Everything You Need to Know About a Severance Package

Everything You Need to Know About a Severance Package

Although losing a job is rarely a good thing, you may be able to turn to the severance package for some comfort. When employers restructure or make layoffs, they sometimes offer severance packages as a form of compensation to good workers. But most people don’t know how severance packages work, and even fewer people realize that they can negotiate a severance package. It’s important to understand what a severance package is and what it means to you.

The Basics of a Severance Package

If you understand what an employment package is, you already have an understanding of a severance package. Just as an employment package tells you the conditions of your employment, a severance package outlines the details of your exit from the company. If you face redundancy, resignation, or even a termination, you could be eligible for a severance package.

The package includes salary payments, holiday pay, much more. For decades, companies have been offering severance packages to ease the financial burden that comes from losing a job. Typically, an employer sets up a meeting to discuss the termination and to offer the severance package. At times, the package is contingent on your conduct before the termination. For instance, there could be a company merger. Your employer might offer a severance package to keep you productive until the merger happens and you’re terminated.

It’s worth mentioning that you could have a lawyer look over your severance agreement. Sometimes, your company can be held responsible for the legal fees. Once you sign the severance agreement, you must comply with it or you risk losing the money and benefits.

Why Companies Offer Severance Packages

Under most circumstances, companies offer severance packages when there’s an involuntary termination unrelated to misconduct. In rare instances, a company might offer this incentive to someone who is underperforming. Rather than wasting months of their time trying to improve your performance, the company could try to convince you to quit. Nevertheless, redundancy or restructuring are the two most common reasons for severance packages.

With any termination, there’s a risk. An employer might have concerns about a wrongful termination lawsuit, or they could worry about discrimination complaints. If a severance package is in place, the employer takes on less risk. They also are able to terminate an employee without burning any bridges. Depending on the situation, the package could be a sign of goodwill.

Before you sign a severance package, consider your employer’s reason for offering it. If you do believe you were a victim of wrongful termination, speak with a lawyer. Similarly, if you learned of wrongdoing done by the company, you may want to speak with an attorney before you sign anything.

How Much Should Your Severance Package Be?

There is no set number for severance pay. However, the amount of money you receive will probably depend on a few factors, such as:

Reason for termination

Length of service

Whether you’re hourly or salaried

To understand how the company calculates severance pay, you may need to look at an example. One company might offer one week of severance pay for every year of employment. If you earned an average of $1000 a week and worked for the company for six years, you might receive a severance pay of $6,000.

You can look at your employment contract or talk to HR for more information about your company’s severance pay policy. If you have an accountant, you may also want to talk to them about the tax implications of your severance pay.

Negotiating Your Severance Package

You don’t need to accept the severance package for what it is. Contrary to popular belief, you may be able to negotiate the severance package. Before you sign an agreement, you should do the following:

Speak with a Lawyer

You might be on good terms with your employer, but you should still consult with a lawyer before you sign the package. At times, employers offer less than a fair amount of severance pay. A lawyer can look over your employment contract and your situation to determine if the package is fair. If the amount is too low, the lawyer can help you negotiate a better package.

Highlight Your Success

Your employer may not realize just how much you contributed to the company. If you want a better severance package, point out your accomplishments. Make a list of your achievements and use numbers to demonstrate your successes. It’s hard to argue with specifics.

Look at All the Elements

In some organizations, there’s no way to negotiate a higher severance pay. However, you can still improve the situation by improving other aspects of the package. For instance, you might ask for payment of unused sick time. You can also ask for the cash value of your health plan. In the end, your negotiation could get you hundreds or even thousands of dollars more in pay.

Be Confident and Calm

Severance package negotiations tend to get heated. Although you might be upset about the situation, you need to remain calm. Extreme emotions can ruin your chances of a better severance package. Before you go into the negotiations, do something that calms you. When you begin to feel angry or stressed, take a deep breath. Be confident in what you’re asking for, and don’t doubt yourself.

Be Reasonable in Your Wants

While you might feel as if you deserve much more than what your employer is offering, you need to be reasonable. Remember, your company can only afford so much. If a company is terminating you because of financial reasons, they may not be able to afford a better severance package. And if you were terminated for performance issues, you’re not in a place to negotiate.

Before you negotiate, consider the situation. Spend some time researching severance packages and consider whether or not your package is fair. Take the emotion out of it, and look at the status quo. If the package is fair, accept it. Focus more energy on finding a new job than on dealing with your employer.

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