A Few Tips About Severance Pay and the Standard Severage Package

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A Few Tips About Severance Pay and the Standard Severance Package

The current job market and economic climate has many employees skimming theirs policy and procedures manuals to find out about severance pay and the standard severance package their company offers. Severance pay is compensation paid to an employee upon separation from the company, usually due to company downsizing. Severance pay is not paid to employees who are fired for poor performance or improper conduct. Under the Worker Adjustment and Retraining Notification Act (WARN), or similar state laws, companies may be required to give employees at least 60 days’ notice of pending layoffs.

The amount of severance pay is determined by the employer. A standard severance package is paid out in a lump sum or over a number of weeks based on the employee’s length of service. For example, a company may one or two week’s pay for each year of service. The severance package may also include extended life, disability or health coverage (such as COBRA) that is paid fully or partially by the employer for a specified period of time. Unused sick and vacation time may also be paid to the employee when laid off but are not usually as part of a severance package.

Nowadays employees are required to sign a separation or severance agreement as a condition of receiving severance pay. This document may be included in new hire documentation that employees are required to sign during their orientation. This agreement pretty much states that the employee agrees not to sue the company should information regarding their separation from the company come to light after the fact. Employees are given the option to consult an attorney prior to signing such an agreement, since they are basically being asked to sign away some of their legal rights in exchange for their severance pay. When employers do this, it puts the employee in a position to negotiate a larger severance package. This is a risky move for the employee because refusing to sign the agreement is a refusal of the initial severance offer. The employee could end up with a much smaller severance or none at all if the company is in no mood to play hardball.

According to the Fair Labor Standards Act (FLSA), an employer is not legally required to pay a standard severance package and can elect to deny severance at their discretion. Usually the only recourse for an employee denied severance pay is to seek an attorney. This gives the employee an advantage because not only can an attorney help them present a solid case, companies would rather avoid a potential lawsuit that could drag their professional character through the mud. Employees should be sure that an attorney can win their case and win a settlement substantial enough to cover legal fees.