Being laid off or fired by your employer can put a lot of stress on you and your family. Even more so if you rely on every paycheck to make ends meet. Luckily there are some options that may be available to you – including severance pay – which will help keep you on your feet during this difficult time.
What Is Severance Pay?
Severance pay is money that may be offered by your former employer in an instance when you’re leaving the company. In most cases, you’re given severance pay when your company is forced to fire you due to downsizing the company as a whole or eliminating the position you currently work in.
Currently, there is no law in the United States that requires employers to offer severance pay. The only requirement for paying departing employees is under the Fair Labor Standards Act (FLSA), which requires that employers pay terminated employees any regular wages that are due, as well as any accrued, paid time off. This includes vacation time, but not sick days.
Unlike getting social security benefits, the only instance where severance pay is required is when an employment contract or official severance policy is in place. In general, offering severance pay is a goodwill gesture on the part of an employer — and in some cases the offer may be rescinded.
Severance pay can also be offered by companies even if you are fired, especially in instances where they are afraid you may sue them for something that occurred during your employment. To protect themselves, a company may offer you a severance package in exchange for you filing over your legal rights to raise a claim some time down the road against the company.
Essentially, if you are “severed” from your current employment by your firm – by being laid off, fired, forced to retire, or something more – you may have the opportunity to collect severance pay.
What Does Severance Pay Include?
Before going into the specifics severance pay can include, it is vitally important to note that your severance pay package can usually be negotiated in your employment agreement. In most cases, it is reasonable to suggest additional benefits. Even if you don’t get it, there is usually no harm in asking.
The term “severance pay” can encompass a variety of different benefits, depending on what your company is offering you. In some instances, it may be a lump sum of money that your employee gives you after you are terminated or leave your job. In other instances, this money may be paid out to you over an extended period of time.
Severance pay may also include the continued payment of benefits such as your health insurance. Sometimes, employers may also offer some sort of employee counseling or even career coaching to help you find a new job. Additionally, a severance agreement can stipulate that you keep things such as a company laptop, computer, or cell phone.
How much severance pay will I get?
Whether or not you get all the benefits listed above in your severance package depends on the negotiations you have made and your agreement with your former employer. It’s essential that you look at your employment contract, or in the employee handbook.
Oftentimes, employers will take certain things into account when they are talking with an ex-employee regarding their severance package. Increased packages or benefits can depend on things like whether you turned down a job at another company to take the one that you are being let go from at the time you were hired. Perhaps you got a different opportunity during your employment at the company for a higher salary, but you turned it down out of loyalty to your current firm. Maybe you moved across the country to take this job, and you uprooted your life with the assumption that this job opportunity would be long term.
All of these things can factor into how much severance pay your employer is willing to give you and act as motivation for increased benefits. In a typical scenario, the formula most employers use is offering around two weeks’ salary for every year you have worked at the company.
How much your severance pay is, whether or not you will be able to negotiate other benefits such as continued health insurance or an employer laptop, also usually depends on how many unused vacation and/or (sometimes) sick time you have stored upon your departure from your company.
Keep in mind that severance pay is taxable, so any sum you receive will be subject to taxes. This is because – despite the fact that you are no longer employed with your company – severance pay is considered income. This remains true even after you have completed your service with your company. The amount you will be taxed will depend on how much your severance package is worth.
As a result, don’t take your severance package at face value. Make sure to set a budget for yourself, especially if you do not have a new job lined up. That way, you can make sure you have enough money and funds to last you through the amount of time it will take to find that perfect fit.
It’s important that you take the time to look over the details of your severance package thoroughly. In most instances, companies will explicitly give you time to review their offer. It’s important that you ask for this time to consider, and do not settle and sign your name on the dotted line on the spot. Read it carefully, and make sure you are fully aware of what you’re gaining and what you may be giving up in exchange!
Getting laid off or terminated from a job is never fun. But hopefully, in this article, we’ve given you the basic steps and information you need to make a decision regarding your severance package that’s best for you and your family.