Voluntary and Involuntary Termination Part 1
Basic Facts About Employee Severance Packages
The sample of employee severance package featured in this article provides information on how much is usually offered for each type of benefit and the treatment of term benefits or annuities in cases where they are included.
At this point, readers are reminded that any benefits paid as part of a severance pay package are at the discretion of the employer and may be subject to eligibility requirements and certain specific factors like, but not limited to:
Minimum length of time for rendered services;
The reason for the employees separation, whether for good cause, downsizing, voluntary resignation, or retirement; and
The overall financial condition of the company and its capacity to pay, particularly if the employees involuntary termination is an offshoot of the companys bankruptcy.
Also, the benefits will be awarded only if the employee formally accepts them through a written severance agreement. This document will also serve as the employee’s instrument in claiming or enforcing the payment of said benefits.
The following are examples of applicable provisions contained in the EEOC Compliance Manual of Policies pertaining to manners of paying separation benefits to employees who were involuntarily terminated :
Employers must provide equal severance benefits and opportunities to all departing employees regardless of age or eligibility for pension benefits.
Violations of this provision particularly refer to exclusions of senior employees eligible for retirement in the near future but who lost their jobs just as the younger members of the workforce did.
Retiring employees who were laid off from work prior to their actual retirement should not be excluded from offers of recall or re employment.
The severance pay offer is different from the pension pay that the involuntarily retired employee is bound to receive in the course of his retirement. Severance pay and pension benefits should in no way be made to offset against each other, unless the item for offset qualifies under the EEOC’s exception rules.
Offsets against severance pay are allowed, only if granted in the form of health care benefits or additional pension pay, for employees near their retirement age. This is further subject to the provision that the health care benefits offered are at the least comparable to Medicare benefits in terms of type and value.
It is also important that the employee to whom the offset was offered has accepted said offer in writing.
The value of the offset against the senior employees severance pay shall be in accordance with the values prescribed by the EEOC under Sec. 40. Please click on the image to get a larger view of this provision.
Offsets of long term disability benefits against pension benefits are allowed only if the employees separation is not connected to involuntary terminations or where the employee was not forced to retire in connection with manpower downsizing. Hence, this portion of the separation package is often based on and/or awarded according to number of years of service.
Usually, a minimum length of service is required as eligibility to receive severance pay. The average length of time most employers require is at least one to two years.
The amount of severance pay granted is typically equivalent to one to two weeks’ pay for every year of service rendered.
Please continue to Page 2 for more Sample Severance Package Information.
Unused Leave Credits
Basically, there are no federal requirements for the payment of sick leave and vacation leave credits; hence the employer has the option whether or not to include unused sick leave credits as severance pay. Still, the payment of those credits will depend on the companys policies.
The Family and Medical Leave Act s (FMLA) rules pertain to mandatory paid sick leave credits if the employees reasons fall under any of the conditions specified in the FMLA. These rules refer to usage and their mandatory nature as paid sick leave.
Generally, vacation leaves require one year of service for eligibility and are usually equivalent to 40 hours or one week of paid time away from work.
However, some employers discourage the accumulation of sickness and vacation leaves and instead require their employees to exhaust these leaves yearly; otherwise, a one week paid vacation benefit will be forfeited. Some companies maintain that the benefits of these leaves should be properly utilized as a way of keeping their human resources fit and healthy. This way, problems about long term disability could be minimized if not eliminated. This, of course, should be so stated in the companys policies in order to be enforceable
Companies that require the exhaustion of sick and vacation leave will pay only the current years unused sick and vacation leave credits, in full or prorated, if the resignation, retirement, or separation takes place before the year ends.
Some employers, however, prefer that employees report for work continuously to avoid absenteeism and the hassles of filling vacancies, albeit temporarily. As incentive, unused sick and vacation leaves can be accumulated up to a maximum amount and are commutable to cash upon separation from the company.