A severance package, or even severance pay, is something that may or may not be given to an employee when their employment ends. If this option is offered, it will usually cover both voluntary and involuntary employment terminations. Of course, it should also be kept in mind that there is really no requirement for an employer to offer this and many jobs simply do not. If your position offers a severance package, this should be considered as an additional job-related benefit. However, knowing a bit more about these packages including what they can include and even why an employer might offer them can help you determine how to best evaluate a job offer, or even consider switching companies.
What Severance Pay Is Based Upon:
Although there is no single consistent formula that every company will use for determining the amount of severance pay to offer an employee, it is usually based on the length of your employment term. In some cases, this might be one week’s worth of pay for every year of service you have given. It may be a set amount of income, based on two month’s pay, or really any other amount that the company determines will best fit the interest of both parties involved. Severance packages may also include more than just a flat amount of money, such as health care, life insurance, stock options, etc…
Why Companies Might Offer Severance Packages:
To be rather blunt, the primary reason that most companies will consider offering a severance package to terminated (voluntarily or involuntarily) employees is to avoid future lawsuits. Most terminated employees who are entitled to such a package will also be required to sign a release in exchange, giving up their right to file suit against the company.
Of course, some companies may not be quite this cynical. There are businesses that truly want to help take care of their employees and offer them a bit of help as they go about finding new employment. Giving an employee money (and possibly other benefits) can also go a long way in terms of extending good will that may have been accumulated over a working relationship, especially if the termination was not voluntary.
Common Severance Package Benefits:
The most common benefit offered by severance packages, without a doubt, is an extension of salary. As discussed above, this is usually an amount based on your length of service to the company. It may also be influenced by your position at the company (i.e. you know many company secrets and where all the bodies are buried), or a number of other factors.
There may also be an extension of insurance and other types of benefits. Sometimes, an employer plan might not allow a terminated employee to remain on the actual group plan but they may agree to pay COBRA premiums for a specified length of time. The employer may also agree not to contest an application for unemployment benefits, at least for a specified period of time.
There may also be extra types of help and benefits available. This could mean outplacement services and assistance in finding new employment. Potentially an employer will agree upon exactly what information will be disclosed to future employers. Other benefits can include things like loan forgiveness and what to do with company property like cell phones, company vehicles, etc…
Of course employee severance packages can be incredibly varied. They may even be customized for certain high profile executives and other employees. In some cases, you may even be able to negotiate your own package as a condition of accepting a job offer.
Raymond Lee brings over 18 years of human resource leadership, career consulting, and outplacement experience.