The information in this guide was last updated on 26/02/2014

Whether you’ve just been made redundant, or you think it might be on the horizon, there are steps you can take to protect your finances. This guide talks you through some of the basics to help you prepare.

Before making staff redundant, an employer will announce a consultation period to talk about alternatives to redundancy and make sure employees know their options and rights. The employer should also explain the reasons cuts are being made.

If more than 20 employees are being made redundant at once, your employer should discuss options to avoid it. They should also discuss ways to minimise its impact on you, eg: retraining you to help you find a new job.

Your employer should also be willing to explore other options with you to avoid redundancy. This could include shorter working hours, a secondment or retraining. You should also be given the chance to apply for other roles in your organisation, if any are available.

Make a plan

You can plan for redundancy so you’ll be prepared if it happens to you.

  • Know your rights: Check your contract of employment and employee handbook to see what your basic redundancy package might be. You can also check your statutory redundancy pay, which is the legal minimum you’re entitled to by using the GOV.UK online calculator. Alternatively, you can find out more about your rights at WorkSmart
  • Manage your money now: If you think redundancy is on the way, start cutting your spending and if you can, increase your savings. Make a budget to help you get a clear idea of how much money you have coming in and out, and how much you can afford to put away. Now is also the time to get any debts under control. See more about making a budget
  • Have an emergency fund: This will cover you in the short term while you work out your next steps.
  • If redundancy is definite, contact your mortgage provider to let them know what’s happened and see if you can apply for a break in mortgage payments until you’re settled in a new job.
  • If you’re nearing retirement age, it may be a possibility to take early retirement as an alternative to redundancy.

Finding work

Being made redundant can be an opportunity to find a job that suits you better, change your career or even start your own business. If you've worked continuously for your employer for two years or more and you’re made redundant, you’re entitled to paid time off during the notice period, usually two days, to look for new work and attend interviews.

Current and past work contacts, employment agencies and previous employers can all be helpful in your search for new work. If you don’t already have one, set up a LinkedIn account with details about your skills, work history and contact information. You can also apply for help with retraining and looking for work, through a career development loan, grants and bursaries for study, or a paid apprenticeship.

Voluntary redundancy

If an employer needs to make cuts to the workforce, there may be an option to take voluntary redundancy. Some employers will offer favourable redundancy packages to people who volunteer.

Pros of voluntary redundancy

  • The package may be more attractive than with standard redundancy.
  • You have the same rights to redundancy pay and benefits.

Cons of voluntary redundancy

  • Your company still has the right to choose whether or not you are selected for redundancy, even if you apply.

Tax and redundancy

Your income tax deductions are based on you working the same hours each month over a year. So if you stop working during the year and don’t get another job for a while, the payments may be wrong, and you could have overpaid tax.

You can reclaim it by contacting HMRC.

If you’ve received a redundancy payment package, it's only taxable if it’s over £30,000. Any amount over this limit is added to your earnings for the year, and the total amount is used to work out what tax bracket you fall into. 

What happens to your pension?

If you have a defined benefit (final salary) pension, you may be able to transfer it to a new employer’s scheme, or leave it where it is. You should also seek advice to discuss your options.

If you have a defined contribution pension, you won’t be able to keep paying into it. You can leave it where it is so it can continue to grow, or ask your new employer if you can transfer it over to their scheme. 

Claiming benefits

You should contact your local Jobcentre Plus as soon as your employment comes to an end, and start your application for Jobseeker’s Allowance and Housing Benefit. Applications can’t be back-dated, so you need to claim straight away to get what you are entitled to. You may also be eligible for other benefits like tax credits.

Get more advice

Read more guides to redundancy and finding work

Money Advice Service

How we can help you prepare for the unexpected