- October 12, 2015
- Posted by: admin
- Category: Tax Tips
If you’re facing redundancy, it could pay to be aware of your workplace and legal entitlements to help ensure you don’t miss out on receiving the correct redundancy payout.
A genuine redundancy payment is one received by an employee aged less than 65 years who is dismissed from employment because their position has become genuinely redundant. Following the steps below will help ensure you receive the correct benefit from your employer.
Step 1: Check Your Employee Entitlements
Your redundancy payment can be made up of all or any of the following payments on the termination of your employment, such as:
- Payments in lieu of notice
- Golden handshake or severance payment
- Unused sick leave
- Unused rostered days off
Check your contract of employment or award for your entitlements as they may vary from case to case. Any unused annual and/or long service leave must be taken as cash though such payments are concessionally taxed.
Step 2: Check Tax Breaks on Redundancy Payouts
Genuine redundancy payments are exempt from tax up to certain limits. The tax-free component for the 2013-2014 financial year is $9,246 plus $4,624 for each completed year of service. This amount is indexed each year to the average ordinary-time wage. The tax-free part of the payment is not included in assessable income and investors can’t roll this amount into superannuation.
Amounts in excess of the tax-free component are treated as an Employment Termination Payment (ETP) and will be taxed according to rules set down by the Government.
Tax rates are as high as 46.5% (including the Medicare Levy of 1.5%), though concessional tax rates apply at certain levels depending on an employee’s age and the date of their employment contract.
Taxation rates on ETPs are complex. To make sure you’re taxed correctly, you should seek the advice of an appropriately qualified financial expert who can help make sure you receive the right amount.
Step 3: Ask about Centrelink Income Support
If you’re made redundant, you may be entitled to income support payments from Centrelink. In most cases, people under the Age Pension age (64 years for women and 65 years for men) may want to consider applying for the Newstart job seeking allowance.
Annual leave, long service leave and redundancy payments are generally treated as income over the period for which the annual or long-service leave was paid and Centrelink won’t pay benefits for that period (called the Income Maintenance Period).
Separately, claimants may not receive income support for up to 13 weeks from receiving their payout if they have liquid assets like cash or shares over a certain level. The waiting period runs concurrently with any income maintenance period.
Step 4: Assess Your Expenses
If you’re made redundant, you may need to ask yourself if there are any expenses which you can cut or reduce such as Pay TV or magazine subscriptions. Such discretionary expenses add up, and it may be time to trim them. Some people may consider home and contents insurance, life insurance and health cover as discretionary, but any decision in relation to these items should be very carefully considered as you are effectively paying for financial protection. Before making a decision in relation to any insurance cover you have, we strongly recommend speaking to a financial planner.
Step 5: Check What Happens with Your Insurance
Employees may have taken out life insurance and/or income protection insurance with their employer’s superannuation fund. If you wish to maintain this cover, you should confirm if there is the option of maintaining these insurance covers (known as a continuation option). If there is, check what you need to do to keep the insurance cover in place and maintain your protection. You’ll also need to check whether your premiums will rise after you cease to be an employee.