Every week the news highlights rising levels of redundancy. Along with divorce, being laid off from a job is one of the major causes of personal debt.
Much has been written about the emotional and mental cost of losing a job. However, the financial costs can be just as severe.
Of course, the impact of any redundancy depends on the terms that are offered by the company. There are a lot of misunderstandings about the minimum entitlement. Put simply, you are entitled to half a week’s pay for each full year of service where your age during the year you become redundant is less than 22. You are entitled to one week’s pay for each full year of service where your age during the year is 22 or above, but less than 41. This increases to 1.5 weeks’ pay for each full year of service where age during the year of redundancy is 41 or above.
These are the minimum terms. Occasionally more is offered, but there is no real obligation for an employer to offer more and in the present climate more and more companies are only providing the minimum.
If your company goes into receivership, you will generally, again, only get the minimum entitlement, provided of course that there are enough assets to pay them. Otherwise, you become one of the creditors.
Understand your entitlements
It is important you understand exactly what you are entitled to. Errors in working out severance pay etc are not uncommon and redundancy pay is not the end of the story. You may be entitled to other payments such as your legitimate expenses.
What you do not want to happen is to be made redundant, leave and then find that your firm owes you more than you have received. In this case, it can be very hard to get your money, particularly if you have been asked to sign an agreement to get your settlement.
Going to law can be an impractical alternative, since the costs of the legal action may outweigh any benefits received. Trade unions can help, but only, of course, if you belong to one.
If you are to be made redundant, you should have received some form of advanced warning. You must immediately tell your creditors of your change in situation. This can be an intimidating prospect but it must be faced.
If things do not improve, you will be able to make a better case for yourself if you are able to show that you have acted scrupulously throughout proceedings. If you do not, then it might be seen as a sign of your unreliability.
A word of warning, some creditors, when learning a debtor may lose their job, can press hard for repayment under the belief that the individual will not get another job soon, and there is a chance of getting paid from their redundancy settlement. As worrying as this might be, you should not let it put you off letting your creditors know of your change in circumstances.
Unemployment insurance
Of course, there is no simple answer to the financial problems posed by redundancy, but one solution that has often been put forward is redundancy insurance. In return for premiums, companies offer to pay either part or your full salary for an agreed period.
This type of cover is known as 'accident, sickness and unemployment' cover (ASU). It is different from payment protection insurance (PPI) which offers to pay credit card bills and mortgages, but does not usually give you an income. Since you may incur more debts when you are unemployed and looking for work, they are not particularly useful in this situation.
ASU policies will typically cover between 50 and 75 per cent of your monthly income, and payouts will last for a year.
You have to wait a number of months after you have bought the policy before you can make a claim. This is done to stop people who know they are about to lose their job insuring themselves. The waiting time is typically between three and four months from the date the policy starts. Once you make a claim, there will also typically be an 'excess period' of around 30 days before the policy starts paying out.
This can be a long time to wait and your creditor may not be prepared to wait that long for payments to begin again.
Restrictions
Like all such policies, you must read the fine print before taking it out. Many policies exclude anyone who has had to leave their job due to stress and back pain. Others have various age restrictions. And generally they are not cheap.
Permanent health insurance (PHI) policies with unemployment cover added can be a good alternative. These policies pay an income intended to safeguard your living standards if you suffer long-term sickness or injury. Benefits usually start after an initial waiting period of four, 13, 26 or 52 weeks and are payable until you return to work, die, or the policy term expires - whichever happens first.
The benefits of any type of insurance policy ultimately depend on your circumstances. There is no point taking out a policy unless it will meet your needs.
Redundancy is not good news for anyone. However, if you stand back, assess your situation calmly and remember you obligations then its impact can be mitigated.