With the Australian economy slowing as the impact of higher interest rates begins to bite, job cuts are likely to accelerate. Layer on top of this the potential impact that artificial intelligence might have on the white collar workforce of the future, and it’s easy to understand why many people are feeling anxious about their employment future.
I’ve found that when I’m feeling anxious, the best way to relieve stress is to identify what I would do if the thing that’s keeping me awake at night, were to occur.
Worst case scenario planning.
Once I’m clear on what I would do, even though it’s somewhat unpalatable, I find the anxiety goes away.
So if the potential for redundancy is something causing you sleepless nights, this week’s episode might provide you with a way to take control, and move forward with positivity.
When you are made redundant, you will receive a payout from your former employer. This payout will consist of unused leave entitlements, and also a redundancy payment determined by years of service.
These redundancy payments receive very favourable tax treatment. At present the first $11,591 of a redundancy payment is tax free, plus there is an allowance of almost $5,800 for every year of completed service.
As an example, if you had completed 10 years of service with your employer, you would have a tax free redundancy limit of $69,561. The amount you receive from your employer will be a function of your current wage and employment conditions. But likely the majority of your redundancy payment, if not all, will be tax free to you.
Estimate the redundancy payout you would receive. In some workplaces there may be a set formula that you can look up. Alternatively, if one of your past colleagues was made redundant perhaps you could ask them what the formula was. It will normally be something like 4 weeks pay plus an extra two weeks for each year of service. You can therefore get a pretty good estimate of the amount you would be paid out in the event of redundancy, and without too much difficulty apply the numbers I gave you earlier to work out how much of that would be tax free.
Add to this your long service and annual leave entitlements, and you should be able to arrive at a reasonable estimate for the payout you would receive in the event you were made redundant.
The next step then is to determine how many months that could support you. Commonly, we see clients with payouts that would cover their expenses for six to twelve months. With that sort of runway, it’s rare not to find a new employment opportunity. Very often a new role is found relatively quickly, and therefore the redundancy payout is just a very handy lump sum mortgage repayment, or investment nest egg.
If your estimated redundancy payout won’t provide you with much of a cushion while you search for your next job, consider where expenses could be cut. You might be able to shift your mortgage repayments to interest only temporarily, or drop them down to whatever the minimum required is.
Other living expenses might be able to be reduced in the short term to help ensure that your redundancy payout stretches as far as possible.
The most important thing here is you have clarity on how things might look financially, and a plan on what you would do should the redundancy axe fall.
Reflect on what’s next
Hopefully the financial anxiety has now been alleviated. Next it’s time to go for a few long walks and reflect on what you’d like for your future. Do you want to stay in the same industry, or even same profession? What do you enjoy, and what makes you miserable? Depending on the size of your redundancy payout, there could be a good opportunity here to make a significant change. The payout might enable you to accept a new position at a lesser rate of pay, or take some time to complete studies and make a career pivot.
I often hear from people who have been made redundant, a feeling of exhaustion. A few weeks, perhaps even a few months, to just relax and recharge the batteries, could be a great investment. Remember, some of your payout is probably long service leave an annual leave, so there’s no need to feel guilty if you’re not diving into the job hunt from day one.
Having had time to reflect on where you’d like to go next, think about who might be able to help you get there. Past work colleagues, LinkedIn connections, or friends of friends, that you might be able to have a chat with and learn more about the industry and the current opportunities.
Recruiters say that often the best jobs are never advertised. Rather, an employer becomes aware of someone being available who they feel would be a great fit, and they reach out. But that can only happen if as many people as possible know that you’re looking for a role, know what sort of role you’re looking for, and know your background and skill set. There can be no better advocate for you then a past colleague or manager.
Time to upgrade your skills?
The necessity to be a lifetime learner is not a new concept. But when redundancy is in prospect, ensuring your skills are up to date is likely to be a very good investment.
Your network can be a great source for giving guidance on the skills being sought after in the workplace. Are there short courses, particularly online, that you can find to brush up in these areas? Very often these online courses have a minimal cost, sometimes no cost at all.
Could self-employment be the answer?
If you’ve had a chance to read my Financial Autonomy book you will know that one of the pathways to gaining choice is self-employment. As I’ve shared in past episodes, the development of the Financial Autonomy framework was reverse engineered through my experience working with hundreds of clients and reflecting on the strategies used by those most happy later in life. I noticed that a commonality among many of my most successful clients was that they had been self-employed, something I rarely see mentioned amongst money and financial independence content.
Self-employment isn’t for everyone. But if you think you’d enjoy the challenge of wearing multiple hats, from marketing, to financial controller, to chief salesperson, to doing whatever the thing is that you deliver, perhaps a redundancy might be your ticket to the game.
Starting a business typically requires some sort of financial runway. 99% of the time, when you start a new business, there will be negligible revenue for the first several months, and it might be a slow build from there.
This financial valley of death is often the barrier that prevents people making the leap. But a redundancy payout could be your Evel Knievel. The cash injection you receive means your self-employment adventure can be allowed the time necessary to gain momentum.
Speaking for myself, the move from employee to self-employment is one of the most important pivot points in my life, sitting besides meeting my wife. The ability to follow a path of your choosing, one that you believe in, one without compromise, and one with huge flexibility, can be a wonderful thing.
Ask for help?
Finally, if redundancy rears its head in your life, don’t be afraid to reach out for help. If you work for a big employer, they will often have outplacement services provided for you. Take full advantage of these services. You can also reach out to career coaches, such as Kate Richardson that I interviewed just a few weeks back, who can share their experience to help you move forward.
Redundancy can have the potential to dent your confidence. If you’re struggling mentally, reach out for some psychology help. The ability to talk through your worries with a professional might unleash you, freeing you up to pursue the next exciting chapter of your life.
And of course on the financial piece, talk to your financial planner.
Very many people are made redundant at some point in their career. In the moment, it’s usually not much fun. But in the vast majority of cases, when people look back five or ten years down the road, they recognise what a great thing it was to have the opportunity for a career change. If the potential for redundancy is something that’s been weighing on your mind, think through the points I’ve raised here, and how they could be applied to your situation. Rather than redundancy being a negative experience, it could become something you start to wish for.
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