Expert Advice

Voluntary redundancies for government employees

B2B Editor6 November 2014

When an offer on voluntary redundancy (VR) is made to an employee, it can raise several questions and considerations. It is recommended that an offer is not accepted without careful consideration of the financial and emotional impacts of a VR. Some considerations are outlined below.

Firstly, look at the offer in segments. The actual redundancy is a calculation made on your number of years of service and is calculated as 2 weeks for every year of service. This benefit has the tax free component attached to it. In addition, you generally receive up to 5 weeks’ pay in lieu of notice (this is fully taxable).

The portion of the redundancy benefit that is tax free for this financial year is:

* $9,514 plus $4,758 for each completed year of service. Secondly, your VR offer should have an indication of the Annual Leave & Long Service Leave entitlements you will receive. These are your entitlements whether you take the VR offer or not as they are benefits you have accumulated during your years of service. However, under a VR offer, the tax rates are reduced as follows:

* Annual Leave – 30% plus Medicare levy

* Long Service Leave pre 15/8/78 – 5% & post is 30% plus Medicare.

Remember, taking a VR means that your Long Service Leave starts from zero once you commence employment in a different role or with a new organisation, rather than continuing to accrue.

Thirdly, you need to consider the impact of the VR on Superannuation. Both the CSS & PSS Schemes are defined benefits. Taking a VR may impact on your ability to manage your superannuation position in these funds. It may not be an issue for the PSSap, being an accumulation fund. However, you need to be mindful that the Australian Government as an employer generally contributes up to 15.4% of salary, whereas in the private sector, it may only be 9.5%.

Lastly, take some time to consider the security & emotional issues surrounding a redundancy. These intangible issues are as important as the financial implications as they can have an impact on your emotional wellbeing and may impact your loved ones.

If you would like additional information on VR’s or you are ready to review your current financial position please contact us at Dragonfly Financial Services.

General Advice Warning:

The information provided in this document is general information only and does not constitute personal advice. It has been prepared without taking into account any of your individual objectives, financial solutions or needs. Before acting on this information you should consider its appropriateness, having regard to your own objectives, financial situation and needs. You should read the relevant Product Disclosure Statements and seek personal advice from a qualified financial adviser.

Luke Smith, Director AFSL No: 237590
T: 02 6273 3118 F: 02 6273 1118
M: 0413 311 999
GPO Box 1961 Canberra ACT