The Complete Guide to Severance (Pay and Package)

The Complete Guide to Severance (Pay and Package)
The Complete Guide to Severance (Pay and Package)

7 May, 2021

By Mike Simpson

In some cases, if you’re laid off or let go from a job for a reason other than a performance issue or a policy violation, you might get offered severance. If you do, this can significantly ease the blow. You’ll end up with some extra post-employment support, increasing the odds that you can move on quickly and successfully.

But what exactly is severance? Will you get money? Does it give you other types of help?

Well, if you’re curious about severance – including how severance pay and severance packages work – we’ve got your back. Here’s everything you need to know about the world of severance.

What Is Severance?

So, what is severance? Well, to put it simply, it’s a type of compensation. In many ways, it’s a consolation prize for losing your job through no fault of your own.

Overall, about 97 percent of companies have some sort of severance program, either officially or unofficially. However, that doesn’t mean everyone who qualifies gets a big, fat check when they lose their position.

Severance can take a wide variety of forms. Sure, pay can be part of it, but that isn’t all that it can entail. For example, you might be able to keep your medical coverage without having to pay COBRA-level costs for a while, or you may get access to some job search assistance. Really, companies can wrap anything up into it that they’d like.

It is important to note that there’s usually no legal requirement for severance. It isn’t mandated by the Fair Labor Standards Act (FLSA) or in any other federal legislation. Generally, if there are any official rules about it, that would come through a state-level law, a union contract, or your job offer paperwork.

The only exception tends to be issues relating to the Worker Adjustment and Retraining Notification Act, also known as the WARN Act. Through the WARN Act, if a company has at least qualifying 100 employees, it has to give workers at least 60 calendar days’ notice in writing about a layoff if it affects 50 or more employees. If they don’t, then, by law, they have to offer you severance in accordance with the law.

Now, outside of that, even if a company has a severance policy, that doesn’t mean that all positions may be eligible. Instead, it may be limited to specific roles and circumstances, reducing who gains access to the program.

Typically, if your employer has any kind of formal severance options available, they are listed in your employment contract or the employee handbook. However, if they go with a more unofficially route, it may not be mentioned anywhere.

What is Severance Pay?

Severance pay is a specific amount of money that the company gives you as compensation for being let go. In some cases, it’s a lump sum amount. You essentially get a single big check (or direct deposit), usually soon after your last day.

At times, it’s a particular amount of money delivered over a set number of weeks or months. With this, it isn’t entirely unlike a paycheck, as you’ll have a reliable source of income for an outlined amount of time.

So, how much is severance pay? Well, it tends to vary. Usually, your pay rate plays a big role in it, as well as how long you’ve been with the company. For example, for companies that offer it, one to two weeks’ pay for every year of service isn’t uncommon, though that isn’t universally how it works.

Does everyone get severance pay? Generally, no. In most cases, it needs to be part of some kind of official contract. This might be something you had added to your job offer when you were hired or tenets in a union contract, for instance. Outside of that, if you are considered eligible under the law, a layoff that violates the WARN Act may be the only time you may be guaranteed severance.

Alright, you may be wondering how severance pay and unemployment impact each other. Does getting severance mean you won’t qualify for unemployment or that you’ll get reduced benefits? Well, maybe.

Generally, when it comes to how severance pay affects unemployment, state laws play a role. So, you’ll need to check rules in your area to find out if your severance makes a difference.

What Is a Severance Package?

A severance package is a little different. While it can certainly include severance pay – though it doesn’t always – it typically features other guarantees outside money. For example, that may consist of ongoing access to employment benefits, job search assistance, or similar forms of support.

Now, is there is typical severance package? Well, not really. In many cases, what you’re offered is based on a lot of factors, including your annual salary, the industry you worked in, the exact job you had, how many years you were with the company, the reason you’re being let go, and more.

However, it could also be surprisingly concrete. This is particularly true if you’re in a union-covered position. Often, union contracts discuss a wide range of events that could impact employees and outlines what a company has to do should those scenarios unfold. If you’re in a union position, that contract is a gold mine of information, so make sure to review it.

The same goes for severance packages outlined in your personal employment contract. It’s entirely possible to get severance details added to your job offer and, when you and the company sign off, that makes the arrangements official. In that case, you’ll essentially know what you’ll get if a covered event happens.

Alright, let’s say you’ve been offered a severance package. How do you accept it? In most cases, all you have to do is sign on the dotted line. Why? Because a severance package is essentially a contract.

Now, when you sign depends. As mentioned above, it could already be built into another contract, like your job offer or one through a union. In that case, you may just get what you’re owed without much additional work.

However, if you’re being offered severance outside of an arrangement like those, you’ll usually have to sign off. In some cases, accepting doesn’t just mean gaining access to the pay or benefits offered. You may also be agreeing to a variety of other terms.

For instance, depending on the circumstances surrounding your exit, you might have to sign a non-disclosure agreement (NDA) in order to get your severance. This could include promising not to talk about the severance package itself or to discuss any other company-oriented matter.

