Severance Compensation/Benefits

We recently came across a great article written for Stephens Insurance, LLC clients by United Benefits Advisors, LLC. In the article, it mentioned that the global economy has suffered due to the COVID-19 pandemic and many businesses are struggling with declines in business. With the decline, the article goes on to say that businesses have had to be creative with furloughs, pay cuts or freezes on matching retirement contributions. Though these temporary changes may tide the company over, they mentioned that several companies have reduced their headcount which has pushed the decision as to whether parting employees should receive severance pay or not. It is important to note that they encouraged businesses to consider relevant laws, company policies and employee messaging as it relates to severance.

Their definition of Severance is defined as a benefits package given to departing employees after they leave an organization. Their benefits package included items like a lump sum payment or pay continuation for a designated period, paid COBRA (healthcare benefits) coverage, and/or an outplacement program.

We agree with the article stating that many companies have a severance policy in place that addresses the terms, conditions, and formulas used to determine the package. We also agree that the standard practice of two weeks of pay for every year employed is common. The article didn’t mention a cap, but we tend to see a cap of six months (26 weeks), unless the position(s) are further up the organizational ladder.

The article ends by stating that eliminating staff is a tough decision and the impact is felt with former employees as well as the remaining employees and the business being impacted also. The last sentence in the article is full of wisdom, “Kind and fair treatment go a long way in maintaining employee confidence.”

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