Severance packages

Sometimes, when you are about to discharge an employee, you might consider offering a "severance" or "separation" package - an amount of money that is meant to temporarily offset the employee's job loss.

Employers are not required by law to give severance packages, but if you have negotiated the terms of a severance package with a union, those terms might even appear in your union contract.

Benefits in a severance package
Severance money
Lump sum vs. installment payments
Health benefits
Job training and career placement
Letter of recommendation
Should I negotiate a severance package with my employees?
Unemployment insurance benefits and severance benefits
"Release of claims"
What claims are released?
Time to sign the release

Benefits in severance packages

A severance package may have several types of benefits. Some packages contain just money payments to the employee. Others contain additional "perks" - such as free enrollment for the employee in job training or placement services.

Severance money

Because there is no legal requirement that you even give a severance package, there is no set amount of severance money that you are required to offer - unless you have a contract (perhaps a union contract) requiring you to pay severance money.

Many employers set a formula for severance benefits based on the time an employee worked before losing the job, such as one week's (or one month's) pay for every year the employee worked for the employer.

Lump sum vs. installment payments

Many employers pay severance over time simply because they don't have the money to pay in a lump sum - especially if other employees have lost their jobs too and you also have to pay severance to them.

If the severance is paid over time, the employee might not be able to collect unemployment insurance benefits during that time, because the government agency that handles unemployment benefits might view the payments as wages. You should check with an attorney who specializes in employment law to see if your employees will still be able to collect unemployment benefits even if you provide them with a severance package.

Health benefits

Many employees who lose their jobs are entitled to keep their medical benefits for 18 months under a federal law called "COBRA" - although those employees still have to pay what it cost the employer to keep them on the medical plan. So some employers offer severance packages that include the cost of those payments. That can be a significant benefit to the employee, as the cost of continuing benefits can be hundreds of dollars per month.

Job training and career placement

Some employers include job retraining or career placement services as part of their severance packages.

Letter of recommendation

Some employers offer to write a good letter of recommendation as part of their severance packages. That can be important to an employee - especially if the employee had trouble with the employer and might have trouble finding a new job. If you have questions about severance packages, consult with a lawyer near you.

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