Suzanne Lucas

Why You Should (Almost) Always Offer Severance Pay

A severance package can seem somewhat silly. Why should you offer money to someone who will no longer be working for you? The reality is that any time you terminate someone, you should offer severance pay — or at least strongly consider it.

Remember that before you initiate termination, you always want your employment attorney to double-check that you’re in compliance with all laws and that your documents are in order. You also want to be consistent in when you offer severance pay.

With that in mind, here’s when severance packages make sense.

When Severance Is Legally Required

In the United States, you’re almost never required to offer severance. The few exceptions include when an employee’s contract requires it and if you’re laying off a substantial portion of your workforce. While this law is federal, many states have their own versions, so double-check with your employment lawyer to make sure your company is compliant.

When Firing Someone Is Hard

Whenever you need to terminate someone — whether it be for poor performance, inappropriate behavior or something completely different — it’s hard. It’s hard on the person, the manager and on the remaining staff, especially if the terminated employee is liked and respected. Offering a couple weeks’ pay (or possibly more if the employee in question is a long-term one) helps smooth things out and shows your remaining staff that you respect them.

Of course, severance pay isn’t a one-size-fits-all solution. If the employee is being terminated for issues of violence, theft or another major transgression, then offering severance might send the wrong message. But in the case of a layoff or a simple mismatch in positions, giving the employee a package means they leave on a relatively good note and you’re seen as fair and considerate.

When You Can Get a General Release in Exchange for Severance

One of the biggest advantages of offering severance is that, in exchange for the money, you can have your former employee sign what’s called a “general release.” This is a legal document that essentially says, “In exchange for this severance, I won’t sue you.” These documents must be prepared by an attorney who is an expert in employment law in your area. Each state (and some cities) have their own rules about what can be waived.

In addition to reducing your chances of a lawsuit, a general release can also establish boundaries for you and your former employee. You can include a nondisparagement clause that will prohibit the employee from saying negative things about your business, and you can agree on what you will say in a reference check. A general release takes some of the anxiety and guesswork out of the postemployment relationship.

When Health Care Is More Important Than Cash

It’s easy to think of severance as just money, but it doesn’t have to be. It can also be an extension of health insurance coverage or paying for Consolidated Omnibus Budget Reconciliation Act (COBRA) insurance for a period of time. This can, of course, be combined with a salary continuation, but it doesn’t have to be.

Offering this kind of severance package could be especially helpful to an employee with ongoing health issues. While they can get coverage under the Affordable Care Act, it may be difficult to get a plan that covers the same doctors and hospitals, so a severance package that includes continued health insurance could make a huge difference to your former employee.

Making severance packages available to employees is an easy way to help both your business and former employees move forward without animosity. Even if working with an employee was difficult, letting them go doesn’t have to be.

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