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Severance Pay Basics

Understand severance pay basics to avoid disgruntled employees and costly lawsuits

By Shannon Hurley
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.

 

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.
Try: 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.
Try: 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.
Try: 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.

 

  • 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.

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