You’ll hopefully find new work quickly, but losing your job can be a huge financial hit. It can affect your ability to pay bills and bring about an urgent need to re-evaluate spending.
This is a step-by-step guide to planning for redundancy, your rights to compensation, and tips to minimise the impact if it’s happening to you.
In this guide
Redundancy brings many pressures; worries over mortgage payments, fears of finances falling apart, the stress of job-finding or strain on a relationship (though some may feel the joy of release from a miserable job!).
Don't let it take hold and stop you moving on to another job, career change, training or even taking time out. By preparing beforehand you can batten down the hatches and hopefully bounce back quicker and stronger.
A must-read for all
This guide doesn't just apply for those who've been given notice or heard rumours. Massive cuts in public spending, and the associated knock-ons from that, mean it's sensible for everyone to take a moment to think how they'd be affected, and put a contingency plan in place if possible.
The threat of redundancy may be more likely in a recession, but it's never a bad idea to have plans in place should you lose your job. Budget and make sure you know where you'd stand if it did happen and you'll save yourself the panic if, further down the line, your job becomes under threat.
Is redundancy looming in your company?
If you've been told redundancy is a possibility or think it might be heading your way, then you're in a much better position if you take action before it happens.
Sort your finances NOW
Nervous about losing your job but not in any immediate danger? Think as if you're about to lose your job, in order to protect yourself as best you can.
Do a debt audit. Your credit score while working will usually be much better than if you lose your job, as the loss of income means lenders will be less keen to give you credit.
Therefore if your existing debts aren't at cheap rates, it's best to apply sooner to try to cut their costs. See the Best Balance Transfers, Best Bank Account, Cheap Loans and Mortgage Finding guides for more info.
Pay off debts. If you've any spare savings, use them to clear outstanding credit cards or loans. Having debts hanging over you during redundancy is a nightmare. The cost of most debts vastly exceeds the interest earned on savings.
Yet it's important you keep access to emergency funds if you need them. If you decide to repay debts, but it takes longer than planned to find a new job, you may need money later on for day to day living.
More info in the Should I Repay My Debts? guide.
Check out mortgage help schemes. If you have a mortgage, work out what level of protection you have if you were to lose your job. Both private, work-based and government schemes may help. See the Mortgage Arrears guide for more info.
Up your income. There are a host of things you can do to bring in cash in the short term, from mystery shopping to flogging your CD collection. See the Boost Your Income guide for ideas.
Do a budget & money makeover. There's nothing more important than running through all your finances to see what bills you can cut (see the Money Makeover guide) and doing a full budget to ensure you're spending within your means (see the Free Budget Planner). The Stop Spending guide will also show you lots of little ways to cut back.
To be truly prepared, if losing your job's likely, start living now as if you'd already lost it. Cut back on everything, and put spare cash away to help you live when there's less income. This way while you're living tighter for longer, the depths won't be as deep.
Join a trade union?
If your company or industry has a union and you're not a member, it's worth considering joining. Most will be able to advise on, and barter for, better redundancy packages on your behalf and provide free advice and guidance on your rights. Find the appropriate union and what it provides using the TUC's Union Finder tool.
Network and build contacts
Keep your ear to the ground and see what else is available; whether it's openings elsewhere in your company or at a rival. Many job positions become available long before they're advertised publicly, so be prepared to pounce.
Now could also be the time to push your luck where you might not have had the confidence before. Don't be afraid to ask if work's available even if you're not sure you have the relevant experience. Sometimes you don't get if you don't ask.
Remember while ‘last in, first out’ no longer applies, you have less employment rights in the early stages of a new job than you do when you've been there longer. So if you move to a new job, then redundancy hits, there is a slight risk to your security.
Plus if you're likely to be offered voluntary redundancy and a big payout, or have long service at a company, jumping ship may mean you lose all that. Weigh it up carefully.
Redundancy and payment protection
There are a number of types of insurance policy that will cover your income, or just certain loan repayments, if you lose your job.
However it's important to understand one thing...
