What Is Severance Pay

Severance are benefits that an employer grants an employee when he/she leaves employment at the company.  Severance pay is usually granted to employees who are laid off or retire.  However, increasingly it is being offered to employees who are fired or resign from their jobs.

Many firms that pay severance offer two weeks pay. Others pay two weeks plus one week for each year of service the employee has given to the company. Still others are considerably more generous, particularly to employees who held senior positions. In this case, six months’ to a year’s pay is not atypical and is predicated on the assumption that a senior-level employee will have a more difficult time obtaining a new and equal job than will an entry-level employee.

Are You Required By Law to Provide Severance Pay

Except for Puerto Rico there are no state or federal law that requires an employer to provide severance pay to employees who left the company.  It is strictly up to the company whether or not to have a severance pay policy.

Should You Provide Severance Pay

When you fire an employee, even if he or she has only been with you for ninety days or less, you should pay severance.  It decreases your risk of a lawsuit.

You should have a severance pay Policy and it should be consistent. If you continually change your severance policies, you are only adding to your legal risks.

You should only pay severance, however, if the employee agrees to sign a document that forfeits their right to sue you for wrongful termination. Don’t be cheap in this lion’s pit of potential danger. Have a lawyer draw up the release document so that it is, as much as possible, bullet proof. You should give the employee twenty-four hours to review, sign, and return the document to you, otherwise it may not hold up in court should the employee decide to sue you anyway. If the employee is age forty or over you must, by law, grant the person twenty-one days to review such a document.

What Do You Owe A Terminated Employee