintain a positive mindset and concentrate on your financial strategy.

2. You can leverage your redundancy payments

As previously explained, you may be entitled to redundancy payments based on your years of service. These payments can serve as a financial safety net, affording you the time to evaluate your options and devise a plan for the future.

3. You can seek advice from financial professionals

When facing redundancy, it is crucial to consult a financial adviser who can assist you in navigating the financial consequences and making well-informed decisions regarding your finances. They can aid in formulating a new budget, exploring investment possibilities, and managing any outstanding debts.

4. It may be time to consider upskilling or retraining

Redundancy can present an opportunity to explore fresh career avenues or acquire additional skills that enhance your marketability in the job market. Investing in your education and professional development can bolster your chances of securing a new job or potentially starting your own business.

5. There are supports available

The Australian Government offers various support programs for individuals facing redundancy, such as job search aid, income support, and training opportunities. Remain updated on these programs and take advantage of any available support.

Don’t let redundancy define you! Remember that redundancy is just one chapter in your career journey. Keep your focus on your long-term financial goals and view this experience as an opportunity for personal growth and adaptation. With the right mindset and a robust financial plan, you can overcome the challenges of redundancy and attain financial success!

Assessing and Adjusting Your Financial Plan

Dealing with the financial aftermath of work redundancy can prove to be a complex task, yet there are various key steps to guide you through this challenging period. Begin by conducting a thorough assessment of your existing financial status, encompassing your savings, investments, and outstanding debts. This evaluation will furnish you with insights into the endurance of your finances during unemployment.

Next, it is crucial to construct a budget that aligns with your revised financial circumstances. Identify essential expenses and areas where non-essential spending can be curtailed, enabling you to extend the longevity of your redundancy payment.

Moreover, acquaint yourself with the intricacies of your redundancy payment calculation and the associated tax implications. Armed with this knowledge, you can make informed decisions regarding your financial management during this transitional period.

To fortify your financial stability while job hunting, explore supplementary income sources like part-time or freelance work, which can serve as a bridge between jobs.

If you encounter difficulties securing employment in your current field, contemplate retraining for a new career. This strategic move can broaden your employment opportunities and enhance your earning potential.

Considering the complexity of the situation, it is advisable to seek the expertise of a professional financial adviser specialising in redundancy planning. Their personalised counsel can aid in formulating a comprehensive financial strategy to navigate this challenging period effectively.

Lastly, remain adaptable and be prepared to revise your plan as your financial situation evolves. This flexibility may encompass adjusting your budget, investigating fresh income avenues, or obtaining further financial guidance.

Diversification and Multiple Income Streams: Reducing Vulnerability

Diversification and having multiple income streams can help individuals reduce their vulnerability. Here are some specific examples of how this can be achieved, however, we recommend that you first obtain professional advice specific to your circumstances before commencing any investments:

Invest in Shares and Bonds: Put money into shares and bonds to potentially grow your wealth.

Property Investment: Consider buying property for rental income or invest in real estate through REITs.

Start an Online Business: Launch an e-commerce store, blog, or freelancing service online.

Peer-to-Peer Lending: Earn interest by lending money on peer-to-peer lending platforms.

Dividend Stocks: Invest in stocks that pay regular dividends for ongoing income.

Rent Out Space: Make extra income by renting out a room or property through platforms like Airbnb.

Consulting and Freelancing: Use your skills as a consultant or freelancer for extra income.

Part-Time Work and Side Hustles: Take on part-time or side jobs to supplement your earnings.

Education and Upskilling: Invest in courses to boost your skills and job prospects.

Government Support and Savings: Access government assistance and maintain an emergency fund for financial stability during transitions.

These options can help you create a more secure financial future while navigating changes in your employment status.

The Importance of an Emergency Fund

In the face of work redundancy, having an emergency fund can provide financial security, peace of mind, and support during the job search. It can also offer flexibility for career transitions, allowing you to explore new career paths, or start your own businesses.

Financial security: An emergency fund acts as a buffer, protecting you from falling into debt or relying on high-interest credit cards or loans to cover unforeseen expenses. This is particularly crucial for employees facing work redundancy, as they may experience a temporary loss of income or delays in receiving redundancy payments.

By having a safety net in place, you are better equipped to weather the financial challenges that come with job loss.

Peace of mind: Having an emergency fund provides peace of mind, allowing you to navigate through the uncertainties of job loss with confidence and resilience.

This is especially important for employees who may experience difficulty adjusting to the personal impact of redundancy, which can be compared to the emotions experienced during bereavement.

Having a financial safety net can help alleviate some of the stress and anxiety associated with job loss.

Support during the job search: Building an emergency fund before facing work redundancy can provide you with the financial resources needed to support your job search. It may take some time to secure a new position, and having an emergency fund can help cover essential expenses such as rent, utilities, and groceries while you focus on finding a new job.

Flexibility for career transitions: In some cases, work redundancy can be an opportunity for employees to explore new career paths or start their own businesses. Having an emergency fund can give you flexibility and financial security.

Seeking Professional Guidance During Work Redundancy

The sooner you get counsel and begin implementing a strategy, the better prepared you will be to weather any financial shocks such as redundancy. Having a clear strategy for your finances has been shown to be useful in the long run, and to provide consolation in the event of redundancy or other such financial shock.

If you’d like to chat with an independent financial adviser about your own personal financial plans, whether or not you’re concerned about redundancy, please contact us. We can plan your financial future so you may be confident that your money will endure as long as you need it.

Your financial adviser can assist you in reassessing your financial objectives and developing a new financial plan that is personalised to your specific financial objectives, circumstances, and needs. They will also be able to ensure that the path you choose on your financial journey will support you in achieving financial success and stability.

If your employer is refusing to make a redundancy payment where required or if you have questions about redundancy payouts, you can contact the Fair Work Commission or an employment solicitor.

Redundancy is undoubtedly a challenging situation, but with careful financial planning, a positive mindset, and the right support, you can overcome it.

Remember, your financial future can still be secure and even stronger after redundancy. Take these action-oriented steps to regain control of your finances and find new opportunities in this ever-changing job market. Your future is brighter than you may think!

Need financial advice? Newcastle Financial Planning Group is to help you tailor your investment plan and build your portfolio. Our financial advice team can help you establish direction for your investments to achieve your financial and lifestyle goals.

Call us or book online to secure your consultation today!

 

Sources:

• https://www.fairwork.gov.au/ending-employment/redundancy/redundancy-pay-and-entitlements
• https://www.fairwork.gov.au/ending-employment/redundancy/who-doesnt-get-redundancy-pay
• https://www.fairwork.gov.au/tools-and-resources/fact-sheets/minimum-workplace-entitlements/notice-of-termination-and-redundancy-pay
• https://www.fairwork.gov.au/employment-conditions/awards
• https://www.legislation.gov.au/Details/C2021C00421
• https://businesskitz.com.au/a-guide-to-understanding-redundancy-in-australia/