A business offers a severance package to an employee to ensure that the employee is financially stable while the employee is looking for another job. However, these packages are also available for retiring employees. Although severance packages can be different for every company, the typical severance package for every company has a few things in common. We will take a look at them in the sections below.
In this article, you will learn some of the major constituents of a typical severance package. Apart from that, we will also discuss the importance of each of these constituents. In addition to that, you will also learn some of the major benefits of having a severance package. Lastly, we will share with you some of the best tips on how to plan your severance package if your employer offers you one.
What Constitutes A Typical Severance Package?
According to Investopedia,
“There is no single definition of an appropriate severance package, as they vary greatly by industry and company. However, severance packages typically include pay through the termination date and any accrued vacation time, unreimbursed business expenses, and an additional lump sum.”
Here are the constituents of a severance package:
1. Severance Pay
For every year the company worked, severance pay is for one or two weeks. However, it can be more. It is higher in the case of managers and executives.
2. Insurance Coverage
The law, as per the COBRA Act, allows the continuation of health insurance policy for eighteen more months. You can also extend your life insurance and disability insurance.
3. Retirement Plans And Stock Plans
What the employer provides with retirement plans, pension plans, and stock plans varies from state to state in the US. It also depends on the type of employer you work for. You can ask for a copy of the policies and review it with an attorney.
4. Job Search Assistance
The severance package can also fund a job search service for the employee during the unemployment period.
5. Other Perks From The Company
Check whether you can keep any company equipment or not. You can also get some other perks, like using a company’s vehicle, health club membership, and more.
6. Departure Announcement
The severance package also consists of a departure announcement along with a recommendation letter. You can also add to those documents by asking.
What Are The Major Benefits Of Severance Pay?
According to Indeed.com,
“Severance packages are payments an employee receives after being let go, laid off or furloughed from their position…The employee receives the severance package for a predetermined period after they’re let go. It helps an employee maintain a healthy financial status during their job search.”
Employers offer severance packages to employees to ensure goodwill and also keep a good image in the industry. There are several benefits for the employee and the employer. Here are some of the benefits that you must know:
1. Better Relationship
Severance packages show the company’s gesture of goodwill. By providing that, the company acknowledges the employee’s work and keeps the employee on good terms.
2. A Better Workplace Culture
Employees will notice how the company handles the workforce at the time of layoff. If the company offers severance packages, it helps to improve company culture, as employees do not have to worry.
3. Protection Of Brand Reputation
When companies lay off employees, the public gets to know. If the company offers severance pay, it can save its brand reputation and create a good impression.
4. Employees’ Financial Stability
If an employee gets an unexpected layoff, it can affect the employee and dependents. Once the company offers a severance package, it shows that it cares about the employee’s financial stability.
5. Compliance With Fair Labor Standards
Some states require employers to offer severance packages, while some states don’t. Apart from that, the company can also prevent legal action if it goes for severance packages.
6. Voluntary Departure
If you (as an employer) cannot choose which employees you want to lay off, you can offer voluntary severance pay, which can encourage employees to offer leave.
Typical Severance Package – How To Plan Your Severance?
Many companies offer severance packages as a goodwill gesture towards the employee by recognizing the employee’s services.
According to Investopedia,
“A severance package reduces the sting of termination. A company may also offer one to stay competitive in its industry. Finally, severance packages are provided to forestall lawsuits, as employees often sign a release, agreeing not to seek further compensation or pursue legal action, as part of the separation agreement.”
Well, let’s talk about how to plan your severance package.
If you are hearing various rumors of the company thinking of layoffs, you might be tempted to quit the place before your company lays you off. However, if you remain in your position, you will be able to claim unemployment insurance from your company. Furthermore, the company can also offer you a severance package to ensure goodwill.
Hence, you will need to prepare yourself in advance based on whether you expect to get laid off or not. Get a better idea of your financial needs by reviewing your resources and your critical expenses. By looking at the constituents of a typical severance package given above, list out the major benefits you want to have by negotiation.
You can also check the severance policy of the company to check what they generally offer. Apart from that, you can also make more effort and find out what former employees who got laid off received in their severance packages.
Employers offer severance packages to the employee, which consist of an agreement discussing the financial terms of an employee once the latter leaves the company. It is not lawfully compulsory for employers, but some employers still provide severance packages as a goodwill gesture. Hope you have an idea of the constituents of a severance package.
In a typical severance package, you will get one to two weeks of paid salary for every year you have worked. To accept a severance agreement, you will get twenty-one days to decide and seven more to change your mind. If you have anything more to add regarding severance packages, consider sharing with us in the comments section below.
A passionate writer and an avid reader, Soumava is academically inclined and loves writing on topics requiring deep research. Having 3+ years of experience, Soumava also loves writing blogs in other domains, including digital marketing, business, technology, travel, and sports.