Preparing for redundancy

Redundancy

Redundancy occurs when an employer which might be an organisation, government body, public company or private company decides that your job or role no longer exists or is needed for their business or activities.

It is harsh because a person may have dedicated themself to an occupation or organisation for a part or the whole of their career and / or helped that organisation, body or company significantly. They may have undertaken projects or activities that added significant value or generated profits, and then the employer or someone in it decides that their job or role is no longer exists.

We wonder why redundancy is permitted. It is allowed EVEN if the person is performing in their role. It seems unfair. The government’s reasons for allowing redundancy are to enable employers to restructure as business conditions, industry, technology and the regulatory environment changes. We see technology as a driver of redundancy in the long term, and in the short term the government permits redundancy as business conditions change to allow employers to reduce costs. In some cases the business may not survive unless it is able to make some people redundant.

Redundancy meaning is that a person is terminated from their job or role in a company and they will no longer be paid an income by that employer, because of a decision made by another person in the employer that the job or role is no longer needed or exists. They may be entitled to a redundancy payment, which is determined by using a redundancy calculator.

We have seen redundancy impact people of all ages and skill levels, and a large cross section of occupations. Employees in some industries are more susceptible to redundancy. These include industries where there is more change and volatility in business conditions or its industry, or has greater opportunities for the application of technology.

Redundancy meaning

Anecdotally, older people tend to be made redundant as technology and new processes render their skills less relevant, and it is easier for the employer to replace them with someone with new skills rather than train the existing person. This is notwithstanding their commitment and loyalty. 

It tends to be true that the older a person gets the more exposed to a redundancy due to changes in skills, and the younger a person is the more exposed the person is to redundancy due to the employer needing to reduce costs due to changed business conditions. This is not always the case but it gives redundancy meaning or an explanation.  

However, the person who has been made redundant can still look for a job after the redundancy. This can be difficult because employers in an industry often make people redundant at the same time for the same reasons.

Given what we have seen in the past three decades, redundancy has become an increasingly significant part of working life.  We counsel our clients to expect a redundancy during their working life and to plan for it. This is known as preparing for redundancy. 

How do you plan for redundancy? What does preparing for redundancy involve?

People wrongly believe that income protection insurance (IP) covers redundancy. IP insurance covers a person’s inability to work due to illness or injury, and provides income replacement payments after a waiting period to cover part of the person’s lost income. It does not cover redundancy by itself.

There is no insurance that a client can take for their own redundancy. The planning that a client needs to do is to have saved and invested over time to build a reserve or financial independence. 

Although redundancy can affect clients of all ages, at Setch our approach to redundancy is often part of our FIRE strategies. FIRE means financial independence retire early. This means that as we assist our clients to build or accumulate wealth, we help them to be increasingly financially independent with investments generating passive income streams to give them options. These options allow them to travel or retire early, but also means that in the event of a redundancy they have the ability to weather the situation while finding a new job.

FIRE strategies allow our clients to have a positive mindset in which they recognise from an early stage of being our client that they will work at different employers over time and it is important to build financial independence and resilience. Our objective is to be a constant in their financial affairs guiding wise decision making to weather all manner of life events including redundancy.

Superannuation can be a vehicle to assist people to soften the blow of redundancy because it is a taxed preferred vehicle for investment, however due to access restrictions it tends to be more useful as we age. For some people a redundancy means an early retirement and conditionally superannuation can be accessed. 

However, for younger people it is difficult to access superannuation so preparing for redundancy involves saving and investing outside of super. This can be having cash reserves in a cash management account or term deposit or a share portfolio in liquid blue chip shares. These types of investments provide a buffer. For other people, preparing for redundancy involves putting funds into a mortgage offset account. 

At Setch we can help you prepare for redundancy and manage you through it, if it occurs. 

If you prepare for redundancy before it happens you will be in a lot better position. We find that clients that have been made redundant earlier in their career understand how unexpected and quickly it can happen. They are open to preparing for redundancy and having reserves as a buffer. 

Redundancy Calculator

If a redundancy occurs a calculation is made using a redundancy calculator to determine whether you will receive a redundancy payment, and if so, how much redundancy. Whether you receive a redundancy payment will depend on the size of the company, and the amount of the redundancy payment will depend on the period of employment and age of the person being made redundant.