Severance Pay
Tips & Advice to help you make your decision on Severance Pay
Severance pay is given to employees who leave a company, usually through retirement or job elimination. These packages include an employee's regular pay for time left and sometimes, things like retirement benefits, payment for unused sick and vacation days, and medical insurance.
The amount of severance pay given to an employee is typically based on how long that employee has been with the company. While the Fair Labor Standards Act sets requirements for wage, child labor standards, and overtime pay, it does not require companies to provide severance pay. Companies that release employees must only pay regular wages and any time, such as unused vacation days, that has accrued. It is likely that if a severance package is offered and accepted, employers will ask that a release is signed that waives an employee's right to sue. Employers must obtain a separate release from an employee older than 40 years of age to prevent age discrimination lawsuits.
Severance pay is given by large and small companies, and is looked upon as a demonstration of kindness and respect to a departing employee. The additional money helps tie employees over until they find a new job, and supplements unemployment benefits in the short term.
Read more about severance pay from the links on this Business.com page.
Severance Pay Key Terms
Know your company's obligations to terminated workers by learning severance pay key termsBy Michele Vrouvas 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.
Release
Companies ask certain terminated employees to sign a release guaranteeing the employee will not sue in the future.
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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.
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Employeeissues.com defines and explains severance agreements.
Insurance benefits
Insurance benefits have become standard items for consideration on which the severance agreement is based.
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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.
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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.
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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.
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Go to Resume-Resource to find out why more companies are offering outplacement services as part of their severance packages.
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