What to do if you can’t work or lose your job

Understand your income

By keeping track of how much money you have coming in (your income) then you can get a clear picture of your finances and take control of your money. This is important for everyone but especially if you find yourself unable to work.

Check what your employer will pay

Start by finding out how much sick pay or redundancy pay your employer will provide.

If you can’t work because of illness or injury

Many employers offer a higher level of sick pay for a certain period of time. This might mean some months at full pay and then reduced pay after that.

If you are made redundant

If you are made redundant then you may be entitled to statutory redundancy pay. This is based on your age, weekly pay and the number of years in the job. However, you’ll only qualify for statutory redundancy pay if you’ve worked for your employer for at least two years. There is a calculator to help work out what statutory redundancy pay you are entitled to receive on the Gov.UK website. Your employer might pay more than the minimum though. You won’t have to pay tax on statutory redundancy pay under £30,000.

When you leave your job then you might receive other payments. This is known as a termination payment. This includes statutory redundancy pay, holiday pay, unpaid salary and other payments such as a bonus.

If you lose your job part way through the tax year (which runs from 6 April to 5 April the following year) you might be able to claim a tax refund from HM Revenue & Customs. There is an HMRC calculator on the Gov.UK website.

See what benefits you could claim 

You might be entitled to certain state benefits too.  Depending on whether you are ill or have lost your job, you might be entitled to: 

• Statutory Sick Pay 
• Employment and Support Allowance 
• Universal Credit 
• Help with rent or mortgage 
• Council Tax reductions 

The charity Turn2us has a free-to-use and confidential benefits calculator, which can help you work out what you’re entitled to. More information on benefits and help available can be found on the independent and government-backed MoneyHelper website.  

Look at your other income sources 

Consider any other income that you might have.  That could include other income coming into the household from your partner’s salary, as well as savings, investments and/or insurance that you might have.  Income Protection is a type of insurance that can pay you a proportion of your income if you're off work because of illness, injury or a terminal illness. If you are very seriously ill, then Critical Illness insurance pays out a lump sum or monthly income if you're diagnosed with a serious illness that your policy states it will pay out for, or if you have an illness or disability that means you will not be able to work again . You might have this cover through your work or you might have taken out an individual policy. 

If you are made redundant then you might have taken out a policy which pays out when you are made redundant.  

If you took out one of these policies with a financial adviser, then contact them for help about how to make a claim and any waiting period there might be. 

Review your spending

Once you know what your income is, it’s important to review spending habits to help you stay in control of your finances. A reduction in income could mean that you may need to look for other ways to replace any lost income or cut back on your spending.

Create or update your budget

The best way to get a clear picture of your spending and how much money you need to manage on is to  create a budget. This is a list of everything you have coming in and everything you spend. It’s likely to be a long list so it helps to group together areas of spending such as household bills or transport so you don’t miss anything out.

You can create a budget using pen and paper, a spreadsheet or with the help of an online budget planner. Make sure that you list all forms of income and spending. That includes monthly bills and living costs as well as irregular expenses like annual insurance, visits to the hairdresser, holidays or gifts. Work out how much you spend on these each year and then calculate how much you need to set aside for these in your weekly/monthly budget.

There is a lot of information in our guide How to make a budget and cut your spending.

Adapt your budget to your new situation

When you draw up or review your budget, think about how it might change now that you’re not working. For example, you won’t have transport costs to work but your heating bills might increase if you’re at home for more of the time. If you pay for help in the home or pay for childcare you may no longer need this if you’re not working.

There are more tips on ways to reduce your spending in our guide How to save more money.

Manage debts carefully

Keeping up with the repayments on any loans you have can be a real worry if you lose your job or have a reduced income because of illness.

List your debts

1. Make a list of all your debts including details of the outstanding balances, how much you pay each month and the interest rates you’re being charged. You can normally find this information on your statements.
2. Work out your budget and see how much you have available once you’ve paid for your essentials such as household bills, living expenses and any repayments and interest on anything you owe.

Start paying off your debts if you can. As well as any money you have left at the end of each month, you could also use any redundancy cash or savings you have to help pay off some of your debt.

Claim on any debt insurance

Claim on any payment protection insurance you’ve taken out for these. If you’re not sure if you have insurance, ask your lender as they will know if you took out insurance through them.

Prioritise what to repay first

Prioritise your debts. Priority debts are ones which have serious consequences if you don’t keep up the payments. For example, if you don’t pay your mortgage or rent you could lose your home. If you don’t pay utility bills you could be cut off. Council tax is also a priority debt.

Non-priority debts are things like credit card bills, bank overdrafts and catalogue debts where, if you can’t keep up the payments, the consequences are not as serious.

Use savings or redundancy pay if needed

If you have any savings or redundancy pay and are in debt, prioritise dealing with priority debts first.

Cut costs or increase your income

When considering your budget, look for ways to reduce your spending or increase your income.

Find areas to cut back

Your budget might reveal where you’re overspending or could make cuts. You could review regular bills and use comparison sites to shop around for better deals on:

• Energy bills - see How to reduce your energy bills
• Insurance
• Broadband or mobile plans- see How to cut your bills

You might be able to save money by cancelling subscriptions that you aren’t using or don’t use enough. That might be a gym membership, a phone contract or video streaming plans, such as Netflix or Amazon Prime. Watch out for any penalties for cancelling if you’re in a contract, so check on the provider’s website before you cancel.

Bring in extra income

There might be ways that you can bring in some extra income.

If you have a spare room in your home, you may be able to rent this out. You can earn up to £7,500 a year tax-free from letting out a room in your home. This is halved if you share the income with your partner or someone else. If you rent your home, you should ask for permission from your landlord. There is more information on the Gov.UK website.

Consider selling items that you no longer need. If you are clearing out unwanted personal possessions, then you probably won’t have to pay income tax on any profit you make but if you start buying and selling goods or making and selling goods then you’ll need to tell HMRC if your total income is more than the £1,000 trading allowance for the tax year (6 April to 5 April). You can find out more information on the Gov.UK website.

It might be worth considering whether you could take on temporary work or freelance jobs while looking for another job.