SEVERANCE PACKAGES: HERE IS HOW YOU CAN TURN LEMONS INTO LEMONADE
There is no doubt that receiving a pink slip will leave a sour taste your mouth, but a well-negotiated severance package may be the perfect sweetener. There is no law requiring employers to pay severance benefits, but many do so in order to avoid conflict with exiting employees. At the bare minimum, employers must pay for earned compensation and accrued vacation days. If this is all your employer offers, it is not extending benefits, but rather fulfilling its legal obligation. True severance benefits are perks that the employer is not required to provide such as extended insurance coverage, contribution to retirement funds, favorable references, and outplacement services, among others. Your employer will certainly assemble a package that is in its best interest and you are by no means required to accept and you may make a counteroffer.
The first step to negotiating a favorable severance package is to place yourself on equal footing with your employer. Convey your value to the company. Typically, the longer your length of employment, the better your bargaining power. If you have specialized skills or knowledge, you may take them with you to a competitive organization. Play up your contributions to the company. It is helpful to refer to positive performance reviews, work on special projects, or established relationships with important clients. Also keep in mind your employer’s position. If the company is in dire financial straights and laying off employees or going out of business, it may not be able to offer certain benefits. You may want to ask around and find out what other employees have been offered.
Strategy:
After evaluating your bargaining position, determine what benefits you will request. In addition to monetary compensation, there are other valuable benefits that may be included in a severance package. Some items to consider are as follows:
- Insurance Coverage: Health and life insurance coverage typically ends on the day of termination or shortly thereafter. Your employer may extend coverage for a specific period of time or until you purchase coverage from another provider. 401K/Retirement Benefits: Your employer may make a lump sum contribution to your 401K or make periodic contributions while you are receiving severance pay.
- Sick Leave: Employers are not required to pay for accrued sick days, but may do so as part of a severance agreement.
- References: A positive reference letter outlining your responsibilities, accomplishments, job longevity, and commitment to the company will be vital to your future job search. It is also wise to obtain the name and phone number of an individual who will serve as a reference. Letters and reference calls are little cost to the employer and will be invaluable to you.
- Outplacement Services: Often employers will offer to pay for college courses or career training and allow access to office equipment such as computers, phone, fax, and secretarial staff.
- Form of Payment: Whether your severance pay will be paid as a lump sum or monthly payments may have significant tax implications. For instance, severance payments may not be considered as taxable wages. (http://www.law-job.com/7312.shtml) Check with your tax accountant or CPA to confirm this information before acting.
The aforementioned benefits are open for negotiation, but understand that in order to obtain those benefits that you really want you must be willing to part with others. Imagine your spouse is ill and you are not too concerned about payment for accrued sick days. If you agree to accept little or no payment for sick days, then your employer may be more willing to extend health coverage.
Keep in mind that employers often place conditions on the payment of severance benefits. These conditions may include a waiver of all legal claims against the employer and promises to neither disclose the terms of the severance agreement nor engage in activities that are against the best interests of the employer. Be aware that a release typically only protects the employer and is a legally binding contract; therefore, you should carefully review the terms before signing.
If you are presented with a severance package and release, immediately consult a California labor law attorney. A knowledgeable attorney will be able to advise you of your rights and insure that the terms of the release are fair and equitable. Moreover, a labor law attorney may be able to secure better terms by intervening in negotiations on your behalf.
