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What is voluntary redundancy and should you take it?

What is voluntary redundancy and should you take it?
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Redundancy has become an all too familiar concept in the UK because of coronavirus. In fact, more than 370,000 British workers were made redundant in the three months to October 2020, according to the Office for National Statistics. To avoid having to make compulsory redundancies, employers might sometimes offer employees voluntary redundancy.

However, while there are some benefits to willingly giving up your job through voluntary redundancy, it’s important to carefully consider all of the pros and cons first to establish whether it is the right move.

What is voluntary redundancy?

It’s when your employer asks you to agree to terminate your contract in exchange for a financial incentive. As the name suggests, it’s completely voluntary, meaning that there is no obligation to accept or agree to the terms on offer.

This type of redundancy is different from compulsory redundancy, whereby an employer decides to reduce staffing and then chooses who to let go.  

What are my rights?

Even though you are ending your contract voluntarily, your rights are the same as those of someone who has been selected for compulsory redundancy. That means that you’re still entitled to statutory redundancy pay.

Your employer must also inform you of your legal rights, the time period over which the redundancy will take place, the financial compensation and other relevant information.

You can read more about all of your redundancy rights, including the statutory notice period, on the website.

What are the financial incentives?

You’ll receive a lump-sum payout as part of voluntary redundancy. Typically, this will be bigger than the payout your employer is contractually bound to give you.

The exact amount may vary from employee to employee and may depend on things like:

  • Your age
  • Your current salary
  • How long you’ve been working for your employer

Can voluntary redundancy be rejected?

Yes. If you volunteer for redundancy, it’s up to the employer to decide whether to select you. 

You can also refuse to accept the terms of a voluntary redundancy if you are not comfortable with them. But if your employer then selects you for compulsory redundancy on a later date, you’ll lose the potentially higher payout you would have received if you had taken voluntary redundancy.

How do I decide if voluntary redundancy is right for me?

Asking yourself the following questions could help you decide whether voluntary redundancy is the correct move for you.

What’s the payout?

Start by finding out the exact amount you will receive. Then ask yourself how long it’s likely to take you to find another job and whether this payout can sustain or meet your basic needs until then.

Are you insured if you take voluntary redundancy?

According to the Money Advice Service, before taking up voluntary redundancy, it’s useful to check whether you’ve got payment protection on your mortgage, credit card or loan and whether you have short-term income protection insurance.

Read the fine print to see which insurance pays out if you take voluntary redundancy.

Some policies will not pay out when you opt for redundancy rather than having it forced on you. As a result, you will have to continue making your monthly payments. This can be a big expense when you have no new money coming in. 

What benefits can I get?

After your voluntary redundancy, you may be eligible for certain benefits, such as Universal Credit and Jobseekers’ Allowance. But whether you qualify and the amount you can get will depend on several factors, including your current savings. So do your research first.

You can start by visiting the website or getting in touch with your local Jobcentre Plus or Jobs and Benefits Office.

Final word

While giving up your job through voluntary redundancy can be a tough decision, it can also turn out to be a positively life-changing one.

It can provide you with an opportunity to move into a new and better career or even retire. But before you take the plunge, take time to carefully consider what the move might mean for your finances.

If you want to retire well, then you’ll want to take advantage of all the help you can get…

One big one? A stocks and shares ISA could help you to reduce your taxes on share and fund investments. We offer our top stocks and shares ISA picks here.

Click here to see our top stocks and shares ISAs for 2021.

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