(NerdWallet) – When you’re laid off, you won’t be in the clearest frame of mind to take care of your financial life.
It can be difficult to do much at first, says Pamela Capalad, a New York-based certified financial planner. “But you have to take care of the financial issues.”
To protect your finances, consider the following first steps.
Secure your human resources contact
“Before you walk in the door — and companies can say you’re out within five minutes — make sure you have a contact,” says Andrea Kay, Cincinnati-based author of “Work’s a Bitch and Then You Make It Work ,” and several other career books.
Having someone to contact at your former employer, such as a human resources professional, will be crucial if you need help rolling over your 401(k) retirement plan or if there are issues with your payout. severance pay.
Find out if there will be compensation
Your employer may or may not offer severance pay. Depending on the company and your state’s laws, this could include severance pay as well as any remaining paid time off you were entitled to. Like other forms of income, severance pay is subject to income tax.
When online payment company Stripe laid off around 14% of its staff on November 3, it offered 14 weeks of severance pay, plus more for those with longer tenures. The severance package also included the 2022 annual bonus and payment for all unused vacation pay.
Severance pay could even be negotiable, experts say. Consider applying for additional severance pay, career services to help you find your next job, reimbursement for unused paid vacation, extended health insurance coverage, or immediate vesting of options to purchase unvested shares.
Why would an employer agree? Well, severance pay is often provided because an employer wants employees to sign a release of claims against an employer, nondisclosure agreement, or noncompete agreement.
“They need you to sign something, so you have a bit of negotiating leverage,” says Capalad, who is also the founder of financial planning firm Brunch & Budget.
Experts also suggest cutting discretionary spending immediately. Focusing on the essentials – food, housing and utilities – until you land your next gig can help ease the financial strain. You may be able to cut back on subscription services, dining out, and other extras.
If money is still tight after these cuts, consider negotiating your bills with service providers and lenders. A phone call to 211 (or a visit to 211.org) can put you in touch with social service programs that can help you stay afloat.
Unemployment insurance provides weekly benefits to laid-off workers. If you are laid off, file for unemployment insurance as soon as possible because it can take weeks to receive your first check.
To qualify, you must meet the work and salary requirements, i.e. the time worked and the amount you earned. It is possible to receive unemployment benefits if you also receive severance pay, but the rules vary by state.
To access unemployment benefits, you must file a claim with the state where you worked, according to the US Department of Labor. The unemployment insurance agency in the state where you live can provide you with information about filing your claim in another state. Find your state’s unemployment benefits on the CareerOneStop website, which is sponsored by the Department of Labor.
Extend or find new insurance
Find out when your health insurance will end. In some cases, an employer will offer to cover health care costs. For example, when Meta (which owns Facebook and Instagram) laid off more than 11,000 employees on November 9, it promised to cover the laid off employees’ health costs for six months.
Under a federal law called COBRA, workers can extend their health insurance coverage for a certain period of time if their job is terminated. For employees covered, this period is 18 months.
In order to obtain COBRA insurance, you will have to pay the premium, which can be expensive. Insurance on the HealthCare.gov marketplace can be cheaper than COBRA, especially if you qualify for Medicaid.
Beyond health insurance, if you had work-related life insurance, it’s unlikely to follow you when you’re laid off. It could leave your loved ones in suspense.
“If you are 23 and in good health, you don’t necessarily need life insurance, but if you have a child or are caring for a partner or family members, it now is the time to get life insurance,” says Capalad.
Manage your 401(k)
If you had a 401(k) with your employer and were terminated, you have four possible actions to take:
- Roll your old 401(k) into an Individual Retirement Account, or IRA. You will have to pay taxes on the deferred amount if it is a Roth IRA, but the taxes are deferred if it is a traditional IRA.
- When you get a new job, transfer your old 401(k) to a new plan. Contact the plan administrator at your old job and ask for a direct rollover.
- Let your 401(k) be. You may pay higher fees as a former employee and you cannot make additional contributions.
- Cash in your 401(k). Your former employer may give you a check, but they will withhold 20% tax for the distribution. It could also be considered an early distribution, which carries a 10% penalty and potential taxes.
Exercise your stock options
If you have vested and unexercised shares with your former employer, you should make a decision to exercise them quickly. There will be a predetermined window — typically 30 to 90 days, Capalad says — to exercise them; otherwise, they will be returned to the company. Unvested shares are no longer part of your portfolio.
However, it is also possible for an employer to use what is called a clawback provision to buy back your acquired shares after a triggering event, such as a layoff.
Take a moment before you start looking for a job, then dive into it
Your first instinct when you are laid off may be to immediately start looking for a job. Kay says that’s not an ideal way to start your search.
“You’re going to want to react by calling everyone you know and saying ‘do you know any jobs?’ Wrong move,” Kay says. “You’re going to want to send your resume right away – worst shot. Don’t do anything but take a deep breath first.
After this expiration, assess your own experience and skills so you have something to say with the people in your network.
“You have to know why you matter. You have to say “this is what I did for my business and this is what I will do for you,” says Kay. And it helps if you can present why you matter in a simple, jargon-free way.
“You have to be able to explain it to your mother,” Kay said.
Once you understand what you can offer and how to best present yourself, Kay recommends using this information to update your resume, build your LinkedIn profile, and submit job applications.
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