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Severance Pay

Information and resources on severance pay.

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Guide to Severance Pay


How to follow the rules and requirements for severance packages for terminated employees


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.

Action Steps

The best contacts and resources to help you get it done

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.

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By Colleen Loew
Human Resources
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How to follow the rules and requirements for severance packages for terminated employees.
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 ... Read more

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