No legal mandate currently requires companies to offer severance pay to their employees. However, many businesses will provide it in the event that an employee terminates. In most cases the amount will depend on the length of time in which they’ve been with the company. Some companies will give a week’s worth of pay for each year someone has been employed, or a flat rate which is the equivalent of six work weeks. The severance may be split into separate payments or given all at once.
Additional Benefits Which May Accompany Severance Pay
Aside from the funds, other benefits that may accompany severance pay include benefits coverage, particularly that which is associated with health insurance. Research shows that sixty percent of companies have severance plans which are formal, and the packages are designed to assist employees with sudden and unexpected job loss. To apply for severance pay, employees will sometimes be required to sign forms confirming that they won’t say anything negative about the company, or seek litigation. Some companies also require the signing of a non-competitive agreement, but these can be challenging to uphold.
Unless severance pay has been included in agreements for collective bargaining, then the business may not be obligated to provide it. A lot of union contracts negotiate benefits for employees who work hourly, helping them receive a week’s worth of pay for every year they’ve worked for the company, up to a total of twenty six weeks. Most executive benefits will range from six months to twelve months. Aside from salaries, some companies provide additional perks such as counseling for outplacement or health insurance coverage.
Typical Policies Associated With Severance Pay
The general purpose behind severance pay is to offer assistance to workers while they find other avenues of employment. It is usually only given in cases where employees are either laid off, or terminated involuntarily. Most companies require an employee to work for them a minimum number of years before they are eligible.
Severance pay agreements may exclude certain types of workers, such as those that work hourly. In order to calculate it most companies will determine the amount based on the length of time someone has been employed, and it may also be influenced by vacation time which is unused, as well as personal and sick days. Employers will also have the right to alter the agreement. For instance, severance pay may be discontinued if the company is merged with another or sold, or only given to those who have been terminated involuntarily.
It should also be noted that an employee who receives severance pay may not be able to get unemployment benefits simultaneously, and income taxes must also be paid on the severance pay that is received. Additional things that a company can offer to employees who are involuntarily terminated include recommendation letters which are positive and the covering of moving expenses.