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What does a formal severance policy typically include?

| Oct 26, 2019 | Employment Contracts |

Some employers negotiate severance on a case-by-case basis, while others have a formal policy in place.

While no two companies take the exact same approach to severance, a formal policy typically includes the following:

  • Conditions: This defines the circumstances in which an employee qualifies for severance, such as layoffs related to downsizing. It will also outline circumstances when severance is not paid, such as termination for cause.
  • Groups covered by the severance policy: It’s possible that only some employees will qualify for severance pay. For instance, a company may offer severance to salaried workers but not hourly employees.
  • How it’s calculated: Employers can calculate severance however they best see fit. A common approach is offering payment based on how many years you worked for the company. For example, you could receive one week’s salary for every year you were employed.
  • How and when it’s paid: Some employers pay severance in a lump sum, while others do so using the same pay schedule you’re familiar with. Also, make note of whether you’re to receive a check or direct deposit.
  • Documents required before receiving severance: You may have to sign certain documents before receiving severance pay, such as a legal release and noncompete.

If your company has a formal severance policy, review it to better understand your legal rights.

In the event that you’re due severance pay, work with your former employer to determine when and how you’ll receive compensation. If they fight back for any reason, review your policy once again and decide if it makes sense to take legal action to receive the money you deserve.

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