Severance pay is money that an employer might want to provide for an employee who is leaving their organization. Severance pay may be provided to employees in cases of layoffs, job elimination, and mutual agreement to part ways, for whatever reason. Severance pay usually amounts to a week or two of pay for each year the employee supplied service to the company. For executives, the severance pay may even constitute up to a month’s pay for each year of service. In some instances, a severance package might also include extended benefits and outplacement assistance.

Here are some tips to effectively manage severance pay.

• Legal requirement. There is no law that requires an employer to pay severance pay. The Fair Labor Standards Act (FLSA) requires that an employer pay an employee whose employment has been terminated their regular wages through their completion date and for any time that the employee has accrued. This normally includes accrued vacation time, but not normally sick days. But, severance pay is totally up to the goodwill of the employer unless the employer is obligated to pay by an employment contract or by a severance policy stated in the employee handbook or elsewhere in writing.
• Negotiation and severance Pay. A laid off employee may try to negotiate more salary and benefits than the employer offered in his or her severance package. In doing so, technically, the departing employee has turned down the employer’s offer. This does legally allow the employer to offer no severance pay. But, assuming you are asking the employee to sign a release of all claims in return for the severance pay, you should either tell the employee that the offer is not negotiable (which is recommended if you are laying off other employees, too). Or, you can negotiate, especially in circumstances where there is no written company policy; no past practices exist; and no promises in an employee handbook have been made.
• Require a release from all claims in return for severance pay. Without severance pay, there is no reason for an employee to sign and release you from all claims. Obtaining the release is important in a world in which anyone can sue you at any time for any reason – or no reason at all.

Comments

 

• 
• 
• 
• 
• 
• 
• 
• 
• 

Our Recent HR Blog Posts

• Dealing with a Toxic Boss
• Company Policy for Instant Messaging and Text Messaging
• The Grapevine: Informal Lines of Communication
• A Free Communication Method that is Thousands of Years Old!
• When Do Teams Make Sense?

Quote of the Day

Leaders need to be optimists. Their vision is beyond the present. ~ Rudy Giuliani