'Downsizing' is new management-speak for redundancy. But the effects are the same for anyone whose job disappears as companies cut costs. A massive 650 people lose their job each day, according to research from Direct Line and, statistically, one in three of us will face redundancy at some time during our working lives.
Don't panic
Although you can't avoid the finger of fate, redundancy doesn't have to be a negative thing. It could allow you to change career or set up on your own. And if you manage to find a new job quickly, you may have a nice lump sum too. Once the initial shock has subsided, it's important to stay focused.
Know your rights
If you've been with your employer for at least two years, you're entitled to the minimum statutory redundancy. This is half a week's pay for every year of service worked between the ages of 18 and 21, a full week's pay for each year from 22 to 40, rising to a week and a half's pay per year worked over the age of 41. An extra week is then added on top. Pay is calculated at a maximum of £250 a week, regardless of earnings. Many businesses pay more than the legal minimum, often up to four or six weeks pay per year served.
Your employer must pay the full term of the notice period in your contract, even if they send you home. Being put on 'gardening leave' means you can't start a new job until the notice period ends. Some firms pay the notice period and release staff to start work as a gesture of goodwill. Other 'perks' may include CV and job-search assistance, financial advice and a discounted price for your computer.
Taxing times
Lump-sum redundancy payments of up £30,000 are tax-free. If your payment is higher, then it's worth asking your employer if they can pay the extra cash into your pension to avoid income tax. Alternatively, the additional money could be paid the following year, when you may be on a lower tax rate. If your employer agrees to pay your notice as part of the redundancy lump sum then this too could be taken tax free up to the £30,000 limit.
Beyond your salary
Some firms extend pension, insurance and health cover by several months for former employees to provide a comfort zone. If this isn't on offer then add it to your list of priorities.
With occupational pensions, speak to your employer's pension advisers before you leave, particularly if you want to pay some of your lump sum into the scheme to avoid tax. You should also get a valuation statement. Once you leave, speak to a financial adviser before deciding what to do. Life assurance is usually attached to occupational pensions and will lapse when payments stop. If you have dependents then this is an essential gap to fill.
Take cover
Unemployment insurance can cover all or part of your mortgage payments in the event of redundancy. It usually pays out after a specified period of unemployment - anything from four to 52 weeks. Most policies will pay out for one year, but it's not cheap - around £5 per £100 of mortgage protected. If you have made sufficient National Insurance contributions and have little or no money saved, you may claim Job Seeker's Allowance of £54.65 per week for up to six months.
Like it and lump it
Getting your hands on a large lump sum can be very tempting but, after an initial celebration, you should treat your payout very carefully. Think of it as your lifeline over the coming months. Work out a new budget so that your bills are paid and your spending is under control. Shifting the bulk of the money into a savings account will prevent dipping in and ensure that it is earning some interest.
