Job loss can happen for any number of reasons, but whatever the cause, it can be a very difficult time and create stress for you and your family. While no one can completely prevent a job loss, there are some proactive steps that can be taken both professionally and financially to ease anxiety and help get through this situation.
Some proactive steps to take while employed
Sharpen your skills and keep current
Search out courses or skills training to ensure you stay up-to-date on new innovations within your existing field or upgrade your skills and knowledge. This will ensure you remain current and relevant for your current employer and for prospective employers in the event you must find a new job. Many professions have continuing education built into the job or licensing. While you are working, it is important to take steps to remain focused on your education, sharpen your skills and keep current in your profession.
Complete a budget
Understand what your fixed expenses are every month. This includes housing costs (mortgage or rent and utilities), food and insurance premiums. While employed, try to set aside three to six months of savings to cover these expenses. Avoid leaning on and using credit to pay for expenses which will create a debt balance that will need to be factored into monthly expenses. Having savings set aside will ease some of the immediate financial strain and assist with being able to focus on your next steps.
Understanding possible financial options after job loss
After losing your job there will be some decisions that will need to be made within a compressed timeline. Ensure you understand the options, what you qualify for and your best way to proceed as these decisions can support immediate needs and will also have long term consequences.
Government of Canada Employment Insurance
If an individual worked in Canada, they may qualify for Employment Insurance (EI) which provides regular benefits if job loss was through no fault of their own. While searching for a new job, EI pays a percentage of the previous income up to a certain amount.
Employer payouts
Your employer may owe you compensation if your employment is terminated. Provinces or territories oversee the payments but you can refer to your letter of employment or Employee Guide for additional information.
Termination Payout – money owed in lieu of providing advanced notice of job loss.
Vacation Pay – salaried employees may have vacation pay earned but not paid out. Hourly paid employees may be owed vacation pay accumulated. This can be 4-6% of your pay.
Severance Pay – salaried employees may have vacation pay earned but not paid out. Hourly paid employees may be owed vacation pay accumulated. This can be 4-6% of your pay.money paid out by an employer if the employee loses their job through no fault of their own. Federal, provincial, territorial governments have regulations about severance pay that employers must follow. If a severance exceeds requirements, it generally reflects considerations related to: employment contract, length of time with current employer and the reason for job loss.
How you want your severance to be paid out is a big consideration as severance pay is taxable income in the year received. Think about your need for the money and the taxes that will be owed. Severance payment may be received as:
- a lump sum with the employer mandated to apply a legislated withholding tax.
- a salary continuance for a specified time frame. This would stretch out the payments and the taxes would be applied as the amounts are distributed.
There is an option to transfer the severance amount directly to an RRSP if the person has enough RRSP contribution room – except for severance earned for years of service prior to 1996 ($2000 per year can be transferred directly to the RRSP without effecting RRSP contribution room). Transfers to an RRSP would avoid immediate taxation and is instead deferred until the money is withdrawn from the RRSP.
Registered Pension Plan (RPP) – if your employer provided an RPP there are options for the transition of the benefit. The pension administrator will provide an option package outlining the values accumulated and the possible options.
- Defined contribution plans can generally be transferred directly to a financial institution of your choice into a Locked-In RRSP with no tax consequences.
- Defined benefit plans typically have the options of remaining within the existing plan receiving the payouts on specified dates, transferring the plan to a new employer if the plan is administered under the same jurisdiction or commuting to a locked-in RRSP at a financial institution of your choice.
Additional considerations at time of job loss can be the termination of health and dental insurance. Ask your employer if this can be extended for a time until new coverage can be secured. Life insurance coverage provided for the employee and family will likely end, so it is important to research the options available through the employer’s existing benefits company or shop around within the market to get insurance that meets your needs.
It may be prudent to seek legal advice to understand your entitlements prior to accepting an offer/package. Once you are satisfied with the offer/package, it is recommended to seek the advice of your financial advisor to ensure you understand all your options for the payouts.
FirstOntario Credit Union in partnership with Aviso Wealth has an experienced team of advisors specializing in various areas of wealth management, including retirement planning, investment management, estate and succession planning, individual financial risk management and more. These professionals are here to help you plan for the future and reach your financial goals. Visit FirstOntario.com/Investments or call 1-800-616-8878 ext. 1700 to connect with a FirstOntario advisor and start growing your wealth today – your way.