Surveys from the early 2000s indicate that more than one-half of United States employers provided severance packages to employees laid off because of job elimination, reduction in force, business closure or mass layoff. Although federal law doesn't mandate severance pay, state law might, as well as a contractual agreement or a verbal understanding. If none of these circumstances apply in your case, always ask your employer for severance if you face loss of your job.
Employers that do provide severance pay usually compensate employees with one week of severance pay for each year of service to the company. This rewards long-term employees for their loyalty and helps relatively new employees while they look for another job. In addition to severance pay to help you transition, you also may be eligible for unemployment benefits.
Though no federal employment laws mandate severance pay, the U.S. Equal Employment Opportunity Commission provides guidance for employers and employees on a properly structured severance agreement and related waivers. State laws vary. New York state law requires that employees who lose their jobs due to mass layoffs receive three months of severance pay in lieu of 90 days' notice of layoff. Texas state law addresses severance pay rules but doesn't require that employers pay severance.
If your employer customarily provides severance pay to similarly situated employees -- similar job title, position, tenure, salary and so on -- then you may be entitled to a severance package. If you're privy to information about past practices, assert your possible entitlement to severance based on that knowledge. For example, a company might routinely pay severance to employees with 20-plus years of service or to any employee regardless of tenure.
Many chief executive employment contracts contain negotiated severance packages. Typically, these are high-level executives who might have seven-figure severance packages included in their written employment agreements. Lucrative severance packages, referred to as "golden parachutes," make for a nice landing, presumably without worries about money. If you have a written employment agreement -- it needn't be a high-level executive agreement, either -- that provides for a severance package, you're entitled to the contractual terms and conditions set forth in your employment relationship related to severance.
If your hiring manager or a company representative even alluded to a severance package, or if you become part of a reorganization or downsizing, you may be entitled to severance pay when you lose your job. Press forward with your request for severance pay if you recall statements that indicated you'd get severance should you become unemployed.
When an economy spirals downward, it could force employers to lay off workers or eliminate nonessential jobs. To preserve the organization's reputation and as an act of goodwill, offering a severance package -- when it wasn't previously a company practice -- might be a wise business decision when people lose their jobs during difficult times. On the other hand, if the employer's revenue suffers tremendously based on an economic downturn, paying severance can create greater financial hardship for employers. Either way, and if you're unsure, always ask how much severance pay you'll be entitled to if you lose your job.
- U.S. News & World Report: 3 Severance Pay Questions Every Employee Should Ask
- Nolo: Should You Offer Severance Pay?
- Buck Consultants: The Role of Severance in Today's Employment Environment
- New York State Department of Labor: Worker Adjustment and Retraining Notification
- New York State Department of Labor: Opinion Letter - File No. WARN 10-0006
- Texas Workforce Commission: Severance Pay
- U.S. Equal Employment Opportunity Commission: Understanding Waivers of Discrimination Claims in Employee Severance Agreements
- PriceWaterhouse Coopers: Sixth Circuit Rules for Taxpayer in Importance Severance Payment Employment Tax Case
- PlanSponsor: Severance Alive and Well Despite Downturn
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