To Severance Or Not?

When laying off, or even terminating employees, the inevitable thought and process of offering a severance package comes up. Most businesses – especially small businesses, don’t have an existing written policy on severance packages. Therefore, a severance offer is not completely thought through.

I’ve had two clients in the last few weeks who needed to layoff employees and they had no existing policy. Suddenly, an issue which requires a great deal of thought had to be made immediately. There was even an article in the Wall Street Journal which addressed this.

Some thoughts on offering severance:

  1. Get a policy in writing now. This helps greatly with consistency and avoids any claim of favoritism or discrimination. Even if you don’t contemplate layoffs, it’s still an important item to have in place.
  2. When you offer a severance package for laid off employees, be consistent. An example would be two weeks of pay for each completed year of service. You can’t show better programs for more favorite employees.
  3. Every employment attorney I’ve worked with says the same thing – never offer money without getting a ‘hold harmless’ agreement signed by that employee. Consult your labor attorney – it’s worth the cost.
  4. Consider paying medical insurance for several months. COBRA now requires employers to pay 65% of existing benefits; but offering to pay all of the premiums for longer is a small cost but shows you – the employer – are trying to do the right thing.
  5. If you’re terminating an ‘older worker’ (someone over the age of 40), make sure the agreement contains provision required by the Older Workers Benefit Protection Act.

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