Who Pays Severance Pay?

Pays Severance Pay

With news stories of layoffs and company closures on the rise, many Americans worry about losing their job. Fortunately, if you are laid off, fired or terminated, you may be offered a severance package. While severance packages vary, they generally consist of a lump-sum payment and outplacement services that help you find a new job.

How much severance pay you receive depends on your job level and years of service. Employers typically use a formula, such as one to two weeks of pay for each year you worked, although higher-level employees may get more. Some severance packages also include benefits like health insurance or extended access to company equipment.

Companies that provide severance packages are not required to do so by law. However, most employers honor promises made in employment contracts or employee handbooks and may offer severance as a way to thank long-term employees for their work. In addition, severance pay is a form of damage control, as employers are less likely to face legal action for firing an employee if they offer them severance compensation as opposed to nothing at all.

Who Pays Severance Pay?

Severance payments are usually taxable, though how taxes are applied depends on whether or not your employer treats it as supplemental wages or as a bonus that’s separate from your salary. If the severance is treated as additional wages, your employer must withhold federal and state income tax at the rate you normally pay, and it will be included in your W-2 statement. If your severance is considered a bonus, the IRS considers it taxable income and you should expect to see a W-4 form from your employer.

Some severance pay lawyer packages include perks like a company laptop or phone, which you can take with you to your next job. You should ask your employer if you can keep these items and make sure to get it in writing. You can also negotiate to have your employer create a letter of recommendation for you that you can include with the severance agreement, and you should request that your employer acknowledge your major accomplishments during your time there.

In addition to cash, severance packages can contain a variety of other items that can make your transition to a new job easier, including unused vacation days and job search training. Some severance packages even include relocation assistance and a moving allowance.

While you might think your employer is being generous with a severance package, the reality is that the average severance pay is just under $18,000, according to career site Glassdoor. If you feel you are getting shortchanged, a severance pay lawyer can help. They can review your severance agreement and ensure that the terms are fair and reasonable. For example, they can look for clauses that could limit your ability to network and talk to former co-workers or clients or that might prohibit you from applying for a job at a competitor’s company. They can also advise you about negotiating for more money or other terms that would improve your situation.