What You Need to Know About Severance Packages
Losing your job is a challenge. The transition from “employed” to “unemployed” can be difficult in many ways, affecting everything from your morale and confidence to your financial stability and way of life.
While a terminated employee bears the brunt of losing their job, letting go of employees can be tricky for employers as well. Turnover can be costly for employers in a number of ways, and more often than not, they want to make sure that even employees who are leaving their ranks are cared for appropriately.
This is where the idea of a severance package comes in. Although severance packages can vary widely from company to company (and even from employee to employee), there are some general principles surrounding severance packages that every employee should be aware of.
What is a severance package?
Simply put, a severance package is compensation an employee receives when their employment is terminated.
Who receives a severance package?
Most often, they’re offered to people who are laid off, rather than those who quit or are fired for cause. This, however, depends on the company, and on your employment agreement.
How much can I expect to receive from my severance package?
The package often includes compensation beyond the employee’s last paycheck. Standard practice is to pay the employee 1-2 weeks’ pay for every year they were with the company. Beyond this, severance packages may also include retirement account benefits, continuation of medical benefits, stock options, accrued PTO payments, and so on.
What other stipulations are included in a severance package?
Severance packages often include other stipulations that usually serve to protect the company from action taken by the terminated employee.
For example, the severance package may prohibit the employee from taking legal action against the employer. Or, by accepting the severance, an employee may be waiving their ability to collect unemployment benefits (which can be costly for employers). There may even be non-compete clauses that prohibit the employee from getting a job with a competitor until a certain period of time has passed.
If you are offered a severance package, make sure to read the agreement carefully so that you know what you are agreeing to. If the language of the agreement is unclear, you may want to contact a lawyer to help you decipher it.
Can I negotiate my severance package?
Possibly. This largely depends on the company’s policies and procedures. Some companies have an established severance package that leaves little to no room for negotiation. Others handle severance on a case-by-case basis, and you may be able to argue for more severance pay. Either way, it doesn’t hurt to ask.
Other quick facts about severance:
- Severance pay is NOT a given, but an optional agreement between employer and employee.
- Severance pay is taxable.
- Some severance packages include giving the employee help with finding a new job. Even if there is little wiggle room for negotiation in your severance agreement, this could be something to ask for.
- Severance pay can be paid as a lump sum, or in installments. If you prefer one over the other, that is something to consider when evaluating your severance package.
Related: How to Spot a Toxic Employee
In the end, severance pay can be beneficial to both employer and employee. If you are faced with the reality of losing your job and negotiating severance, familiarize yourself with company policies and state laws to make sure you are treated fairly.
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