If redundancy's foreseeable when you start a policy, then it may be void
For example, if there's been an announcement in the firm that some jobs are going or it's been rumoured strongly, then it's possible this will disqualify you from claiming, meaning a policy is a waste of money. The same's usually true if you take voluntary redundancy, so check first.
If you think your job may be at risk talk to your employer and find out how high the risk is. It's unlikely a rumour of job losses, even if it's through a government announcement if you work in the public sector, will count as notice but be aware, many grey areas exist.
Applicable insurance types include:
Mortgage Payment Protection Insurance. This is designed to cover your mortgage repayments and related home costs in the event of accident, sickness or unemployment. See the MPPI guide.
Payment Protection Insurance. These policies cover repayments of other debts, again in the event of accidents, sickness and unemployment.
Often they're sold with loans and are massively overpriced, but bought through standalone providers can be much better value. See the Loan Insurance and Credit Card Insurance guides.
Unemployment cover. It's becoming harder to find , but it's also possible to take out specific ‘unemployment only’ cover as a standalone policy.
This insurance offers a regular monthly sum to cover your normal outgoings, including mortgages and bills, for up to 12 months. As a rule they tend to pay out a maximum of around £1,500 or 50% of your gross salary.
For example, depending on your age, Safety First costs between £3 and £6 for every £100 of cover taken out, although this is only a little cheaper than its accident, sickness and unemployment cover.
This type of insurance is incredibly valuable in the right circumstances, but there've been huge numbers of mis-selling cases, and many have paid massively over the odds. If you're considering a policy, check all the terms carefully to see if it's suitable and do a full market comparison.
If you've already been made redundant...
Whether you've just been given your notice, or you've already left work, it's important to keep in mind the old adage...
“It's your job that's been made redundant, not you.”
If you're selected, the first thing to remember is that your employer must treat you fairly. There are laws to protect you from being simply tossed aside, so it's important to double-check that your employer has played it fair. If not, you could be in line for compensation. More info on unfair dismissal on Gov.uk.
The situation is different if your company has gone bust - see full details below.
What redundancy payouts you're entitled to
There are three main types of payout you can expect:
Notice of termination. Your employer should give proper notice of termination (in other words, tell you long enough in advance). If there is nothing in your contract, the minimum is a week if you've been there under two years, then a week for each complete year (up to a maximum of 12 weeks). Yet your employer may give you pay in lieu of notice, or simply pay you for the period without you attending.
Holiday pay. If you have accrued but not used holiday days, you are entitled to be paid for these (or given the option to use them in your final weeks)
Redundancy payout. A redundancy payout is effectively compensation for your loss of work and the first £30,000 is tax free (see below).
Many firms have their own policies which are much more generous than the legal minimum, so check your contract or staff handbook and see what it says. If it's not specified then it will usually follow the legal minimum (see below).
Minimum statutory redundancy payments
After two years with your employer, you'll qualify for a minimum statutory redundancy payment. If you've worked there less than this, you've no right to any recompense.
For those who have at least 24 months' continuous service, your entitlement depends on your age and longevity at the company.
Under 22. Half a week's pay for each full year of continuous service
Aged 22-40. A week's pay per year of continuous service
Over 41. A week and a half's pay for each year of service
However before you start adding it up, it's based on a maximum salary of £22,360 a year thus...
A ‘week's pay’ can legally be capped at £430, so even if you earn more, you aren't entitled to it under the statutory payment.
The limit of £430 came into place on 1 February 2012. Prior to this it was £400 (1 Feb 2011 to 31 Jan 2012), £380 (1 Oct 2009 to 31 Jan 2011), £350 (pre 30 Sep 2009).
Plus it isn't the age you are now that counts, but the age during each year you've been in your job. Here's an example to explain:
Bob's been a builder with CanYouFixIt Construction for 8 years earning £300 a week. Now, aged 45, he's been made redundant.
As he worked there for four years aged under 41, he gets a week's pay for each of those. He did four years aged 41 or older, so he gets a week and a half's pay for those. Thus overall he'll get ten weeks payout of £300, which is £3,000.
To work out exactly what you're entitled to use the Government's calculator.
