By LESLEY GREGORY
Having taken a big hit to its bottom line because of the COVID crisis, a friend’s employer recently opened a voluntary redundancy program. Kate has to decide by the end of this month whether she’ll be one of the 350 people to undergo “voluntary separation”.
She’ll be spending a lot of time in coming weeks working through a few questions to help her make that decision. Here are some of the things she’ll consider, in consultation with trusted advisers.
How much will I get in my hand?
Kate’s employer has made the non-compulsory redundancy terms surprisingly generous, in the hope of encouraging enough people to take it up. Before making any decision, Kate wants to understand what her payout would be and what tax she might have to pay as a result of accepting it. Her employer will give her a figure to consider, but she says she’ll also get independent financial advice in case there are implications she hasn’t thought of.
How long will it take to find another job?
A study by one jobs site found — in pre-COVID times — that a third of people found a new job within a month of being made redundant, and a further third within the second month. But how long might it take now?
Kate’s approach has been to start making informal inquiries in her network to see what work might be out there and what the “transition” experience has been in her field recently. She’s also looking at jobs sites and she’ll talk to recruiters in her industry to get the lay of the land.
The rough rule of thumb is that you should estimate the time it could take to get a new job, then add a further four weeks. Your redundancy payout should be, at the very least, that number of weeks multiplied by your current weekly in-the-hand pay.
Could I pay off my mortgage?
If the payout is big enough — Kate has been with her employer for over a decade — there’s a chance it could pay off the remainder of her mortgage. The question is whether that will leave her enough to cover her living expenses while she’s on the job hunt. She’ll talk this through with her adviser as well.
Am I ready for a change?
Kate has been in the same job — and career — for some time. So she’s going to weigh the career as well as financial aspects of “separation”. She thinks one option for a payout could be to use it for the further study she has long wanted to do, with an eye to moving into a new field with good job prospects. In the past some people would use redundancy to set themselves up in business. COVID makes this a riskier move these days, but it’s something else to consider.
Am I ready for the job hunt?
Kate’s CV is out of date. Her LinkedIn profile is OK but could be better. She definitely hasn’t done a “behavioural interview” — or whatever the latest recruitment trend is — for a long time. She’ll be asking herself whether she’s up for the stress of job hunting (and getting some interview practice in with friends, just in case).
What would I do day to day?
Sleeping in and catching up with that pile of books will be novel for a while. But Kate is thinking carefully about the “social” aspects of taking voluntary redundancy, as well as the financial ones. Yes, she’s working from home these days but she’s still in regular contact with colleagues she knows and likes. She’ll be even more isolated if she quits, at least for a while.
Am I financially ready to retire?
Kate isn’t close enough to retirement age to consider this option, but it’s certainly a question others might consider, in discussion with a trusted adviser. By the way, your employer can’t force you to retire — it has to be your choice.
Taking up a voluntary redundancy offer is a much more complex decision than it used to be. Kate has the right idea by considering the financial but also career and social aspects of her decision. She’s also doing the right thing by getting independent financial advice.
The UK Government has advice on your redundancy rights here.
You can calculate your minimum redundancy entitlements here. Your contract may have more generous provisions or employers, like Kate’s, could make an even higher offer to encourage people to accept.
LESLEY GREGORY is an experienced personal finance and consumer journalist. She regular writes for TEBI money and personal finance issues that aren’t directly related to investing.
Also by Lesley Gregory:
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The one asset you need to protect
How to protect your credit score from COVID
The hidden costs of online shopping
Make sure your last words don’t leave ill will
Lasting changes COVID could make to our finances
How to avoid excessive funeral costs
What you need to know about comparison sites
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