With redundancies on the rise, what steps must be taken next

The UK economy has suffered the worst throughout the global downturn of 2008/09, affecting us all in one way or another, changing some peoples lives. The number of people made unemployed hit 1.92 million between September and November 2008 - the highest level since 1997.

With a high number of people left jobless, there are a number of measures that can be taken to remain in the best possible position, both financially, and increasing your chances of finding a new job.

Being made redundant can be very distressing, but it is important not to panic.

The first thing anybody in this situation should do is go to your local job centre. This will not only increase your chances of finding a job, but also provide you with information regarding the benefits that you may be entitled to, and set the ball rolling.

If you need any kind of technical or legal advice, pay your local Citizen Advice Bureau a visit, as they will be able to help you to handle your situation.

You may be entitled to redundancy counselling which can help you in a number of ways both emotionally and professionally. This may be a significant change in your life, so you may need support to get your life back on track. This can be anything from helping you to make the first steps to finding a job, to providing financial advice.

You may think you can deal with losing a job on your own, but accepting all the help you are offered will look good on your part, as this is a step in the right direction and is always recommended.

You may find that you are entitled to a redundancy package,offering financial compensation. It is important to be aware of your rights as an employee, so ensure you have read through your employment contract in detail. The law says that employees should be given at least one weeks notice (per year of service) before losing a job, up to a maximum of 12 weeks.

Those that worked for a company for two or more years qualify for a statutory redundancy payment, which is calculated by multiplying half a weeks pay for each year of service for those aged between 18 and 21, and a full weeks pay for each year for those aged between 22 and 41. Anyone aged 42 and over is entitled to 1 and a half weeks pay per year of employment, up to a maximum of 20 years. Unfortunately for high earners, the weekly payment has been capped at £350 this week, making the highest possible payment (before tax) of £7,000.

Some firms offer employees additional compensation packages to look after their employees. This is generally calculated by multiplying a months salary by the number of years service completed, with the first £30,000 tax free. Anything over this amount is taxed according to the employees tax band, so anyone that earns below £37,400 will be on the lower rate of 20%, and anyone earning a salary greater than this will be on the higher tax band of 40%.

If you do earn above £37,400 there are certain steps you can take to avoid having to pay more tax than you need be. One thing you could consider is asking your company to hold off the redundancy payment until you have received your P45 as this will mean that you will only have to pay tax at the lower rate of 20% for the remaining payout.

If your final salary payment includes your redundancy payment, 40% will be deducted at source. The remaining tax tends to be paid in the following year's tax return.

You may find it worth considering negotiating with your company to put you in the best financial position possible. For example, it might be a good idea to discuss the possibility of exchanging your period of notice and any holiday owed as payment.

It is possible to avoid having to pay any tax at all on your surplus by putting your payment directly into your pension. Each year, individuals are entitled to put tax free cash into their pension scheme, up to the equivalent of a years salary.

This could be a very appealing option depending on your circumstance, as people over the age of 49 are able to make lump sum withdrawals of up to 25% of their total pension without having to pay any tax for the privilege. This is definitely worth considering if possible, especially if you are over the age of 50.

An improtant thing worth noting is that after April 2010, the age limit for qualifying for the 25% tax free withdrawal sum will move from 50 to 55.

For younger individuals, this may not be the best option, as it would involve locking your money away for many years.

You may have been lucky enough to have taken out unemployment insurance, so make it a priority to chase up your provider to find out what you're entitled to.

Homeowners are likely to find redundancy a chilling prospect. 2008/09 saw a significant increase in property repossessions and people having trouble with mortgage repayments. You may decide to take out insurance to protect your mortgage against you becoming unable to make repayments. Before taking out an insurance policy, ensure you understand what the insurance is offering, as many providers have tightened their conditions due to the economic climate.

To be approved for unemployment insurance, you must not have been informed by your employer of any job cuts within the company, and your insurance won't cover youif you are made redundant within 120 to 190 days (depending on providers) of taking out the policy.

Also, before purchasing insurance, check your existing insurance policies, as you will be surprised at how many products also cover redundancy as part of the package.

If you find you falling behind with mortgage repayments, you MUST contact your mortgage company as soon as possible to keep them in the loop. This is extremely important, as if the worst were to happen, the fact that you informed them of your issues as soon as you became aware of them will look good on your part.

Many mortgage lenders are currently offering between three and six month payment deferrals depending on your current situation. Again, being able demonstrate that you are actively looking for a job and taking all advice offered will work in your favour.

Once your redundancy payment comes through, you need to decide what you plan to do with it, and for many this means finding the best savings option. Earlier we spoke of putting the funds into your pension, but for those who are not in a good position to lock it away for a number of years could look at other types of savings accounts, such as fixed rate bonds and ISAs. It is a good idea to scour the market to find the best isa rates availble, therefore allowing you to earn the highest returns on your investment.