A lot of people are feeling uncertain about job security these days.
If you find yourself facing unemployment, one option you should know about is severance pay.
News 3 Anchor Erica Greenway spoke with Carl Carlson, CEO and founder of Carlson Financial, to learn how it works and who's eligible.
Q: Can you explain how severance pay works?
A: Severance is a payment or benefit received upon leaving a company. Most people just think of severance as a monetary payment, and it usually is, but it doesn’t have to be. It could include employer-paid health insurance for a few months, being able to keep or buy some things from the company at a reduced rate, like a laptop, cell phone, or even company car, career coaching, etc.
Q: Are there any instances where someone would be entitled to severance?
A: Under the Worker Adjustment and Training Notification Act, if your organization has over 100 people and is preparing to lay off a lot of people, your employer is required by law to give you 60 days notice of a company closing or a large departmental closing. If your employer fails to give you the required notice, then you are legally entitled to severance pay.
Q: If that scenario doesn’t apply to you, who else might receive severance?
A: In most cases, it’s highly discretionary. Recently we’ve seen many people losing their jobs due to layoffs, restructuring, or their companies closing. When it comes to severance, it’s not quite “black and white” and there aren’t standardized rules or any guarantee that you’ll receive anything beyond compensation through your last day of work.
Q: What does a typical severance offer look like?
A: Again, it’s not set in stone, but as I mentioned, it’s typically a cash payment of some sort and the length of time you’ve been employed is probably taken into consideration. It may be something like a week or two of pay for every year that you’ve been employed there. It is negotiable though! As an outgoing employee, you might not be in a strong bargaining position, but you can try to negotiate – they won’t take the first offer off the table if you ask for something different. Even if companies don’t have a lot of wiggle room with cash payouts, they may be able to offer other things.
Q: Are there any caveats, or reasons someone wouldn’t accept severance?
A: An employer may offer severance in exchange for you signing an agreement, maybe one that promises you won’t sue them for anything, a non-disparagement clause, or even agreeing not to work for certain other companies. So make sure you have a legal professional read it over – if it’s going to impact a future job opportunity you might not want it. Also make sure to know that severance pay IS taxable.
Q: Do you have any advice for those who will get severance pay?
A: The first thing you should do is draw up a budget. It might be a nice lump sum, but try to make it last if there will be a gap in employment. If you do line up another job, make sure you have a decent emergency fund or consider other financial objectives.