The first £30,000 of redundancy pay is tax free
Whether it's statutory (see above) or contractual redundancy pay, the first £30,000 you receive is tax free, and no national insurance contributions are deducted either. Do check you don't find yourself paying these as some smaller companies without a human resources department might not know the rules.
If you're asked to leave work before your notice period ends but keep getting paid - known as Payment in lieu of notice (or PILON) - you'll only pay tax if your employment contract says so (or it is normal practice in your company).
Otherwise the payment is also tax-free as long as your total payments are under the £30,000 limit - most contracts tend to mention it.
If you have been given any additional benefit, such as a company car or laptop, this is usually included in your £30,000. If you go over this limit and/or are a higher rate tax payer you may need further advice. The HMRC Redundancy Factsheet is also a useful resource.
What if my company's gone bust?
If the company has no money left, then you'll need to claim Statutory Redundancy Pay (SRP) which is organised via the insolvency practitioner dealing with your employer's administration.
The money you get will come from the National Insurance Fund, a giant government insurance scheme set up after the Second World War into which we all pay as we work. Once that's done, this fund will try to reclaim the cash from the company's assets.
It's not just redundancy pay
If you're owed wages or holiday pay from a firm that's gone bust, you can also claim the following from the National Insurance Fund via the insolvency practitioner. Unlike redundancy pay, this is taxed and uses the same ‘maximum’ rule of no more than £430 a week.
Wages. Up to eight weeks' unpaid wages can be claimed.
Holiday pay. Up to six weeks' unpaid wages can be claimed.
Compensatory notice pay. One week's pay after one calendar month's service, and then one week's pay per year of service up to a maximum of twelve weeks.
Any further holiday pay and wages owed will be billed as 'preferential debt'. This means they'll be paid before other debts if there's enough money when the eventual assets of your employer are totted up and divided out.
How to claim
To apply for Statutory Redundancy Pay, you'll need to contact an Insolvency Practitioner or call 0845 015 0010 to request a copy of a RP1 form (see the Insolvency Service website for more details) and send it back to the practitioner dealing with your company's insolvency. It usually takes about three to six weeks for you to receive your payment.
Your legal rights
The legal rules surrounding redundancy are complex, and this is a MoneySaving not an employment site, but in general terms the following should take place:
Before redundancy you should've been consulted.
You should be given the correct amount of notice.
All untaken holidays should be paid.
The company should have considered whether there was an alternative to redundancy. Is there another job in the firm you've the skills to do?
The process for picking who is redundant should be fair. If the company decided to choose you on a discriminatory basis, then your redundancy is unfair, giving you grounds to complain and even sue.
Additionally, if more than 20 staff are to be let go, the law says there should be a period of collective consultation between the employer and ‘appropriate’ employee representatives (usually a union).
Further reading: For more on the legal issues surrounding redundancy read the Citizens Advice redundancy section.
Where to get free help
There are a lot of agencies set up to provide help and advice for those facing redundancy:
The Advisory, Conciliation and Arbitration Service gives free advice on all employment issues. Call it on 08457 47 47 47 (8am to 6pm Mon to Fri and 9am to 1pm Sat)
- Link: ACAS
Labour Relations Agency (LRA)
Those in Northern Ireland can call the LRA for free advice on all employment issues. Call it on 028 9032 1442 (9am to 5pm Mon to Fri).
- Link: LRA
Citizens Advice Bureau
Your local bureaux can give free employment advice.
- Link: Find your nearest Citizens Advice
The redundancy checklist
This checklist is full of options to both sort your finances and help you get back on track if you've been made redundant. Which will work depends on your circumstances.
Are you entitled to benefits?
The benefits and tax-credit nets spread further than you think; even a few families with income in the seventy thousand pound range are eligible. So it's important to ensure you're getting all you're entitled to. This can include tax credits, housing benefit and council tax support. See full details in the Benefits Check-up guide, but remember to answer the questions as if you're not working.
Contact the Jobcentre ASAP as payments are often delayed; the sooner you start the better.
