4 Ingredients of a “Typical” Severance Package

Mar 02 2016

Layoffs and terminations are an unappealing, but necessary part of being a business leader. The benefits you offer departing employees reflect strongly on your company’s ethics, values, and leadership. While it’s important to maintain consistency and get legal advice that this article is NOT attempting to offer, business leaders often ask us what’s “typical” in a severance agreement. The answer is that there is no “typical” severance agreement. Severance is completely voluntary and its purpose is usually a function of affordability and risk management designed to recognize the difficulty of eliminating a position. That said, here are 4 common ingredients in many severance packages:

A legal Agreement
This is a document created ahead of time by your legal counsel. By signing it, a terminated employee agrees not to do certain things like take future legal action or make slanderous remarks against the company. In return, the company agrees to offer certain value (e.g., pay, benefits) for a predetermined period of time. 

Severance Pay
For most states in which employees work on an “at will” basis, there is no rule for the amount or length of “appropriate” severance pay. Some companies offer one week of severance for each complete year that an employee has been with the company. Others have a different formula. Depending on the company’s financial situation, the seniority level of the employee, and the circumstances of the layoff, employees may be granted more severance pay for leaving on good terms.

Continuation of Benefits
The thought of losing benefits like health insurance can cause many terminiated employees to panic—especially if they are in the middle of a health problem, or have a dependent under a doctor’s care. Health benefits are sometimes continued for the same length of time as severance pay, and sometimes longer. With the Affordable Care Act (ACA), however, employees have more options available to secure health insurance upon loss of a job, so there is less flexibility extented by employers than there used to be in this area.

Career Counseling Services
Career counseling services can help create or polish a resume and offer valuable support to a new job seeker for things like building a strong LinkedIn profile, developing an effective networking plan, or preparing for a stellar interview performance. If you’re terminating someone who hasn’t been in the job market for several years, especially if you don’t have much budget for severance benefits, this can be a helpful and cost-effective way to relieve some of the stress that comes with a layoff.


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