What Is Severance Pay?
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What Is Severance Pay?
Severance pay refers to a type of pay and benefits that an employee receives after they have been laid off or terminated by the company. Employers are not required by law to provide severance agreements after laying off an employee, but an employer has a legal duty to provide the employee any unpaid wages and unemployment benefits Severance pay is usually offered as part of an overall employee severance package, which may include:
- The remainder of the employee’s regular pay
- Payments for left over, unused sick leave and vacation time
- Medical or dental insurance payouts
- Retirement benefits (such as a 401K)
- Stock or other securities options
- Assistance in finding new work, if applicable
- Letters of Recommendation
Severance pay does not always come in the form of cash. Many companies will extend health benefits, cover future medical expenses, provide outplacement services, and other employee benefits as a part of a benefits package.
Do You Always Get Severance Pay When You Are Laid Off?
Severance pay is not always provided to employees who have been laid off. Severance pay for laid off employees is only mandatory when its included in the terms and conditions of the employment contract or labor union contract. There are many employers that often give severance packages to employees who have been with the company long-term and they want to reward the employee for their hard work throughout the years.
In other situations, severance pay may refer to pay that is offered to an employee who is being laid off at an earlier date than what was agreed to in their employment contract. The employer may offer severance pay in lieu of notice, or as an incentive for the employee not to seek legal action for stepping outside the terms of the employment contract.
Is an Employer Required to Provide a Severance Package When I Am Laid Off?
Employer is not required by law to provide severance packages to employees who have been laid off or fired, many employers offer a severance package in exchange for the employee's agreement not to bring a lawsuit for wrongful termination. Many employers do not provide any type of severance pay unless the employee signs an agreement stating they would not bring any claims against the employer. Employers know that employees have a valuable right to sue and they provide some type of payment in exchange for the employee to give up that right.
If you are fired for misconduct it will be unlikely that your company would offer you a severance package. However, there are situation where employee is legally entitled to a severance pay:
- The employment contract given to employee at the start of employment says all employees are entitled to severance package
- Company policy states employees are entitled to severance pay
- Company has a massive lay off and does not give a 60 day notice
- An oral promise from employer to employee that he will receive a severance package which employee relied on
- A history within the company of giving severance packages to employees
How Is the Amount of Severance Pay Calculated?
Severance pay can be determined ahead of time as part of the original employment contract between the employer and the employee. An employer may agree to the terms listed above, such as those covering unused vacation time, insurance plans, retirement benefits, etc. This may require some foresight and cooperative planning between the employer and the employee.
However, severance pay is not always addressed in an employment contract, and the employee is not always automatically entitled to severance pay. This is especially true if there is no mention of severance pay in an employment contract. In such instances, negotiation over the severance pay may be necessary, in which case the services of a lawyer may be needed.
Does Severance Pay Impact My Unemployment Benefits?
Receiving severance pay after you have been laid off from your job may impact your ability to receive unemployment benefits that you are entitled to while you are unemployed. The laws that determine whether severance pay affects unemployment benefits depends on the state law. Different states have different policies regarding ability to collect unemployment benefits and severance pay at the same time.
In California, unemployment benefits are not affected when an employee receives severance pay after they have been laid off. In Texas, an employee cannot get unemployment benefits until their severance pay coverage has expired. In Florida, unemployed workers cannot get unemployment benefits for any week if their severance pay is greater or equal to their unemployment benefits.
Should I Provide a Severance Package as an Employer?
If you are an employer you do not have the legal duty to provide a severance package to any of your employees. Providing a severance package to a departing employee depends on your kindness to reward employee for their hard work, or whether there is a legal lawsuit you want to avoid in exchange for employees agreement to give up their right to bring that claim. Many believe that severance pay is a positie and supportive gesture which is viewed positively by the employees who remain to judge their employer's actions later on.
Do I Need a Lawyer for Help with Severance Pay?
Severance pay can sometimes present many different unexpected legal issues. If you need help with the employment and severance pay laws in your area, you may wish to speak with a qualified employment attorney. An employment lawyer can advise you on whether it’s appropriate for you to seek or accept severance pay. Also, in the event that you need file a civil lawsuit, your attorney can represent you in court if you need to request a damages award.
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Last Modified: 12-15-2015 10:15 AM PST
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