Severance Pay
A company that offers severance pay often includes extended benefits in the package, such as health insurance and job placement assistance to help a former employee find new employment. Usually, a severance package also stipulates that the former employee will not sue the company or speak ill of it in the future. Severance packages are typically offered to employees who have been laid off, whose jobs are being eliminated due to downsizing, or who resign or are fired. Providing severance packages is a goodwill gesture and can help bridge the gap between working and unemployment.
Each employer determines whether to offer a severance package and how much to offer in the event of termination or layoff. Sometimes, a company will decide to offer severance pay to all employees or to select groups of employees. A severance package is not required under United States law, but companies may be motivated to offer it to defuse hard feelings and entice former employees to leave on good terms.
Some employers, such as large technology companies, may be required to provide severance pay if they conduct mass layoffs under the Worker Adjustment and Retraining Notification Act. However, this is not the case for most organizations.
What Is Severance Pay?
Companies can also choose to honor a promise contained in an employment contract or collective bargaining agreement or in a company policy. In the absence of such agreements, severance pay is a matter of agreement between an employer and employee. If a company does not provide severance pay to an employee who is being laid off, that employee can file for unemployment benefits. The amount of a severance package depends on the size of the company, the number of employees and years of service. In general, a large company will provide a higher severance package than a small business. A severance pay lawyer can help an individual determine what is fair in their situation.
When an individual receives a severance package, the total value of the package must be taxed. The severance package is reported on the recipient’s W-2 tax return in the year it is received. A severance package may contain compensation for items that were unused, such as vacation time. In addition, severance packages frequently include the payment of an employer’s legal fees.
For some individuals, a severance package will only last a few months or less. A severance package can be used to cover living expenses while looking for a new job. For some, this is more than enough time to find a new job. An individual who is receiving a severance package and then finds that he or she was terminated because of age discrimination can seek additional compensation through litigation, rather than signing a severance agreement with the employer. An experienced severance pay attorney can help an individual file a claim for discrimination against an employer.
An employer may decide to hire a younger person to replace an older worker, even if the replacement has the skills and experience needed to perform the job well. This can violate the Age Discrimination in Employment Act (ADEA). Braverman Law PC can help employees who have been subject to age discrimination to seek compensation through legal action instead of accepting a severance package from the company that discriminated against them.