Support After Job Loss: 5 Elements Of A Severance Package

Going through a layoff can upend your entire world, especially if it’s a surprise. Knowing the elements of a severance package helps make your transition to job seeker easier. Severance pay is a part of your benefits package. If you’ve lost your job for reasons other than performance issues, a severance package is meant to help you financially through involuntary job loss. Companies may have to reduce personnel due to economic difficulties, downsizing, mergers, or acquisitions.

A survey by Randstad RiseSmart discovered that only 25% of organizations in the U.S. offer severance packages to all employees. Although no law mandates that employers offer severance packages, employers must provide adequate notice to terminated employees under the Worker Adjustment and Retraining Notification Act (WARN) of 1988. If your company fails to give you a 60-day notice, you may be entitled to a severance package. Being a union member helps you get severance pay through a collective bargaining agreement.

Depending on your state and local laws, companies may offer some form of severance pay. Elements of a severance package vary from financial compensation, health insurance continuance, career counseling, or bonuses earned before termination. Keep reading for the full rundown.

Lump Sum Payment

Upon termination, an exiting employee could receive a one-time, fixed amount. This doesn’t include your salary, which you’re already owed as time worked. The severance payment amount is often based on your current salary and the years spent at a company. Keep in mind that you may ascend into a higher tax bracket because you receive a higher amount in a shorter time. 

Outplacement Services

Assistance in finding new employment through services such as career counseling, resume writing, or interview coaching.

Medical Benefits

Employers may continue to offer health, dental, or retirement contributions.

Performance Bonuses

Before termination, any performance bonuses or earnings from your individual sales, team, or company successes.

Stock Options

You could be eligible to keep company stock or enjoy future gains.

In April 2024, the Federal Trade Commission banned non-compete clauses. These clauses limited a terminated worker’s ability to pursue legal action, work for a competitor, or compete with an employer after termination. They also prohibited employees from sharing proprietary information or secrets during or after employment. Also, despite what some confidentiality clauses may state in a contract, employers cannot legally forbid employees from revealing confidential or disparaging information to government regulators.

Another detail to note is that accepting a severance package may make you ineligible to file a wrongful termination suit or collect unemployment insurance.

Severance pay helps a company look good to employees and offers some security if an unplanned transition is needed. While adjusting to the news, knowing your rights will help you land on your feet and get your next gig. Remember, it may not be possible, but you can always ask to negotiate the terms of your severance package. Some employers are eager to discuss your request, at least to avoid a lawsuit.