Friday May 9, 06:15 PM
Make it less of a blow when you're told to go
By Dido Sandler
With 40,000 jobs being cut in the City, employees are being advised to scrutinise their contracts, to see where they stand. The axe is swinging at UBS (Virt-X: UBSN.VX - news)
, Citi, Merrill Lynch (NYSE: MER - news) , RBS (LSE: RBS.L - news) /ABN Amro (Amsterdam: ABAGB.AS - news) and, of course, Bear Stearns (NYSE: BSC - news) . And, so far, some of the pay-offs look relatively generous. Bear Stearns is giving 26 weeks' salary for staff with between one and nine years' service. There's also a pro-rata proportion of the 2007 bonus, and pay for notice periods. Other institutions are more coy about details. Citi says the more senior they are, the better its employees will fare. But whatever the deal, a redundancy lump sum can be broken down into three parts. There's statutory pay - a week's money for every year worked for those aged 22-41, rising to a week and ahalf for older workers, capped at £330 per week and 20 years. There's also payment in lieu of notice. European banks tend to give longer notice than the US banks, says Harry Pilkington, partner at headhunters Armstrong International. The third potential component is an enhanced redundancy payment. David Wreford, principal at Mercer, says the industry rule of thumb is a month for every year worked, uncapped. Pilkington says companies need to persuade employees to go quickly and quietly, with no fuss. "Large scale redundancies are very destructive to morale," he argues. Legal advice at an early stage in your negotiation could win you a better deal, though. There are a number of strategies that can increase the pay-off. If the firm recognises that you will become unemployable for a long period, it tends to be more forthcoming. The firm's reputation is important - it may not wish to risk it in a dispute, which could also work in your favour. If you're paid in lieu of notice, you should also request compensation for benefits lost during that period: holiday, car, health insurance, life insurance and pensions. Don't forget company share schemes - with some arrangements, early leavers can lose their rights. John Whiting, tax partner at PWC, says if you exit three years into five-year scheme you should ask for some value. You could also try to persuade the company to continue medical cover and even lend you the car until, say, the end of the year. The insurance is probably paid for a whole year, anyway. In terms of tax, the first £30,000 of severance pay may be exempt - it depends on your contract. So employees could consider asking the employer to put cash above the £30,000 level into a pension. This effectively saves 41 per cent tax. Jason Butler, chartered financial planner at Bloomsbury Financial Planning, says people might ask the employer to add the national insurance contribution they would otherwise pay, too. Companies can only make pension payments while you're still in service so Amanda Davidson, a director of Baigrie Davies, says delay your departure date if necessary. Employers often pay for specialist outplacement services, which help redundant workers find a job. So bargain for this aid, too. Once you're on your own, think about replacing important insurance. Companies such as Bupa can allow you to continue medical cover, so you are still insured for pre-existing conditions, albeit paying private rates. A new provider would exclude these ailments. Also consider cheap term insurance, to replace the company death-in-service benefit. Individuals are advised to do a stock-take of all financial liabilities and, if necessary, adjust their lifestyles to suit. Butler recommends clients have six to 12 months of accessible "rainy day" funds. If you're struggling with school fees, Jonathan Cook, general secretary of the Independent Schools Bursars Association, says there is hardship money available to those in the direst straits. Schools can be flexible about when you pay and allow staged payments. You could even get a discount by using a redundancy lump sum to pay a few years upfront. If you do get into financial trouble, try to prioritise essentials such as the mortgage or rent, electricity and council tax. These creditors have more legal power and failure to pay them can leave you homeless, without light or subject to a visit from the bailiffs. Anyone unable to pay a mortgage should talk to the lender as soon as possible. You could convert to interest-only or take a payment holiday. CCCS, the debt advice charity, says lenders are still amenable if you approach them promptly. You should then be able to claim Jobseekers Allowance if neither you nor the partner works. Joint incomes must be under £66,000 to qualify for tax credits.
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