Redundant and ready for action

Shedding employees is the new normal, even for successful companies, writes John Collett.

Shedding employees is the new normal, even for successful companies, writes John Collett.

Being retrenched can be one of life's most traumatic events, a level of stress similar to a marriage breakdown. It can leave many asking themselves, "Why me?"

But don't take it personally. It used to be that waves of redundancies occurred mostly during economic downturns. Now, costcutting, including redundancies, is the new normal for most businesses. It is not only struggling companies that are retrenching workers. Even some of our most profitable companies are laying off staff as they seek to reshape the skills of their workforces or adapt to changing demand for their goods and services.

Australian Bureau of Statistics data shows that for the 12 months to the end of February more than 200,000 people who had been in a job for at least a year had left due to being retrenched or their employers going out of business.

"Outplacement" or "career transition" companies, which employers hire to help the newly retrenched make a new start, have never been busier.

"We are seeing more people affected now than during the global financial crisis," says Adrian Kelly, a partner with Outplacement Australia. "We tend to find that on the day the news is broken, people are usually in shock and it does not sink in, even if they were half expecting it."

Kelly has heard of people turning up to the office to be greeted by someone with a box for their possessions. Those types of organisation do not tend to engage the services of outplacement companies.

"What we try to do is to get them looking forward as quickly as they can," Kelly says. "We are trying to get them to assess the skills they have picked up along the way. We want them to have a clear idea of the value they bring."

It is no longer about the gold watch after 45 years of service; now it is about having a portfolio of skills that you take with you, Kelly says.

Redundancy a bonus

For some people, a redundancy payment can be a bonus. Chris Kourmpatsos, a financial planner with Gordon and Gray Personal Wealth Advisers, says that for those close to retirement a redundancy payout can be a "sweetener".

"It comes down to what stage of life they are in," Kourmpatsos says.

Jonathan Philpot, partner, wealth management, at HLB Mann Judd, has had experience of helping those whose positions have been made redundant at BlueScope Steel. The company has a good superannuation scheme and most of those Philpot has helped are well paid and close to retirement.

"Most of them are in pretty solid financial positions," he says. But for younger workers with other employers who have been getting only the superannuation guarantee, redundancy is a real challenge. There is the uncertainty of not knowing when they will get another job, as well as the stress of making ends meet.

Kelly says some people do not really like their jobs but have stayed because they received promotions and pay rises.

"We know a barrister who is a park ranger," Kelly says. "It can be an opportunity to think about what you really love doing."

Strategies

Phillip Gillard, principal and financial planner at Shadforth Financial Group, says the first thing anyone who is retrenched should do is to check the redundancy payout figures with an accountant or a financial planner.

The way that redundancies are taxed was changed on July 1 last year and some small employers may not have kept up.

A financial planner with WLM Financial Services, Laura Menschik, says one of the first things to do is draw up a budget and identify where expenses can be reduced.

"You need to go back to square one, to financial planning 101," Menschik says. The person should also contact Centrelink to see if they are eligible for income support or help with finding a job.

Redundancies are now more commonplace and there is less stigma, Menschik says. Those who have been retrenched should talk about their situation and not be embarrassed.

"Speak to those outside the family circle," she says. "You may find friends and colleagues who have had a similar experience." And spreading the word can lead to job opportunities.

It is also important to have a daily routine and structure. It should include updating the CV, getting on social media such as LinkedIn and Facebook and registering on employment websites. Being busy helps to stay in a positive frame of mind, she says.

Where to put the money

In the short term, until the work situation becomes clearer, the redundancy money should be put into a cash account or into a mortgage offset account so it is accessible for living expenses, if needed, Menschik says.

Gillard says an offset account is a good place to put the payout, at least until the future is clearer.

Offset accounts are attached to the mortgage. The money held in the offset account does not earn interest, however the balance in the account is deducted from the mortgage balance for interest calculations. It has the benefit of putting the savings straight into the mortgage and saving on the interest costs, but with the benefit that money in the offset account can be withdrawn at any time.

Kourmpatsos agrees that the payout should be kept in a mortgage offset account or in a cash account until things become more certain. But, in general, he advises those who have found another job or are taking early retirement to pay down the mortgage first.

Jonathan Philpot agrees that the priority should be to reduce the mortgage. But if there is no mortgage, consideration should be given to putting the payout into super.

Any investment property loan would probably not be paid down as long as the repayments are manageable, Philpot says.

Interest on any investment loan and other costs of the investment reduces the investor's income on which income tax is paid.

But what to do with the payout is highly dependent on individual circumstances, Kourmpatsos says. "It is important not to make rash decisions and to seek good advice," he says.

Setback provides the chance to follow a dream

When Ingrid Rothe's employment contract ended a year ago and her position was made redundant, she had the chance to do something she had always wanted to do.

"It gave me the impetus I needed to take the plunge into starting my own marketing services business," she says.

Rothe (pictured), 44, worked in higher education for nine years and has enjoyed a successful career in marketing. She now has her own marketing consultancy, Vivid Marketing Services, which she runs from her home in Armidale.

Her former employer engaged the services of Outplacement Australia, which Rothe found to be very helpful.

"I think with any change, you get on board and say, 'Here I am and let's go'," she says. "You control your destiny, get better outcomes and often end up in interesting places."

She says starting her own business was "scary" without the "protection" of a large employer.

She says she never had to think about invoicing clients before. And she says discovering how to present a proposal was

a "steep learning curve". She is working in the higher-education sector, developing a brand strategy for a cafe, and market researching a growth strategy for a gym. She says she works as hard as ever, although working from home provides a better work-life balance.

Retrenchment— how it works

Under the national employment standards there are minimum redundancy provisions, but awards and individual employers can pay above the minimum. For the minimum redundancy termination payouts, see the "How big's my payout?" table.

Redundancy payouts are taxed more favourably than regular income. The first $9246 plus $4624 for each completed year of service is tax-free. For amounts above the tax-free component, the tax rate is 31.5 per cent if the person is under the superannuation preservation age and 16.5 per cent if over preservation age.

The superannuation preservation is between age 55 and 60, depending on birth date (see the "Preservation age" table). Any payout received in excess of the tax-free limit plus $180,000 is taxed at 46.5 per cent, regardless of whether preservation age has been met or not.

Unused annual leave and long service leave are paid separately. The maximum tax on unused annual leave and long service leave is 31.5 per cent. However, less tax will apply to unused long service leave if the start date was before August 15, 1978.

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