Is your company looking to downsize or going through a hard time? These are often signs that staffing changes are coming. If you think redundancy may soon become a reality, voluntary redundancy might be a better option for you. Cashfloat explores the pros and cons of voluntary redundancy so you can make an informed decision.
Lost Your Job? What Can You Do? – Chapter Two
What is Voluntary Redundancy?
When a company is thinking about cutting down their workforce, they can either choose employees to make redundant, or allow employees to volunteer to leave on their own. Employers will often offer a financial incentive for employees to choose this option. Opting for voluntary redundancy can benefit both the employer and employee. It allows them to end their professional relationship on a note of goodwill and gives the employee more time to prepare financially for losing their job. However, you should always consider your personal and professional circ*mstances, rights and other options carefully before choosing voluntary redundancy.
When Should You Consider Voluntary Redundancy?
There are many good reasons to consider voluntary redundancy. Here are a few:
After conducting an internal reveiw, companies may choose to restructure their workforce and departments to increase efficiency and productivity and cut down on costs. Unfortunately, this kind of restructuring can often place several positions in jeopardy. Middle-management roles are especially vulnerable during business restructuring, as they often become obsolete within the new structure.
Technology is constantly evolving to make businesses run smoother and more efficiently. However, technology has also started replacing human workers in factory assembly lines, stockroom and warehousing, grocery tills, and many other industries. This makes businesses more efficient but costs many hard-working individuals their jobs.
When a business is sold, the new owner often takes the opportunity to restructure the company and/or cut down on staff. You may want to consider voluntary redundancy if you think your position will no longer be needed under the new management. The terms and conditions of your employment should stay the same if the business is sold.
Crisis, whether internal, industry-realted, national, or international, is extremely taxing on businesses. Companies often need to cut their spending to the bare minimum, and consequently may need to lay off employees. Many people suddenly lost their jobs during the financial crisis of 2007/8. More recently, the Coronavirus Pandemic forced many businesses to temporarily close to stop the spread of the virus. Companies struggled to stay afloat, and had to furlough or let employees go.
The Difference Between Voluntary and Compulsory Redundancy
When a business is downsizing or undergoing structural changes, redundancy often follows. Your employer can either give you notice of redundancy or give you the option to take voluntary redundancy. We’ll break down the differences between the types of redundancy below.
Voluntary Redundancy
Voluntary redundancy is when an employer offers a financial incentive to an employee to leave the company of their own free will. An employer may offer voluntary redundancy because they need to slim down the workforce, selling the company or restructuring their business. You may be tempted to take voluntary redundancy by the thought of a big pay off. Before volunteering for redundancy, you should consider the following factors.
Compulsory Redundancy
Compulsory redundancy occurs when an employer decides to reduce staffing, but they choose who leaves. Although the employee can negotiate with their employer, the employee cannot ultimately refuse redundancy. This can be distressing for workers who do not wish to leave. If you are being made redundant, then you must be compensated for the loss of your job. The exact amount and duration of the compensation will depend on the terms of your contract. If you lose your job and your ex-employer hires someone else to do the same work, this is not redundancy.
Voluntary Redundancy Pay
The size of a redundancy settlement is vital. The amount you get depends on several factors including the length of your employment at the company, your age, and your pay grade. Voluntary redundancy payouts from your employer are usually higher than statutory payments. These are the general guidelines:
- Under 22 years old: You get half a week’s pay for each year worked.
- 22 – 41 years old: You get one week’s pay for each year worked.
- 42 years and older: You get one and a half week’s pay for each year worked.
Voluntary Redundancy Calculator
You can use a voluntary redundancy calculator to calculate how much statutory redundancy you can get from the government. The calculations are based on your age, the pay you received and how long you have been on the job. You must have worked for at least 2 years for your employer to qualify for statutory redundancy pay. Click here for an online calculator to work out your redundancy pay.
Think About Budgeting
Before you volunteer for redundancy, it’s important to consider how you will manage financially without your current income. You’ll need to draw up a budget that will allow you to meet your regular living expenses without your regular income. First, add up your usual spending on housing, food, utilities, transportation, and other essentials. Then, work out how long your redundancy payment will last. This will give you a good idea of how long you will have to find another job.
Ask yourself: is this a realistic timeframe for you to find a new job? Do you have other potential sources of income (like benefits you could apply for) that you haven’t tapped into yet? If your answer to these questions is no, then this may not be the best option for you.
If you are nearing retirement, then voluntary redundancy could be a good option as you may only have a few months left before you reach the pension age. Your employer may suggest that you voluntarily take early retirement instead. You should thoroughly research both options and how they will impact your personal finances and pension differently. However, if you are not yet nearing retirement, then this may be the time to consider a change of career, so search for information about the job market before you take this life-changing step.
It is important for you to make sure that you will be financially covered before deciding to go for redundancy. You do not want to walk away from your current job position only to find that you have to take out payday loans online to pay for your living expenses. Take the time to come up with a realistic financial plan that will help you make the best decision.
Notice Period For Voluntary Redundancy
An employer must give you the correct amount of notice before making you redundant, whether the redundancy is voluntary or compulsory. If your employer has offered you voluntary redundancy, then use this period to look for another position. Unless you are in a situation where you are ready to retire, then finding another job is a priority, so start immediately to look for work.
If you have decided that voluntary redundancy is the path you want to take, now is the time to think about your work priorities. Many people who have lost their job have used the opportunity to gain further expertise in their fields or else change their career. This is an excellent time to reassess if you want to continue working in your current field or consider a career change.
A change of direction at work may require new skills. Think about retraining, either using a college course or free classes on offer at the Job Centre. Volunteering your time to gain experience in a new field is also an excellent way to learn new skills and transition into a new profession. This can also give you some added experience to put on your CV.
Voluntary Redundancy FAQs
The process may start when your employer decides s/he needs to make some redundancies and they ask for volunteers. If you decide to volunteer for redundancy, your employer will give you a period of notice when your job will terminate. When you leave, you will be eligible for voluntary redundancy pay. This depends on why you want to ask for voluntary redundancy. If your employer plans on making some employees redundant, it is probably a good idea to ask for voluntary redundancy. If you want volunteer for redundancy because you have received another job offer, you should know that you can not receive voluntary redundancy pay if you move on to a new job straight away. You need to wait a period of time after leaving your old job, before starting a new job if you do take redundancy money. Yes, redundancy pay is tax-free up to £30,000. In addition, it is also exempt from national insurance contributions. You can try ask your employer if you can receive voluntary redundancy payment. Your employer does not have to agree to your request, particularly if they are planning to replace you. Your employer may be willing to grant voluntary redundancy if they do not plan on filling your role. For more excellent advice, go to citizensadvice.org.uk.What is the voluntary redundancy process?
Can I ask for voluntary redundancy?
Is voluntary redundancy pay tax-free?
Can I ask for voluntary redundancy for health reasons?
Conclusion
Choosing to give up your job through voluntary redundancy can be a life-changing decision. It is essential to properly consider your financial situation before making a final decision. However, choosing voluntary redundancy can give you the opportunity to change career directions or further your training in your current field. If you’ve done your research and you feel comfortable about your prospects for the future, then we wish you well on your journey.