You may also have to sign a statement saying that you won’t sue the company for wrongful termination. Usually, this is called a “release” or “waiver,” and you’re effectively saying you are giving up your right to pursue them through means like a lawsuit, something that’s very hard to take back if you do sign.

Is Severance Negotiable?

Alright, you may be wondering, is severance negotiable? Well, it certainly can be, though it isn’t always.

In some cases, severance is part of a broader agreement, like a union contract. In that case, you may not have much leverage to ask for anything else.

Now, if severance isn’t part of any other official agreement, then it is negotiable. In fact, there are usually two big opportunities to try and secure a great severance package: when you receive a job offer and when the company presents severance in response to an event.

Negotiating Severance When You Get a Job Offer

In some cases, the best time to negotiate severance is well before you need it. By working with the company to hammer out the details of a severance package before you actually accept the job, you’re crafting a very important safety net.

Now, this is normally only an option if severance packages are typically offered at that company. If it isn’t common for your position or the business doesn’t generally offer them, you might not be able to get one added. But if they aren’t out of line based on the position and industry, it usually doesn’t hurt to ask.

If you want to negotiate severance at the start of your employment, here’s how to do it:

1. Research Industry Norms

Your first step is to understand what’s normal in the company’s industry for positions like yours. This gives you a solid starting point, allowing you to see how much severance pay, as well as other benefits, are available to others working in similar jobs.

2. Create a Proposal

After you’ve done your research, write up a formal proposal. Include not just your requests but any evidence you’ve found showing why what you’re after is appropriate.

3. Stay Open-Minded

A negotiation can take several rounds of back and forth. It’s important to stay open-minded throughout. Why? Because drawing a hard line in the sand isn’t usually a good idea.

Generally, if you are too aggressive and make it seem like you’re not willing to discuss matters, the company may figure you’ll never get on the same page. If that happens, they may pull your offer instead of continuing the conversation, which means you miss out on the position.

Instead, stay confident, but remain friendly and professional. That way, you can increase your odds of reaching an agreement that works for both of you.

4. Know When to Walk Away

If a company isn’t willing to offer you a fair severance package based on what’s common for your position and industry, then it may not be the right employer for you, and that’s okay. Sometimes negotiations don’t yield results. So, if severance is important to you and they aren’t playing ball, you might be better off continuing your job search.

Negotiating Severance at the Time It’s Offered

If you’re getting a severance package as part of a large layoff, facility closure, or other event impacting a group of employees, the company may not be able to offer you anything different because it might seem discriminatory. As a result, they are probably going to stick to their guns.

But if that isn’t the case, then you could try to negotiate now. Normally, this will only work if you have some kind of leverage. For example, if the company really wants you to sign an NDA or waive your right to sue because there was an incident that they don’t want to be announced to the world or pursued in court, they might be more open.

If you do need to negotiate your severance at the time it’s offered, here’s a step-by-step guide that can help you tackle it:

1. Take Time to Review the Offer

Even if you’re feeling some pressure to make a decision right away, you usually don’t have to. Instead, you might have several weeks to think it over or come up with a counter.

So, take your time to review the severance package, as well as anything else you have to sign to get it. That way, you know what you’ll receive and what you’re agreeing to beforehand.

2. Contact an Employment Law Attorney

If there is an issue like discrimination or another similar matter in play, you might want to consult with an employment law attorney. They can help you make sense of the offer and anything else you may have to sign. You could also secure their services to help with the negotiation, though that usually comes with a price tag.

3. Don’t Focus on One Aspect

When you’re negotiating severance, it isn’t all about getting a big check. Going after other kinds of benefits may be a good idea, too, giving you more well-rounded support after your job loss.

For example, job placement or career counseling services might be worth going after. Having the couple handle your medical insurance premiums could be as well, particularly if you’d lose access to coverage otherwise.

You could also find out if they’d cash out any remaining leave, which could be an alternative way to get more cash.

4. Be Reasonable

Negotiating doesn’t mean going big. Instead, it’s about finding a reasonable place that leaves both parties at least generally satisfied.

Now, what’s reasonable depends on a ton of things. Your pay rate, years of service, the reason you’re being let go… it all plays a role.

Often, you’re going to have to do quite a bit of research to figure out what’s fair. Additionally, you may have to gather evidence showing that you’re being reasonable. That way, you can present a clear case, increasing the odds that you’ll be able to settle on a package that makes sense.

MIKE’S TIP: If there was a lawsuit-worthy incident involved, you might think that threatening to sue will get them to agree to an unreasonable counteroffer. The issue is that it isn’t guaranteed to work. Instead, they may think that negotiating is pointless based on the ridiculousness of your proposal, assuming you’ve made your mind up about lawyering up and heading to court. Never say that you’re going to sue unless you are actually willing to go that route. Bluffing about it isn’t a smart bargaining technique, as they may call your bluff. Then, if you don’t actually sue, you’re potentially left with nothing.

Putting It All Together

Ultimately, severance is complicated. But, with all of the information above, you should have a much better idea of what it is, how it works, and how to negotiate a severance package should the need arise.

Good luck!

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