Don't be shy about this, it's money you're entitled to. Receiving benefits also pays your national insurance contributions, which can have an impact on your eventual state pension. You'll be asked to declare any savings, including your redundancy payment, so that your benefit start date can be determined and you're not overpaid, yet this is usually the day after your redundancy notice period ends.
The main ‘out of work’ benefit is Job Seekers Allowance (JSA) and there are two versions of this, contribution-based JSA and income-based JSA. Which you get will depend on your circumstances:
Contribution-based JSA: To get this you need to have been paying national insurance for two years, but anyone can claim it for up to six months.
Income-based JSA: This is based on your household income so any insurance cover, savings or redundancy payments are taken into consideration. If you get this version you can claim it for longer than 6 months; until you get a new job.
Simply call up on 0800 055 6688 to find out how to make a claim (or claim online) as it can take several weeks, sometimes months to get the payments sorted. If you're in need of emergency cash in the short term then ask about a Short-term Advance (where money you'll be due is paid early, but obviously you don’t then get it again later).
Budget, budget, budget
If you've not already done so, now is the time to sit down and do a full budget (see the free Budget Planner) and then the Money Makeover and Stop Spending guides. You can slash the costs of many day-to-day expenses from petrol to prescriptions and can prioritise your expenditure to stick within your means.
You should also start to ask yourself the tough questions about whether you 'need' or 'want' things. A spending diary can help you keep track of where your money is going at the moment.
Deal with your debts
If you're having financial problems, don't ignore red letters. Contact your creditors to discuss the problem with them as soon as possible. They may be able to temporarily accept lower monthly payments. If you're concerned about your debts, read the full Problem Debts guide.
When mental health problems are involved, some special solutions apply. Our free Mental Health & Debt Help PDF booklet has tips to help you handle debts when stressed, work with banks, get free one-to-one debt counselling as well as specific tips for bipolar and depression sufferers and more.
Also check out the Debt Free Wannabe forum where there's lots of useful advice from other people in the same situation. You can also post details of what you spend, for others to suggest ways that you can cut back.
Check for hidden insurance
Check whether you've any insurance to help make payments on your mortgage, loans or credit cards. This is one case where you may be a lucky victim of mis-selling. Some loan companies added expensive payment protection insurance to loan costs so you may have a policy without knowing it.
If you do, make a claim as soon as you're out of work. Many policies are dependent on getting unemployment benefits and may require you to have been in work for a certain length of time. It's very important to check the terms straight away as taking temporary work may invalidate your claim.
If you are turned down for a claim due to a reason you did not expect, check to see if you have been mis-sold the policy (see the PPI Reclaiming Guide), in which case you can reclaim the cost of the insurance.
Check for cheaper car insurance
Scandalously, the unemployed often (though not always) pay higher rates for their car insurance. You should inform your provider if you're out of work. If your policy's changed, see if it's worth cancelling and moving elsewhere, as you don't need to be at renewal to change insurer. Cheap Insurance Guides: Car, Van, Motorbike.
Struggling with your mortgage?
There are two state schemes available to help if you're struggling to pay your mortgage. Full scheme-by-scheme details, including an eligibility checker are in the Mortgage Arrears Help guide.
However, if you're struggling, first talk to your lender to see if it will help you manage your payments. Lenders must only use repossession as a last resort and have to prove they have done all they can to help struggling borrowers, so use this to your advantage.
Help from the government
There are a few ways which may be able to provide you with interest-free borrowing rather than getting commercial debt.
Local council support schemes: From April 2013 each local authority is responsible for providing help to its residents struggling with an emergency, such as you or your families’ health being at risk, not being able to afford to buy food, needing help to stay in your own home and coming out of care, hospital or prison.
Sadly this is a postcode lottery, each council can choose whether to offer financial help or not or who is eligible. For example, some may give furniture or food grants while others may give cash. Contact your local council or just Google "www.yourarea.gov.uk" to find out it's procedure.
Budgeting loans and advances: These are only for benefit recipients, but allow a wider range of borrowing; for instance to pay for clothes and furnishings.
