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7 Things Employers Should Know About The Severance Process

Say that you want to offer an employee severance. What should you do?

To help employers with offering severance to employees, we asked HR professionals and business leaders this question for their best advice. From running the numbers to seeking legal counsel, there are several tips that may help you offer an employee severance.

Here are seven tips for employers looking to offer employee severance:

  • Measure Your Employee’s Impact

  • Run The Numbers

  • Draft Up a Severance Agreement

  • Consider the Consequences of an NDA

  • Seek a Legal Counsel

  • Severances Can Be Negotiated

  • Clearly Communicate in Paper

Measure Your Employee’s Impact

Before arriving at a number, it is important to consider what impact the employee has had on your company during their tenure. If the individual was a recent hire who didn’t live up to your expectations, you can certainly offer less than you would an executive who has spent years helping you build from the ground up. All in all, it is important that the number you finalize is in accordance with their impact.

Run The Numbers

Especially during the pandemic-related downturns, businesses like ours have wanted to take care of employees by offering a severance package. While extending a severance package is the right thing to do, small businesses need to take care of their business too. Rather than overextending a business by offering too generous of a severance, business owners should work closely with their accountant to determine what amount the business can actually afford to offer. It’s not enough to Google a phrase like, “typical severance package for employees.” Instead, approach your situation as “unique” so that you can treat employees fairly — both employees who will receive severance pay and those employees who will be staying with the company.

Brett Farmiloe, Markitors

Draft Up a Severance Agreement

Offering a severance package is not mandated by law. If an employer offers a severance, the severance should always be connected to a severance agreement that contains a release of claims. It is best to have a legal counsel draft or review as the provisions of the severance agreement may differ based on the state or even age of the separating employee.

Sonja Talley, Principal HR Consultant

Consider the Consequences of an NDA

Ask yourself why you want to offer the severance, and if you are comfortable with setting the precedent. Reward a longtime employee you have to let go (due to something like a detrimental decline in performance.) Pay what you think is fair — let your conscience guide you. To ensure “no hard feelings” for a difficult decision, such as laying off one or more people due to non-renewal of a contract, but might want to hire again in the future (or hire someone else in their industry — word travels fast) try to determine the industry standard and meet or exceed that. Do you want to get them to sign a Non-Disclosure Agreement as part of the severance? I (very briefly) had a client who wanted an NDA over the company’s “questionable” business practices since he didn’t want his customers to know about it. He offered 2 weeks’ pay, the employee declined, word leaked.

Matthew Lee, Learning & Development Leader

Seek a Legal Counsel

If you want to offer an employee severance upon separation, you will want to engage with legal counsel to ensure the reason for separation is legal. Also, you may want to consider having legal counsel draft a Separation and General Release Agreement which outlines what the employee is entitled to, requires a signature for payment of the severance, and generally outlines that acceptance of the severance means the separate employee will not attempt legal action in return. The Separation and General Release is also an opportune time for the employer to reiterate the conditions of any NDAs, non-competes, and non-disparagement policies at the company.

Eric Mochnacz, Red Clover

Severances Can Be Negotiated

As severance pay is not always being given to all employees, some employers do not know how to process such payments. As a business owner, the number one thing that every employer should know is that this severance pays can and should be negotiated. Your severance package offer might not be the final offer that your employee will receive. The employee has the right to negotiate about the package that he/she will receive.

Jacob J. Sapochnick, Sapochnick Law Firm

Clearly Communicate in Paper

When you decide that you want to offer an employee severance, consider what you want the terms to be: insurance, salary for X weeks, etc. Once you decide what the package will include, list all the terms onto a severance letter and schedule a meeting with the employee to give them notice and offer the terms. Typically there is also a time period detailed that they have to consider the package. You also should decide whether or not the package is negotiable. Sometimes, employees will come back from that time with a counteroffer, which you should be prepared for.