Government figures show redundancies have tripled over the last year with 11 out of every 1,000 employees being axed. And it’s not just City jobs that are going (Fig 1). Losses are high in manufacturing, the distribution and hospitality sector and construction. Men have been more heavily hit than women; younger workers are more vulnerable than older (see chart). Even if redundancy has not happened to you personally, it may well have affected others in your family.

The initial reaction to redundancy is often shock and a kind of paralysis where it is hard to accept what has happened let alone deal with it. The next stage is typically anger and depression - in fact, a sort of grief. This is unsurprising given that work is not just a means of financial survival, but may also provide a sense of belonging, status, achievement and even identity. Inevitably it takes time to adjust and only with acceptance comes the enthusiasm to get back on track. But, in the meantime, life goes on and it is essential to keep financially afloat.

Rights and pay

Redundancy happens because your job has disappeared – it should not be used as a cover for dismissing you for other reasons. The selection process should be fair. For example, an employer can legitimately choose between workers on the basis of attendance record, skills and experience. But it would be unfair to base selection on, say, age, sex, race, maternity grounds, because you requested flexible working or for taking part in union activities.

If you believe you have been unfairly dismissed, you may be able to claim compensation through an Employment Tribunal (see Useful contacts). The Advisory, Conciliation and Arbitration Service (ACAS) can advise you on all aspects of your employment rights.

You have a legal right to a minimum notice period between one and 12 weeks, depending on how long you have been with the firm. Your contract might state a longer period. While you are serving your notice, you have the right to reasonable time off work for job hunting. Your employer might agree – or even insist – on your quitting immediately, in which case you will get pay in ieu of notice (often referred to as PILON).

Your redundancy package may have a variety of elements, for example, PILON, holiday pay, transfer of benefits such as a company car, terminal bonus and genuine compensation for losing your job (redundancy pay).

The first £30,000 of redundancy pay is normally tax-free but other payments, if they are due as part of your contract of employment or expected because they are the norm in your job, are taxed in the same way as ordinary pay. Your employer should sort this out for you, otherwise contact your tax office or a tax adviser (see Useful contacts).

Statutory redundancy pay

By law, if you have been with your employer continuously for two years or more, you are entitled to a minimum amount of redundancy pay - though your employer might pay more. The amount of statutory redundancy pay you can get depends on your age, how long you have been with your employer and your gross pay at the time you leave, but is capped at a maximum of £11,400 since 1 October 2009). The direct.gov website has a calculator you can use to work out how much you should get. (see Useful contacts)

Coping financially

Being made redundant inevitably means a drop in income. So top priority is to check your budget and make any adjustments you can to boost your income and cut spending. For example, if you stop work part way through the tax year (6 April to following 5 April), get in touch with your tax office to see if you are due a tax rebate.

Check with your local Jobcentre Plus (see Useful contacts) whether you are eligible to claim any state benefits, such as contributionsbased jobseeker’s allowance, which is a non-means-tested £64.30 a week (in 2009-10) based on your National Insurance record. If you have any payment protection insurances (to cover personal loans, credit cards or a mortgage), make a claim.

Review your outgoings. Are there non-essential items you could cancel for the time being, such as gym membership and subscription TV? If you are buying your home, consider using some of your redundancy money to pay off part, or all, of the mortgage, so cutting your monthly repayments. But make sure you keep enough ready cash to meet day-to-day living costs while you are looking for a new job.

If debts do start to get on top of you, don’t delay: get free, independent advice from one of the organisations listed under Useful contacts. They will help you organise your budget and debt priorities, make sure you are claiming all the state help you are entitled to and help you negotiate with the people to whom you owe money.

Using redundancy pay wisely

Initially, it is probably wise to put any redundancy money into a savings account where you have ready access while you come to terms with the redundancy and decide what to do next.

At present, up to £50,000 in any one account is protected by the Financial Services Compensation Scheme if the bank or building society were to go bust. Therefore, if you have a larger sum, you might want to split it between two or more accounts. From sometime in 2010, the rules are due to change so that redundancy lump sums up to £500,000 will be covered by the compensation scheme for a maximum of six months.

Be aware that having a lump sum makes you a target for fraudsters, so do not be tempted to invest your redundancy money in any too-good-to-be-true schemes.

If you decide to invest for the longer term, get advice from an independent financial adviser (see Useful contacts) and make sure any adviser you use is listed on the FSA Register.

Getting back on track

One of the things you lose along with a job is the structure of your days and weeks. Treating your job search as a project and taking on voluntary work are both ways of maintaining a routine.

Redundancy may initially seem like an ending, but it can be the opportunity to try something new – for example, a similar job in a different sector, an entirely new career, becoming self-employed.  The government’s Careers Advice service or Business Link may help you clarify what you want to do.

Above all, stay positive. Put the past where it belongs and look to your new horizons.

Useful contacts

Advisory, Conciliation and Arbitration Service (ACAS) Helpline 08457 47 47 47 www.acas.org.uk

Business Link Helpline 0845 600 9006 www.businesslink.gov.uk

Careers Advice Helpline 0800 100 900 http://careersadvice.direct.gov.uk

Debt advice - free and independent

• Citizens Advice Bureau, see phone book or
• National Debtline Tel: 0808 808 4000 www.nationaldebtline.co.uk
• Consumer Credit Counselling Service Tel: 0800 138 1111 www.cccs.co.uk

Employment Tribunal Tel 0845 795 9775 www.employmenttribunals.gov.uk

Financial Services Authority Register Helpline 0300 500 5000 www.moneymadeclear.org.uk

Independent financial adviser - to find one go to www.unbiased.co.uk

Jobcentre Plus See phone book for local office or visit www.jobcentreplus.gov.uk

Redundancy pay calculator www.direct.gov.uk/redundancy.dsb

Tax adviser - to find one Chartered Institute of Taxation, Tel 0844 579 6700 http://members.tax.org.uk/membersdirectory.exe

Jonquil Lowe is a freelance financial writer and Lecturer in Personal Finance at The Open University.