In times of tight corporate budgets and mandatory layoffs, understanding severance pay basics and your obligation as an employer is especially important. With no general severance pay law in existence, offering severance pay and severance packages is a voluntary benefit to employees who have been terminated from their jobs. You are not required to provide severance payments unless you and an employee or employee representative have a severance agreement.

Although there are no federal laws dictating employee severance pay entitlement, offering a severance salary may attract new employees and demonstrate your commitment to employee satisfaction. Follow these steps before deciding whether or not to enact a severance policy at your business:

1. Understand how you can avoid lawsuits by offering severance pay.

2. Find severance pay information online before drafting severance agreements.

3. Obtain severance pay advice for small businesses.

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Enter into severance agreements to avoid lawsuits

An easy way for your business to side-step angry employees and minimize costs is to offer severance pay or packages. Severance pay agreements discourage lawsuits from terminated employees, either directly as a condition of the agreement, or indirectly by easing the negative consequences of job loss. A severance agreement in place before termination helps defuse the emotions around job loss.

I recommend: Nolo, a legal information provider, offers tips on constructing severance package language that limits the terminated employee's right to sue. Business Management Daily also offers information about how to draft severance packages to comply with age-bias laws and protect you against age discrimination lawsuits.

Learn how to draft severance pay packages by acquiring severance pay info online

Understanding what should be included in a severance payment or package can be difficult, as you want to ensure an employee receives an appropriate amount for their length of employment with you, but without spending too much on the cost of developing the agreement. There are a variety of resources online to aid you in this endeavor and to ensure you are being reasonable.

I recommend: HR World provides an article listing potential components of severance packages. You should assess each option for applicability to your business and employee situation. FindLegalForms.com offers software for sale that will take you step-by-step through the compilation of a severance agreement.

Obtain small company severance pay information to better suit your business's needs

Because severance pay is often provided to employees by medium-sized to large businesses, you may want to gain a better understanding of what a small business can do for its employees upon termination. Knowing the basics is crucial as small businesses are at an increased risk of financial losses when it comes to disgruntled employees, as they do not have unlimited budgets and resources.

I recommend: FindLaw highlights when small businesses should offer severance pay and what should be included in the offer. BusinessTown.com is also a beneficial resource for small businesses, addressing severance pay issues and what needs to be done when firing an employee.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  There are varying state severance pay guidelines depending on where your business is located. Visit your state government website to ensure you are following protocol and providing employees with their full rights under state law.

Severance pay is offered to employees terminated from their jobs for a variety of reasons, including layoffs and downsizing. Typically, a severance agreement enables an employee to collect income for 1 to 2 weeks for each year that the employee worked at the organization. Businesses must be aware of the requirements regarding severance packages and severance payments prior to terminating any employees.

There is no mandate for severance pay law by the US federal government. Therefore, a severance agreement and severance packages are at the full discretion of the employer. Since layoffs and downsizing are more common in today's tumultuous economic environments, many businesses have taken advantage of severance pay entitlement for their employees who deserve the benefits after years of service.

Keep these things in mind when formulating your severance policy:

1. Since severance pay law is not a federal mandate, many organizations offer a severance salary to their employees while others do not.

2. Severance payments may be different for executive-level employees, who often receive six months to one year of pay for accumulated service.

3. Employers offering severance pay often recognize the importance of employee's continuing financial needs after terminating employment.

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Seek severance pay advice through consultants and attorneys who specialize in this area

There are a number of options available to employers seeking guidance regarding severance pay and related agreements. Review these offerings to determine the most effective ways to approach this situation if it arises at your organization.

I recommend: Compensation Resources provides an article regarding how employers should discuss layoff possibilities with their employees beforehand. WEA Consulting offers information regarding the different types of severance agreements, as well as negotiated separation packages.

Offer severance payments that may include a combination of cash and/or stock options

Some organizations possess sufficient capital to provide cash buyouts and stock options for terminated employees. Seek these options through a consulting service prior to making any final decisions that could negatively impact a severance agreement.

I recommend: Buck Consultants offers a wide range of severance pay services, including payout options and data management. CareerSoar offers guidance regarding severance packages in order to attract top-level executives for future available positions.

Consider a severance pay agreement and package that also offers outplacement services

Many consulting services offer outplacement guidance as part of a severance agreement. This is particularly helpful for employees with executive or other management positions that may have difficulties on their own in finding new employment.

I recommend: Long Island Outplacement offers employers guidance regarding outplacement for terminated employees to reduce the potential for lawsuits and other issues. MBA Authority offers similar services to MBA graduates seeking higher level positions.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  Consider all options before deciding on a severance package. It is imperative that employers must evaluate how downsizing and layoffs will impact the organization's bottom line when severance pay is involved.

