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A Beginners Guide To Severance Package

Updated : June 22nd, 2020

Millions of Americans have lost their jobs due to the Coronavirus-induced economic shutdown. As tough it is to lose a job, people are now finding it difficult to collect their deserved severance package. While some workers are receiving severance pay for fewer weeks than expected, many others are getting the payment based on their base wage and not the total income. 

Here, we will walk through what an employee can do if he/she does not get the expected pay. But before that, let’s have a quick look at what a severance package and how it works. 

What Is A Severance Package?

Severance pay is a kind of payment or series of payments given to an employee when he/she is laid off or fired. The payment may also include the continuation of the health-care benefits for a certain period. 

Who Can Get Severance Pay?

Employees who have quit their job voluntarily do not qualify for a severance package but are given to those who have been fired. However, there are certain exceptions. If an employee is underperforming and the employer prefer to lay off, then the employee may not qualify for the severance package, provided the employee was given sufficient chances to improve the performance. 

The law does not require severance pay unless the employee has an employment contract that requires the payment. However, under the federal Worker Adjustment and Training Notification (W.A.R.N) act, employees may get some protection.  

If the company has 100+ employees and is preparing to fire many people, the employer, as per the law, is required to give the workers a 60 days notice of a large departmental closing or company closing. If the employer fails to give the notice, then the employees are legally entitled to a severance package. 

Can You Negotiate Severance Package?

Employees can usually negotiate severance pay. However, when negotiating for more, it is a must for employees to consider the factors that may sway the organization in their favor. 

For instance, if the manager caused the employee to turn down a job at a different company, the employee can ask for an increase in the severance as he/she is left unemployed due to his/her loyalty to the company. 

Note that the severance pay can only be negotiated for more than a higher payout. The employee can negotiate and ask payment for unused sick days and vacation.

How Much Severance Pay Does An Employee Receive?

Severance amounts vary with companies. Usually, companies calculate the amount based on the total salary and the duration an employee has worked. 

For instance, an employer might offer severance pay for 2 weeks’ salary for every year. So if the employee has worked for 3 years, the employer may offer 6 weeks of salary. 

What To Do If An Employer Is Not Giving A Severance Package?

As said earlier, a severance package is not required by law, and hence, a company can deny the payment. However, if there exists an employment contract that states the employee is entitled to the payment, the company must pay the employee, failing to which the employee can argue that he/she is entitled to the payment.   

Second, if the employee and employer have signed a severance agreement, release, or separation agreement, and the employer fails to pay, the employee can go to court.

Is Severance Pay Taxable?

Severance pay is considered as income and hence is subject to taxes. The amount taxed, however, depends on how much the employee receives.

Final Words 

Severance pay is a goodwill act that provides employees with buffer time between working and unemployment. It may also safeguard employers from lawsuits and give them a competitive edge in the market. 

 

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