When an employee is let go from their job, it can be a difficult and stressful time. However, many employers offer a severance package as a way to ease the transition and provide some financial security. 

But what exactly is a severance package, and what should it include? In this article, we’ll explore the ins and outs of severance packages, including what they are, and what they typically include. Whether you’re an employer looking to offer a severance package or an employee who may be facing a layoff, understanding severance packages is an important part of navigating the job market.

What is a Severance Package?

A severance package is a set of benefits that an employer offers to an employee who is being laid off or terminated. The purpose of a severance package is to provide financial and other support to the employee during the transition period between jobs. Severance packages can include a variety of benefits, such as severance pay, health insurance coverage, retirement benefits, outplacement services, and more.

Employers offer severance packages for a variety of reasons. One reason is to provide financial support to employees who are being laid off or terminated. Severance pay can help employees cover their expenses while they search for a new job. Additionally, offering a severance package can help maintain good relationships with employees who are leaving the company, which can be important for future business opportunities. Finally, offering a severance package can help protect the company from legal action by providing a clear agreement between the employer and employee.

What Do Severance Packages Include?

A typical severance package includes a variety of benefits, which can vary depending on the employer and the employee’s position. Here’s an overview of what a typical severance package might include.

Severance Pay

Severance pay is one of the most important components of a severance package. It is a lump sum or series of payments that an employer provides to an employee who is being laid off or terminated. The purpose of severance pay is to help cover the employee’s expenses during the transition period between jobs. 

The amount of severance pay can vary widely depending on the employer and the employee’s position. Generally, the amount of severance pay is based on the length of service and salary of the employee. For example, an employee who has worked for a company for many years and has a high salary may be entitled to a larger severance payment than an employee who has only worked for the company for a short time and has a lower salary.

Health Insurance Coverage

When an employee is laid off or terminated, they may be able to continue their health insurance benefits for a certain period of time after their employment ends. This can provide critical support for employees who may be facing medical expenses during the transition period between jobs.

One common way that employers provide health insurance coverage in a severance package is through COBRA (Consolidated Omnibus Budget Reconciliation Act). COBRA is a federal law that allows employees to continue their health insurance coverage for up to 18 months (or longer in some cases) after they leave their job. Under COBRA, employees are responsible for paying the full cost of their health insurance premiums, which can be expensive. Some employers subsidize employees’ COBRA coverage.

Retirement Benefits

When an employee is laid off or terminated, they may be able to continue their participation in the company’s retirement plan for a certain period of time. This can include contributions to a 401(k) plan or other retirement account, as well as access to the investment options and other benefits available through the plan.

In some cases, an employer may offer additional retirement benefits as part of a severance package. For example, an employer may provide a lump sum payment into the employee’s retirement account, or they may offer to pay for a certain amount of financial planning or investment advice to help the employee manage their retirement funds.

Outplacement Services

Outplacement services are an important component of a severance package. These services are designed to help employees who have been laid off or terminated find a new job more quickly and easily. Outplacement services can include a wide range of resources and support, such as reverse recruiting, career counseling, job search assistance, resume writing assistance, interview coaching, and more.

In some cases, employers may coordinate outplacement services directly, providing access to career coaches or job search resources through a third-party provider. In other cases, employers may provide reimbursement for outplacement services that the employee chooses to pursue independently.

Other Benefits

In addition to the components we’ve already discussed, there are many other benefits or considerations that may be included in a severance package. These can vary widely depending on the employer and the employee’s position and may be tailored to meet the specific needs and circumstances of the individual.

Executives and other high-level employees may receive stock options or other equity-based compensation as part of their severance package. If an employee has accrued vacation or sick time that they have not used, they may be entitled to receive payment for this time as part of their severance package. In some cases, employers may also offer continued access to company resources like email or software for a certain period of time after the employee’s departure. An employee may be allowed to keep their company laptop or other equipment, or they may be provided with a company car for a certain period of time.

Non-Disparagement and Confidentiality Agreements

Non-disparagement and confidentiality agreements are common components of a severance package. These agreements are legal documents that an employee signs when receiving a severance package. 

The non-disparagement agreement prohibits the employee from speaking negatively about the employer or making any statements that could damage the employer’s reputation. The confidentiality agreement, on the other hand, prohibits the employee from sharing any confidential information about the company, its clients, or its business practices.

Separation Agreement

A separation agreement, also known as a termination agreement, is a legal document that an employee signs in exchange for receiving the benefits of the severance package. The agreement specifies the terms of the termination and typically includes a release of any legal claims the employee may have against the employer, such as claims of discrimination or wrongful termination.

This agreement is a key component of the severance package and is designed to protect the employer from any future legal action by providing a clear agreement between the employer and the employee.

Negotiating a Severance Package

While some employers may offer a standard severance package to all employees who are being laid off or terminated, others may be willing to negotiate a better package on a case-by-case basis. If you’re in a position where you’re negotiating a severance package, there are some things to keep in mind.

If you’re negotiating a severance package, here are some tips:

  • Research typical severance packages in your industry.
  • Know your worth and be professional.
  • Consider your priorities and be flexible.
  • Negotiate in a timely manner and be clear and specific.
  • Be open to hearing your employer’s concerns and suggestions.

Key Takeaways

Navigating a layoff or termination can be a challenging and stressful time for both employers and employees. However, by understanding what a severance package is and what it typically includes, both parties can work together to make the transition as smooth as possible. While the specific components of a severance package can vary widely depending on the employer and the employee’s position, there are some general guidelines that can help ensure a fair and reasonable package is offered.

If you’re an employer looking for outplacement services to assist your laid-off employees as part of their severance package, or if you’re a laid-off employee looking for job search assistance, consider using Find My Profession. Find My Profession offers personalized and effective outplacement services to help employees find new jobs quickly and easily.