For the most part, severance pay laws don’t require employers to provide severance packages for terminated team members, but it often is the best choice anyway. Also, severance pay laws and packages frequently deal with issues outside of monetary compensation, such as access to affordable insurance coverage. When are you required to offer these packages?
Required Severance Pay: Scenario 1
Depending on state laws, you’ll only be required to offer a severance package for one of two reasons. The first is when your facilities are closing or you’re laying off a large number of employees for a similar downsizing effort. For these instances, you may be legally obligated to offer a minimum sum to all terminated employees via your state’s government. If your company plans to take such downsizing actions soon, be sure to consult with your local labor department. You may also want to consult with any relevant federal regulations as well.
Required Severance Pay: Scenario 2
The second reason you may be legally required to offer severance is if you have stated or implied as much to your employees. This implication can be the result of the following:
- A written contract or severance promise in any employment contracts
- Employee handbook or other personnel policies that promise a package upon termination
- An established enterprise history of offering severance packages to terminated employees of comparable rank and/or experience
- An oral severance package promise from the employer or comparable management parties
Why You Might Give Severance Anyway
It’s fairly common practice for employers to offer severance packages to long-term staff members as a thank you for their loyalty and years of dedicated hard work. These employers feel it is the right gesture and it can soften the blow of termination. Of course, employers seek the added benefit of ending employment on relatively positive terms to diminish the chance of a lawsuit or a tarnished company reputation.
Make a Severance Pay Policy
If you plan to offer severance packages to your employees, it’s important to establish a clear policy. For instance, if only managers are to receive such offers, where will you draw the line of management? Will you include assistant managers or only those who have five years of experience? Be sure to be fair and honest about your packages to eliminate the risk of a discrimination or similar lawsuit. Adhere to your equal opportunity policy and try to base your decision on factors that make sense, such as company rank or years of experience.
Building Your Severance Pay Package
As you build your company’s severance package, think about what will help cushion the blow of termination. While working towards this objective, consider the following common severance components for your package:
- Monetary payment: Fair packages generally include one to two weeks’ worth of pay for each year the professional was with the company. One of the most important components, this helps terminated employees support themselves during their job search.
- Insurance benefits: State laws vary, but you may be required to pay for continued insurance coverage for a time. In many cases, you may be required to offer continued coverage through the company without being responsible for the bill.
- Uncontested unemployment: If terminated employees file for unemployment benefits, you promise to not contest the claim, giving the employees a better chance at getting the support they need.
- Outgoing employee services: For this service, you offer an outplacement service to help terminated employees find their next position. This can be helpful if you’re letting go long-standing team members who aren’t familiar with the current job market.
What kind of severance policy would make the most sense? Remember, you want to end your working relationship on a positive note, so choose what will work best for your employees. Keep this in mind as you move forward.
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