Are you running in circles over whether your company should offer severance packages? Fear not! The professional HR consultants at YES! Your Human Resources Solution are here to demystify this monetary mumbo jumbo. So let’s start at the beginning, with…

WHAT IS SEVERANCE PAY?

Severance pay is an employer’s monetary gesture of goodwill to an employee who is separating from employment.

In times of layoffs and position eliminations, this term has become more relevant to the modern workplace. It’s a nice gesture to provide severance pay to good employees who are involuntarily leaving the company, even if it’s not a legally required gesture. Be mindful, though, that severance policies might be written into certain employees’ contracts or in the employee handbook, which would create an obligation to provide a severance package upon separation. Severance documents should always be reviewed by legal counsel since these documents are usually legally binding.

WHAT’S IN A SEVERANCE PACKAGE?

Usually, the higher the climb up the corporate ladder, the more comprehensive the severance package. A standard severance package for a typical worker is 1–2 weeks of pay per year of service. At the executive level, severance may mean 4 weeks of pay for each year of service. For the most senior positions, an employment contract often dictates severance packages. In these cases, severance packages could go beyond monetary payouts to include extended benefits and outplacement services.

In some cases, a laid-off employee may try to negotiate a more favorable severance package. If no precedent or written policies exist for severance packages, negotiations may be feasible. Legally, however, an employee’s attempt to negotiate constitutes rejection of the severance package and may entitle the employer to withdraw the offer altogether. While that may seem tempting, remember, severance packages are offers of goodwill. It may be best to tell would-be “negotiators” up front that the offer is nonnegotiable, especially if the company is laying off other employees and wants them to sign release of claims forms.

DO SEVERANCE PACKAGES PROVIDE FOR LEGAL PROTECTION?

Severance packages offer employees incentive to release the company of legal liability. Accepting the severance package should coincide with a signature on a Release of Claim form, which prevents laid-off employees from bringing suit against the company in the future. Obtaining this form is important; the last thing any business needs after downsizing is a lawsuit! (To prevent age discrimination suits, also be sure to get a separate release from workers over age 40.) Pay careful attention to any legal deadlines regarding extending and accepting severance offers.

In this tumultuous economy, offering severance packages to laid-off employees is a goodwill gesture that acknowledges their dedicated service. Severance packages can also help calm angry, departing employees, and can help save the company from legal troubles. At the end of the day, the employer decides whether to offer a severance package, but a short-term payout may be well worth the long-term benefits of a simple act of kindness.