Severance pay may be given to individuals when they are terminated from a job. Many people have questions about severance pay entitlement. Often, the heads of businesses will seek severance pay advice from their human resource departments. Especially in cases such as these, it is important for individuals to have an understanding of their state and federal severance policy requirements, pertinent severance pay info and an understanding of why their business may require offering severance pay.

HR departments benefit from severance pay information to properly do their jobs and protect the establishment for which they work, as well as the employees who work there. An individual’s severance pay education and training may come from a variety of different sources, including:

1. Becoming familiar with severance pay support sites.

2. Reaping the benefits of seminars and certification courses for severance payments, including the specifics of a severance agreement.

3. Utilizing tutorials and training options to assist in the understanding of severance pay.

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Visit severance pay and severance agreements support and informational websites

In many instances, individuals will have questions when it comes to the many areas relevant to human resources, including severance pay. For these situations, support sites and applicable websites can prove to be an invaluable resource.

I recommend: There are a number of educational sites offering information about laws and the answers to frequently asked questions when it comes to severance pay, severance agreements and severance laws. Some of the most comprehensive websites which address these issues include MyEmploymentLawyer.com, EmployeeIssues.com and FKLaborLaws.com. These sites are beneficial not just for human resource departments, but also individual employees who have questions about this topic.

Supplement formal severance pay educations with applicable seminars and certification courses

Not only is it important to understand federal severance pay requirements, but also state severance pay mandates. As a result, it may become beneficial for individuals who move often or represent a variety of regions to supplement their formal education. This can be done through such options as seminars and certification courses.

I recommend: HRTrainingCenter.com offers a number of training courses with respect to severance pay, severance agreements and severance packages. The training courses are available in a number of locations across the United States. TrainUp.com offers a specific course to those involved in human resources entitled "Severance Agreements: How To Reduce Your Legal Risks When Terminating Employees in a Tough Economy Training Seminar."

Expand severance pay educations through audio conferences and traditional conferences

New severance pay law proposals and regulations may be passed on a regular basis. For individuals involved in severance pay agreements and severance pay offerings, conferences and seminars may be advantageous as time goes on. This will allow severance pay representatives and specialists to stay informed after they have acquired their formal education.

I recommend: HRHero.com offers an audio seminar on severance agreements for those who are interested. At the same time, Strafford.com offers an audio seminar entitled "Employee Severance Agreements: Crafting and Negotiating Enforceable Release and Pay Provisions."

Tips & Tactics

Helpful advice for making the most of this Guide

• •  Since severance pay and many other areas of human resources may be closely linked to the laws and regulations of a region or area, it can often become beneficial to businesses to also have an individual with a legal background on staff. Individuals who have a legal background may work in the field of human resources or they may advise and educate the department with respect to such areas as severance pay.

Severance pay has evolved as somewhat of a tradition among American businesses for two reasons. First, some like to soften the blow of laying off long term employees just because the company has to suddenly tighten its belt. Second, absent budget considerations, companies might offer severance pay if an employee signs an agreement that he will not sue for more benefits. Whatever the reason, if your company doesn't have one and you're considering whether to implement a severance pay program, learning some key terms can help you make an informed decision.

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Release

Companies ask certain terminated employees to sign a release guaranteeing the employee will not sue in the future.

I recommend: EmployLaw gives a sample severance release agreement as well as facts about what a severance release entails.

Severance agreement

Employers draft a severance agreement to spell out the terms under which they are terminating an employee.

I recommend: Employeeissues.com defines and explains severance agreements.

Insurance benefits

Insurance benefits have become standard items for consideration on which the severance agreement is based.

I recommend: FindLaw identifies the benefits that federal law requires you to provide in a severance package. You'll also get advice on how to determine your state's regulations for providing other insurance benefits to terminated employees.

Severance cost

Yes, having a severance package can boost employee morale. But companies need to consider severance cost before they commit to anything.

I recommend: Read the discussion at Buck Consultation which points out some cost considerations you may not have anticipated. For example, find out why companies are unknowingly paying some workers too much in severance packages and why it's important to consider tracking terminated employees to determine whether they've gotten jobs.

Ineligibility

Your severance policy should contain provisions outlining the ineligibility of certain employees to receive these benefits.

I recommend: The U.S. Office of Personnel Management presents one company's ineligibility provision. Find out why some positions might not qualify an individual to receive severance pay and whether benefits an employee is already receiving through other means can also disqualify him.

Outplacement

Outplacement refers to a company's efforts to help terminated employees find other jobs.

I recommend: Go to Resume-Resource to find out why more companies are offering outplacement services as part of their severance packages.