In the 21st century, redundancy isn’t the end of the line

With a recession looming, up to 30 per cent of employers are said to be planning to cut jobs. But, as Kate Hughes finds, the P45 can be a passport to a new career

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The relentless wave of bad financial news has finally, definitively, called time on job security in Britain. The country is teetering on the brink of recession and unemployment is rising at its fastest rate since 1992.

Some 15 million people now fear for their jobs, according to the latest research from the professional networking site Workology.com, as our hopes that large organisations can offer us the professional stability we need start to crumble.

"The jobs market has been one of the few bright spots in the UK economy, but cracks are appearing in the face of an uncertain economic outlook," says John Philpott, chief economist at the Chartered Institute of Personnel and Development. "Even if we avoid the scale of jobs fallout suffered in previous downturns, the candidate's recruitment market is already over, with people in work becoming anxious that their P45 might soon be on its way."

The institute's latest Labour Market Outlook survey, covering more than 1,200 employers, shows job prospects are weaker than at any time since the survey began in 2004. Almost 30 per cent of employers are now planning redundancies, up from 22 per cent in three months. Just one in four businesses expect to take on new staff, down sharply from 37 per cent in the summer, even though the autumn is usually a boom time for job opportunities.

"Suddenly the labour market is looking a lot less resilient," agrees Andrew Smith, chief economist at the consultancy firm KPMG. "Companies are now reacting to deteriorating market conditions, and finances are under pressure. Employment costs, the main area over which businesses can retain control in this climate, are taking the strain. Employers want to keep a lid on pay settlements and are planning for redundancies."

But if you have a horrible feeling that this may mean you, some suggest it could be a blessing in disguise. Looking back to the recession of the Eighties brings to mind images of dole queues stretching into the distance, but this time around, the "job for life" mentality is long gone. Many people now change careers several times during their working lives.

Stephen Alambritis, head of public affairs at the Federation of Small Businesses, believes the change of pace brought about by redundancy can be used to help people readjust, reassess and start out on their own, even in hard times.

"These days the relationship between being made redundant and setting up on your own is much more positive than [in previous decades] when those such as miners with physical skills had no support to develop new skills," he says. "This time around, redundancies are coming from places like the property sector and the City, where skills are transferable. People are using the change to follow their dreams of working for themselves and doing a job that really excites them rather than taking orders from someone else."

According to Mr Alambritis, around 500,000 people a year in the UK decide to go it alone, and an increasing number of canny entrepreneurs are using their redundancy money in this way.

"There is a plethora of agencies and schemes set up by the Government to help people start their own business," he continues. "You can realistically start up a company in a week. Even your mortgage lender is now more likely to permit you to run a business from your own home, and local authorities are more open-minded about small household firms."

The law is very clear about your rights in redundancy, and how much you should expect in compensation. If you have been employed continuously by the same company for at least two years and are laid off, or if a fixed contract of two years is not renewed due to redundancy, you are probably entitled to a statutory redundancy payment. You may also be able to claim if you have been tempo-rarily laid off for more than four weeks in a row or for a total of six weeks over a period of 13 weeks.

The public services website Directgov (direct.gov.uk) has calculators that can give you a better idea of just how much statutory redundancy pay you should receive. Expect half a week's pay for each complete year of continuous service if you are under 22, a full week's pay if you are between 22 and 40, and 10 days for each year of service over the age of 41. Note, however, that some employment contracts may require that you agree to waive your right to statutory redundancy pay. At the other end of the scale, some firms may make extra payments in the event of of redundancy, the first £30,000 of which will be tax free.

Bear in mind that you won't receive redundancy pay if your company offers you suitable alternative employment that you refuse without a good reason.

So if you're lucky, by the time you hand back your security pass, you may have a small lump sum in your bank account. Your firm should pay your redundancy money on your final day of work, or as soon as possible after that date.

If you are considering setting up on your own, be aware that small businesses, especially one-man bands, are vulnerable. Even in periods of economic stability, three in five young firms don't survive. And in this climate, their chances of getting beyond the critical three-year mark are slimmer still as potential suppliers and customers tighten their belts.

Even the British Chambers of Commerce (BCC) admits that starting up a business is a challenge at the best of times, and points out that in an economic downturn, in-depth preparation becomes more important than ever.

Sam Turvey, a spokesperson for the BCC, says: "Ask yourself three questions. Is there a market demand for my idea at the moment? Is it large enough to make money? What is the competition? If you don't know the answers, find out more before making a blind leap."

A detailed business plan is essential, Mr Turvey adds. "Decisions driven by reaction, rather than a planned process where you are in control, are risky. Of course, plans are sometimes derailed due to economic crises and other external factors, but make sure you have a contingency plan and can refocus.

"Stay in touch with market trends, and know what the competition's prices are," he advises. "Being overly ambitious usually leads to high organisational and marketing expenditure, greater capital expenditure and higher borrowing. All this heightens the risk to your business if you don't meet those targets.

"Bear in mind that unsuccessful businesses spend money and resources in the wrong areas, seeing very little capital return from the investment. Do not let your costs spiral out of control – know what they are going on and why. Budgetary and cash-flow reporting is invaluable, especially when the markets are suffering from a credit squeeze.

"And don't forget to protect your business, either. Many small firms fail because they are under-insured or did not insure themselves at all in the attempt to save costs. The recent summer floods highlight just how suddenly disaster can strike."

Where to find help if you’re going it alone

Being your own employer may be one way to survive financially after redundancy, but getting a business up and running is a hard task. A number of organisations offer help to new start-ups, and in some cases this can make the difference between success and failure.

The Prince's Trust Business Programme and Prince's Scottish Youth Business Trust provide advice and support for 18- to 30-year-olds. See princes-trust.org.uk

Business Link is a government organisation giving practical advice, grants and support to businesses. See businesslink.gov.uk or call 0845 600 9006.

The National Federation of Enterprise Agencies is an independent network that helps small businesses and unemployed people of all ages. See www.nfea.com or call 01234 831623

If the axe falls: your rights and your employer’s responsibilities

For a redundancy to be legal, the company's business, or part of it, must either have ceased to operate or have moved to a different place, or it must be able to show it no longer has a need for that particular work.

Employee rights vary according to individual contracts, but the employer must fulfil basic legal obligations. If possible, the firm is expected to offer the worker an alternative position. If it cannot, it must send a written statement giving the reason for redundancy.

Every year worked at the company is equivalent to a week's notice, with a maximum of 12 weeks. During this period, which is fully paid, the employee can take off time to look for work. The company may help with advice or money for training.

Employees with more than two years of service are entitled to redundancy pay that takes account their age, weekly pay and years of service. The first £30,000 of redundancy pay is tax free; any pension schemes should be transferable.

Further information: tuc.org.uk/rights; the Department for Business Enterprise and Regulatory Reform (berr.gov.uk/employment); Citizens Advice (adviceguide.org.uk)