Friday, July 19, 2024

What is voluntary redundancy? Entitlements, risks & considerations

Redundancy isn’t everyone’s favorite topic but it’s certainly something everyone in the workforce should be aware of.

Over time, businesses face all sorts of challenges and often have to make tough decisions that don’t end up with everyone being happy. Most people know what redundancy is and what can cause such an undesirable event, but not everyone knows what voluntary redundancy is.

Let’s start with the basics.

What is voluntary redundancy?

Voluntary redundancy, often referred to as voluntary severance or voluntary retirement, is a unique employment arrangement where employees willingly opt to leave their jobs.

Unlike traditional layoffs or compulsory redundancies initiated by employers, voluntary redundancy places the power squarely in the hands of the employee. It’s a conscious decision to exit the workforce, usually with the promise of voluntary redundancy payment or other benefits from the employer.

And the advantages of the ball being in the employee’s court can’t be overstated. It’s a major safety valve during a time of significant organizational changes or economic turmoil.

Think of it from the perspective of someone who is in a company that has made an announcement of potential layoffs coming soon. The list of layoffs is obviously kept confidential, however the company gives everyone an opportunity in private to take a voluntary redundancy package.

As someone who is unsure or feels that their role is at risk, they will find voluntary redundancy as a saving grace. They have an opportunity for a fresh start at a new job and receive several benefits that would have been missed out from being laid off.

What makes it better?

Voluntary redundancy or just redundancy, ultimately you’re out of a job, so why is one better than the other?

Because it is voluntary, there is a contractual agreement between two parties which ends things on good terms. While the obvious gain of receiving compensation or a severance package is great, what separates the two is the impact of being presented with the option to leave.

Ultimately, redundancy only happens for three reasons.

In times of economic instability or financial challenges, employers may use voluntary redundancy to reduce costs without resorting to layoffs.

Companies looking to restructure their operations or change their business model might offer voluntary redundancy as a way to realign their workforce.

As technology continues to reshape industries, some jobs become obsolete. Employers may offer voluntary redundancy to employees whose roles are no longer necessary due to automation or technological advancements.

By understanding these reasons, employees can gain insights into their employer’s motivations, which can help inform their decision to accept or decline a voluntary redundancy offer.

Where the line gets blurry

We’ve all heard about an employee being made redundant but it was a clear guise for simply firing someone.

The legalities behind this situation are tricky and most people will generally avoid probing to change the outcome. By definition, it’s not an employee that is made redundant, rather the job itself has been made redundant.

Redundancy happens when an employer doesn't need an employee's job to be done by anyone

If an employer makes someone redundant yet the very next week a replacement staff is hired, then it’s quite obvious what their intentions were. Voluntary redundancy will navigate similar complications.

Workers can be forced into a situation where they are effectively told to take voluntary redundancy or get laid off. While it’s not the right thing to do, it happens frequently and at the very least gives the workforce a safety net of redundancy pay.

For example, recently in the mass tech company layoffs, Amazon had done something similar. The company sent a letter to some of its employees, proposing to offer them a voluntary severance package if they decided to leave during the layoffs.

The package included three months’ worth of pay as a lump sum, along with one week’s salary for every six months of tenure that worked at the company. Health insurance benefits and a weekly stipend over 12 weeks were also part of the arrangement.

As an employee in a company with mass layoffs, which option would seem safer? Sticking it out in the hopes of not being laid off or taking the voluntary redundancy package?

The process of voluntary redundancy

Visualize this scenario: you walk into work one day, and your employer drops the bombshell that they’re offering voluntary redundancy. It’s not your typical water cooler conversation, but it’s how the process begins. Employers initiate the offer when they need to make workforce adjustments, whether due to economic challenges, changes in the industry, or restructuring plans.

Let’s assume you work for a tech company, and they have developed efficient software that makes a significant portion of your departments’ tasks obsolete. To keep a balance between human resources and technology, they offer your team voluntary redundancy – that’s how the process usually starts.

Pros and cons

Here comes the big decision, do you take the offer?

The redundancy process can feel overwhelming and there are several things that should be considered.

Weight these carefully before making any hasty decision. Consider your financial stability, career goals and how all of these decisions align with your life plans. For example, if you have always been thinking about launching your own business, then voluntary redundancy might be a blessing in disguise.

But for an individual who is in the prime of their career and needs a steady flow of income, this offer isn’t so appealing. You should also take into account a multitude of personal factors, do you have children? A mortgage? How easy is it to get another job in your industry?

Every question and consideration can hold implications for your life.

Perform a risk and benefit assessment

All choices carry a risk and reward – the same applies to voluntary redundancies!

At a surface level, you receive a financial package with extended benefits and potential early retirement options. Alternatively, you say goodbye to your current job and colleagues, which is quite a mentally taxing process. Finding another job in your field is also a risk, along with the time it will take.

It’s a seesaw.

On one side, there are immediate benefits and the advent of a brand new start. The other side is the uncertainty of job prospects and a change in your future.

Accepting the redundancy package

If you take the leap and accept your redundancy package, the next phase is understanding your benefits.

Every organization will offer different levels of benefits but you are legally entitled to several things based on your country. Make sure to check your government website and comprehensively read your entitlements as these are essentials every employer must provide.

Carefully discuss and understand what your employer is offering you.

Exiting your organization

You’ve accepted the terms and the offer, it’s time to plan your exit.

The common process involves handing over your tasks to colleagues and training your successor to ensure an easy transition for the team. As a respected individual, it’s not just about leaving through the door; it’s about exiting with grace and professionalism.

Being polite and saying bye to everyone – even those you don’t work directly with – all make a difference in your future opportunities. Leaving an organization is a major step and the manner in which you do it will affect your reputation.

The process of voluntary redundancy is a journey filled with choices, evaluations, and ultimately, transitions. Your path may differ from others, but understanding these steps can help you navigate this unique employment arrangement with confidence and clarity.

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Juliet Teagan

Juliet Teagan

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