While the idea of facing a redundancy isn’t pleasant, it can be a possibility. To help guide you through the process, below are the answers to the questions we hear most frequently.
How much will I receive?
Whilst the total size of a redundancy package will vary from situation to situation, packages will typically include some or all of the following:
- A redundancy or severance payment
- Incentive payments/’golden handshake’
- An extra payment in place of limited notice
- Unused leave
Sick leave is unlikely to be paid out as part of a redundancy package.
How is the payment taxed?
A genuine redundancy payment for those under age 65, receive a special tax treatment that allows some or potentially all of the payment to be paid tax free. This tax free portion is typically calculated as:
The base amount + (the service amount x years of service)
For the 2016/2017 financial year, the base amount is $9,936 and the service amount is $4,969.
Any amount in excess of the tax free amount will be taxed in accordance with the employment termination payment (ETP) rules.
A redundancy that does not satisfy the definition of a genuine redundancy will also be taxed under the ETP rules.
What should I do with my payout?
It’s important to seek advice and establish a plan for a redundancy. You need to be prepared on what you will do with your redundancy proceeds. If you’re planning on returning to the work force, your redundancy payout can assist with meeting your interim cashflow needs. Should you still have surplus redundancy proceeds, or do not intend on returning to work, you need to determine how best to structure and invest the proceeds.
Depending on your age, you may consider contributing some of your redundancy proceeds to superannuation and commencing an income stream to replace your employment income.
What will happen to my superannuation fund?
Following the payment of your redundancy, your employer will cease making payments to your superannuation fund and any salary sacrifice arrangements you had in place will also cease.
Depending on your superannuation fund, your superannuation will remain unchanged or in some cases the fund may automatically transfer you into another superannuation fund.
Can I receive government support?
If you are under Age Pension age (currently 65) and are actively looking for new employment, you may be eligible for income support payments via the NewStart Allowance. However, in most cases, an allowance will not start immediately as waiting periods apply. An Ordinary Waiting Period of 1 week will apply and depending on your level of assets, a Liquid Asset Waiting Period of up to 13 weeks may apply and would be served concurrently with any Income Maintenance Period. An Income Maintenance Period is dependent on your ETP.
If you are over Age Pension age, you can review your eligibility for the Age Pension.