Types of Severance Pay
In an economy where layoffs seem to be a regular occurrence, it’s no surprise that many workers worry about losing their jobs. The good news is that when a company decides to lay off employees, it typically will offer them severance pay, a sum of money paid to departing employees as a thank you for their work. The amount of severance pay is typically based on an employee’s salary and how many years they have worked for the company.
While the severance package may be helpful, it’s important to understand the fine print before signing anything. The terms of a severance agreement can have a major impact on an employee’s future employment, which is why it’s important to speak with an experienced severance pay lawyer.
A New York severance agreement attorney can review the severance pay and other terms of a separation agreement to make sure that they are fair and don’t include unfavorable provisions, such as a non-compete clause that could limit your ability to seek employment in your field for a set period of time. These types of clauses are often included in severance agreements, but our attorneys can negotiate with your employer to remove them or negotiate for more generous payouts as compensation for your departure.
What Types of Severance Pay Are Available?
Our firm has reviewed severance agreements from companies of all sizes, including publicly and privately held corporations, private equity firms, venture capital funds, professional services firms, startup technology companies, government contractors, non-profit entities and embassies. Our clients have benefited from our firm’s deep knowledge of employment law and our ability to negotiate the best possible severance package for their unique circumstances.
How much severance pay lawyer you receive will vary from employer to employer, but the typical amount is usually two or more weeks of salary for every year of service. Executives and managers may receive a higher amount than other employees. In addition, some employers may also choose to include unused vacation or sick days in the severance package.
Some companies may decide to offer a lump-sum severance payment, which can be beneficial for some departing employees because it reduces their tax bill. However, lump-sum payments can also push some employees into a higher tax bracket, which is why it’s important to talk with an accountant or another tax professional about the specific terms of your severance package.
In some cases, an employer will include a severance package that includes retirement or pension savings. This is especially common when a company is closing a plant or downsizing operations. In these instances, the company may want to encourage its employees to continue saving in their 401(k) or other defined contribution plans or provide them with options for how to roll over their severance package into an individual retirement account or other retirement plan.
Employers in the United States aren’t required to provide severance pay or any other compensation to employees who lose their jobs, but they may be motivated to do so for several reasons, such as preventing a lawsuit from a disgruntled employee and defusing hard feelings among departing colleagues. Some employers also may be subject to certain regulations, such as the Worker Adjustment and Retraining Notification Act (WARN), which requires advance notice of plant closures and mass layoffs.
