Dealing with Redundancy

1. Know your rights

Employers have to follow proper procedures – if not, you can sue for unfair dismissal and could be awarded up to 90 days’ pay in compensation.

If your employer is getting rid of 20 or more staff, it has to consult your union or an employee representative before staff are given notice.

This should take place more than 30 days before the redundancies, or 90 days if more than 100 employees are being axed.

You should also be consulted individually by your employer – if this does not happen, then again you have grounds for unfair dismissal.

2. Use legal expenses insurance

When companies start shedding jobs en masse, employment disputes rise sharply. You may want to seek legal advice if you think you have been unfairly selected.

The cheapest way to get legal expenses insurance is as an “add-on’’ to your home policy. Most insurers, including Norwich Union, Direct Line and Liverpool Victoria, sell this cover for about £20 a year.

This will provide up to £50,000 towards legal fees if you decide to bring a case against your employer, be it for unfair dismissal or sexual, racial or age discrimination. Those who successfully win a case of age discrimination will find that payouts are uncapped, while those who win an unfair dismissal claim could be awarded a maximum of £72,900.

3. Check your contract

You are entitled to work out your notice period or be offered pay in lieu. In addition, you will be entitled to statutory redundancy pay – employees aged 22 to 41 are entitled to at least one week’s pay for every full year of employment. Older workers get 1½ weeks’ pay. Most employers will offer better terms – these should be in your employment contract, and are your “contractual rights’’.

4. Don’t agree anything verbally

Anyone faced with redundancy should have a “dismissal meeting’’ where their severance package is discussed. As a rule, don’t agree or disagree with the initial departure terms offered.

Ask for all proposals to be put in writing, then consider carefully what you want: is it simply obtaining the biggest pay-off or are other issues also important, such as getting help with finding another job?

5. Make payouts tax-efficient

This is particularly important for higher-rate taxpayers. Only the first £30,000 of any payment is tax-free. Anything above this is taxed at your highest rate. So if you are still on your company’s payroll then full PAYE deductions will be made on payments over £30,000.

However, if this money is paid after you have left the company and received your P45, then only 20 per cent tax will be deducted immediately. Employees will be required to account for the additional tax in their annual tax return, but as this will not have to be made for another year, this will give them a temporary cash flow advantage in the interim.

6. Try to retain benefits

Ask your employer whether transitional benefits can be included in your leaving package. From the day you receive your P45 you may have six months or more with no life cover, medical insurance, or family income protection.

It may be possible to at least retain this cover until the normal renewal date. A life insurance application, for example, can take months to complete because of doctor reports and strict underwriting procedures.

7. Exercise share options

Some share option schemes will lapse on the date you leave, but others will offer a limited time to exercise them. This is particularly relevant if you feel their value will increase substantially over the short to medium term.

8. Check your pension

Try to make sure pension accrual is included in your severance pay, as this can be worth significant sums.

Consider asking for part of your redundancy payment to be transferred directly into your pension. This will not attract National Insurance contributions, so you may be able to negotiate a higher payment being awarded without it costing your employer a penny.

9. Boost your pension.

You can avoid tax on redundancy payments above £30,000 by paying the surplus – up to your annual salary – into your pension. This can become particularly attractive if you are over 50, as you can currently take 25pc of your money out of your pension immediately as tax-free cash.

10. Unsatisfied with your pay off?

Several companies have altered their redundancy terms in recent months. If you are concerned about your redundancy terms you should check your employment contract and staff handbook and consult your staff association or union who can negotiate on your behalf.

Where you are subsequently made redundant with a smaller payout than expected, you can claim breach of contract at an employment tribunal, but the maximum compensation it can make is £25,000. Alternatively, you can take civil action against your former employer for breach of contract through the County or High Court. This is an expensive option, although some lawyers may be prepared to represent on a “no-win-no-fee” basis.

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