top of page
Search

What You Need to Know about Severance Packages


Business owners agree that people are the lifeline of a company. The people you hire can make or break your business. Yet as an employer, it is essential to recognize that things change. There are instances when you may have to terminate an employee. Developing a severance package is one effective strategy for dealing with exiting employees.


A severance package provides pay and sometimes benefits to a departing employee. There are a few reasons why you may want to consider offering severance packages. First, by giving a severance package, you are helping ease the transition away from the company by providing additional pay to the employee. Second, implementing a severance package may protect the company from litigation: Severance pay agreements often include a release of potential claims that may exist. These agreements can also include non-disparagement provisions by which exiting employees agree not to speak negatively about your company.


If you are considering offering severance packages, here are several things that you should keep in mind:


  1. Eligibility. When crafting a severance plan, it is vital to think about which employees will be eligible for the package. Some business owners limit severance packages to full-time employees or executive employees. If you are involved in a collective bargaining agreement, the agreement may require that you provide severance packages.

  2. Design structure. In designing your severance plan, consider what you would like your severance package to include. Some companies offer a lump sum, whereas others provide a few additional payments. Other companies choose to continue to provide benefits for a designated period. Another design element to consider is how your company will determine how much to pay. Some businesses have developed a severance package that provides one or two weeks’ pay for every year an employee has worked with the company. Because severance packages are rarely required by law, there is flexibility regarding how to construct them.

  3. Local and federal laws. As you create a severance package, it is important to know whether your practices are covered by state or federal law. For example, when a company participates in a mass layoff, the layoff may trigger provisions under the Worker Adjustment and Retraining Notification (WARN) Act. Under the WARN Act, if you are an employer with one hundred or more employees and fail to provide the required sixty days’ notice to employees before closing a plant or conducting a mass layoff, you must pay the employees severance wages for up to sixty days. Some states impose additional requirements regarding severance pay in similar circumstances. As a result, it is essential to carefully consider how these laws will impact your severance package.

  4. Company culture. If your company is creating a severance package, ensure that it is congruent with your overall company culture; even if employee termination is involved and a release is incorporated, the company can maintain its moral and ethical standards. Failure to do so erodes trust, generates negative public opinion, and could, in extreme instances, be used against the company if it is accused of pursuing overly broad waivers.


We Are Here to Help

Determining how to structure your severance package can be complicated as you try to balance business objectives with federal and state requirements and company culture. You do not have to do this by yourself, however. Please schedule an appointment with Utah business attorney Paul Sparks. He will help you craft a severance package that protects your business and honors your company’s standards.

Comments


DISCLAIMER: The information contained on this website is provided for informational purposes only and should not be construed as legal advice on any matter. The transmission and receipt of information contained on this website, in whole or in part, or communication with Summa Business Law via the Internet or e-mail through this website does not constitute or create an attorney-client relationship between Summa Business Law and any recipient. You should not send Summa Business Law any confidential information in response to this website. A response will not create an attorney-client relationship, and whatever you disclose to Summa Business Law will not be privileged or confidential unless Summa Business Law has agreed to act as your legal counsel, and you have executed a written engagement agreement with Summa Business Law. The material on this website may not reflect the most current legal developments. The content and interpretation of the law addressed on this website is subject to revision. Summa Business Law disclaims all liability in respect to actions taken or not taken based on any or all the contents of this site to the fullest extent permitted by law. Do not act or refrain from acting upon this information without seeking professional legal counsel.NO GUARANTEE OF RESULTS: The practice summaries and individual attorney biography on this website describe results obtained in matters handled for Summa Business Law clients. These descriptions are meant only to provide information about the activities and experience of our attorney.  They are not intended as a guarantee that the same or similar results can be obtained in every matter undertaken by our attorney; and you should not assume that a similar result can be obtained in a legal matter of interest to you. The outcome of a particular matter can depend on a variety of factors—including the specific factual and legal circumstances, the ability of opposing counsel, and, often, unexpected developments beyond the control of any client or attorney.THIRD-PARTY WEBSITES: As a convenience, this website may provide links to third-party websites. These linked websites are not under the control of Summa Business Law, and Summa Business Law assumes no responsibility for the accuracy of the contents of these websites.

Utah and Arizona

(480) 335-6170

Email: paul@summabusinesslaw.com

©2024 by Summa Business Law, LLC

bottom of page