THE R word has reared its ugly head again. No, not recession, but redundancy. UK unemployment figures made their biggest leap in 16 years last month and although Scotland bucked the downward trend, fears linger that redundancy figures here could grow.
For anyone facing the prospect of redundancy, the next few months could be a difficult time.
But there are ways of easing the burden, from improving the package your employer offers you to limiting the financial damage caused by a spell on the e
mployment sidelines.
Here are the main issues to consider:
• The settlement
The statutory redundancy pay to which you're entitled depends on how long you've been with the company, your age and your salary.
The minimum entitlement is half a week's pay for each complete year of service below the age of 22; one week's pay for each year between 22 and 40; and one and a half week's pay for each year above the age of 41. The maximum taken into account is 20 years of service.
There are scenarios in which you may not be entitled to this, such as where you've turned down a suitable alternative role with your employer.
This is open to interpretation of course, so get the details of any such offer in writing.
When your employer offers you a severance package – and many offer above the statutory minimum – get it all in writing and take time to consider it.
If you verbally agree or disagree immediately you are held to it.
• Tax payments
The payment to which employees with two or more years service are entitled is taxable over £30,000, including any combination of statutory and enhanced benefits. Anything above £30,000 is added to your earnings for the year and taxed at your highest marginal rate.
Also check whether any payment made by your employer is before or after tax.
Susan Cruden, senior employment tax manager at Grant Thornton Scotland, said there are some circumstances in which the £30,000 exemption doesn't always apply.
"If your contract entitles you to a payment in lieu of a notice period, the exemption doesn't apply as the payment's in the contract. But if the payment is made as compensation after the contract is terminated, that qualifies."
If you leave halfway through the year, however, you may get a tax rebate as you wouldn't have used all of your annual personal allowance.
You can also reduce any tax arising from redundancy payments by paying it into a pension, although that ties the payment up for the long-term.
• Added extras
It could be worth negotiating with your employer over any additional benefits you could still get, such as any remaining insurance cover. You may be able to retain them until the renewal date or get them transferred into your name, which would be cheaper than buying new policies.
"In your notice period you're entitled to all benefits as normal, but often the employer will buy them out," said Alessandro Riccomini, director of tax at Johnston Carmichael in Edinburgh.
Similarly, take advantage of any assistance offered, such as outplacement consultancy to help you in your search for a new job. But the added help available may depend on the scale of redundancies, warned Riccomini.
"If it's just one person being made redundant, employers are more inclined to discuss terms.
"But in large-scale redundancies employees generally get the same package across the board."
• Pension
What you do with your pension isn't a decision that needs to be made immediately, but it's an important consideration. Some redundancy settlements allow for contributions to be continued, in which case you need to assess if it's the best option. Bear in mind that while you're not earning the contribution limit is £3,600 a year.
Decisions such as continuing or stopping payments, leaving or transferring are best addressed with independent financial advice.
• Share schemes
Company share save schemes are increasingly popular, partly due to their tax-efficiency. The situation can vary with individual schemes, but in most cases the shares are forfeited on redundancy.
"You can lose your entitlements, but it depends on the company or the approved scheme you're in, so check the rules," said Cruden.
Remember that in some cases, encashment of shares that were part of your package can prompt a capital gains liability.
• Using redundancy money
Unless you have a job lined up you need to be smart with any payout you've received. If you are likely to need it at short notice, check the best-buy tables for the highest paying ISAs and savings account offering easy access. When considering savings always use tax-free solutions first, such as cash ISAs. If you're looking to invest some or all of the money in stock market-based investments for the longer term, take advice from an IFA or financial planner to ensure it's used wisely.
Paying off debts or reducing your mortgage is an option if you're confident that you have a stable cash flow.
• Redundancy pay
If you have capital below £16,000, including any redundancy payouts, you can claim income support or income-related jobseeker's allowance, although the amount paid reduces gradually for those with £6,000 or more. If you've paid National Insurance contributions you can get contributions-based jobseeker's allowance payments of £60.50 if you're 25 or over and £47.95 if you're between 16 and 24.
