Severance Pay Calculated
If a company is required to provide severance pay for employees it fires, it might also need to create a plan that defines how this amount will be calculated. This may help to avoid the need for individual negotiations on a case-by-case basis and ensure consistency throughout the organization.
A large number of factors can impact the amount of severance pay an employee is offered, with one of the most important being the reason for termination. Involuntary dismissals (layoffs, closures) tend to involve higher amounts than those for cause (performance, misconduct). Company financial resources can also play a role in how generously this type of package is given, with those in better financial positions being more likely to offer a more substantial payout.
Companies can also decide whether to offer a lump sum payment or payouts over time. A lump sum is generally preferred, as it allows the former employee to receive the money more quickly and easily. It can also reduce the likelihood of disputes over whether or not a particular component of the package is needed (for example, outplacement services).
How Is Severance Pay Calculated?
In addition to the amount of severance pay, companies may decide to include bonuses that aren’t part of an employee’s base salary in their severance packages. These might be performance-based or tied to meeting certain goals that were set out at the start of the year. This approach may work well for some employers, but other businesses prefer to keep these payments consistent with what they’d expect to give any other non-executive employee if they were fired.
Other important factors that can influence severance pay lawyer include the amount of time it might take for an employee to find another job and what type of employment they’re seeking. For example, older workers may require more time to find a new job and are less successful in returning to the same earnings levels they enjoyed prior to their dismissal. For this reason, some courts consider it appropriate to factor in age in severance pay calculations.
Finally, it’s crucial to consider whether the severance package includes insurance coverage. For example, the company might include COBRA benefits in its severance package, which allow the former employee to continue their health and dental coverage until they find a new job. This can be a huge benefit for some employees, especially those who are concerned about the ability to afford healthcare costs.