Apply for one via the Jobcentre or via the form on Gov.uk (if you're in Northern Ireland, use NIdirect). If you have means to get money any other way (using savings, for example), you won't qualify. Up to £1,500 can be borrowed at one time for each loan and repayments are dependent on what you can afford to pay.
Sadly demand for these are extremely high at the moment and there isn't a bottomless pot of money, so if the council or Jobcentre decides your circumstances aren't urgent or you're not struggling, you may not get anything. But if you think you qualify and really need the cash, it's definitely worth a shot.
Grab grants for those on low income
There's millions available in grants for people earning under £16,000 or entitled to benefits, though some stretch up the income scale. Check how to find them in our Low Income Grants guide.
What's available? Help with furniture, holidays, training or occasionally even regular amounts to help cover household bills. Yet these can vary by region, occupation or even the pub you drink in.
Need I pay the money back? Not if it's a grant - the money is simply yours to spend.
Notify the tax credits office.
If you receive ANY tax credits - whether the working or childcare elements - it is absolutely vital that you...
TELL THEM, TELL THEM, TELL THEM!
If you fail to tell the tax credits office that any of your circumstances have changed within one month, you could be fined £300 as well as paying back any overpayments. It may seem like a good thing to keep receiving extra payments, but it will cost you in the long run. Instead do a full Benefits Check-Up for your entitlements.
Start job hunting
Now is a good time to reassess your position and priorities. Are you happy in your career? Is now a good time for a change? Do you need time out? This information could affect your decisions, so it is useful to make some choices as soon as possible and see if you can get any freebies to help you along the way.
Get your CV updated ready to apply for other jobs; if you're still at work ask your HR department to have a look at this for you. If the whole company is closing, maybe due to an administration, ask for a written reference in advance.
Some employers provide job hunting help as part of a redundancy package. If yours doesn't, check the library for a book with job hunting advice. There are lots of top tips, info and support from other MoneySavers in the Employment, Job Seeking & Training section of the forum.
If you can't find the job you want straight away, consider other options to increase your income such as temping, working part-time or taking in a lodger, which can earn up to £4,250 a year tax free. See the Boost Your Income guide.
Learn something new
When jobs are difficult to come by, it's far better for your CV and personal development to have spent time out studying or adding to your skills than just being redundant.
Check what courses local colleges or the job center offer and ask if you get a reduction in fees or some support with costs; many could be free. If you're considering returning to full time education, there are many grants and bursaries available (see the Education Grants guide).
There's also the telephone, online and face to face advice service Next Step for anyone wanting to find out about training, learning or changing jobs.
Volunteering is also a way to add new experiences to your CV and stops you spending too much time home alone if it takes a while to find a new job, at the same time as being helpful to others.
Maximise the interest on redundancy payouts
If you've received a decent payoff as part of your redundancy package, you need to decide what to do with it. Normally Paying Off Debts With Savings is the key strategy, but having access to enough funds to meet your outgoings is also important.
If you do have a lump sum, it's likely you'll want it somewhere with easy access, but of course you need to maximise every penny of interest so it's earning for you. See the Top Cash ISA and Top Savings guides for full details.
Redundancy and relationships
Loosing your job can add stress to any relationship. Don't be afraid to tell family and friends your news. Hopefully they will be supportive, and will often be able to provide a sounding board.
If you need help with relationship problems Relate has lots of useful info and if you're feeling depressed the Samaritans is always there to help, either through its website or on the phone number 08457 90 90 90.
The light at the end of the tunnel
Last but not least, take time out to do things you like and look after yourself. There are lots of ways to use your time which don't cost too much money (see the Days Out Vouchers and Days Out Forum for more info).
When you do get a new job try living with the belt tightened as it was whilst you were skint! You can obviously let it out a couple of notches, but it can be the perfect opportunity to live slightly more conservatively.
You may find you have a new outlook on work/salary/outgoings at the end of the process and your savings could be a lot healthier for it.
Thanks to the MoneySavers who contributed to the Great 'What to do in the event of redundancy' Hunt, which has contributed to this checklist.