Employees Receive Severance Pay
Whether or not a company decides to offer a severance package depends on what type of termination is taking place. Employees who are terminated for misconduct or other serious disciplinary issues such as absenteeism may not be eligible for severance pay. However, if the company is closing a plant and laying off employees en masse, it might be required to follow regulations set out in the Worker Adjustment and Retraining Notification Act. This law requires companies to provide advance notice and full pay to workers in these circumstances.
A severance package usually includes several elements that add up to a lump sum payment, including salary, any outstanding sick or vacation days converted to cash and any unvested stock options. In addition, the company might also offer outplacement services to help fired employees find a new job. Generally, these services help the former employee craft resumes and cover letters, search for jobs, and prepare for interviews.
The amount of severance pay depends on state law and how much the worker has made at the company. It also may be possible to negotiate a different amount. Typically, the more years of service an employee has at the company, the more money they are likely to receive, although the exact formula varies from state to state.
Can Part-Time Employees Receive Severance Pay?
Severance packages are subject to the same income tax rate as a regular paycheck, and employers withhold federal and state income taxes and Social Security and Medicare taxes just like they do on a regular check. Depending on how the severance package is structured, it might be paid as a lump sum or in installments over a specific period of time. The choice of payment method may affect an employee’s tax rate, because receiving a large lump sum early on will reduce the taxable amount for that year while paying in installments might reduce it over time.
In some states, the severance package may include a performance bonus. These bonuses can vary from a few weeks of salary to up to an annual compensation of a company’s highest-performing employees, according to the National Law Review. The laws regarding these bonuses vary by state, and some treat them as wages while others don’t.
Regardless of how the company structures its severance package, it is important to consider the impact on unemployment benefits. Some states prohibit people from collecting unemployment insurance if they receive severance pay, while others reduce the amount of unemployment benefits an individual can claim based on how much severance is received. An experienced severance pay lawyer can help ensure there are no mistakes in calculating severance payments or determining eligibility for unemployment benefits.
While some companies take a “take it or leave it” approach to severance pay and don’t negotiate the terms, others are more open to increasing the payout as an incentive to get employees out the door quickly. A severance pay lawyer in New York can help ensure that all legal requirements are followed, and that the departing employee receives an adequate payout.