In April, U.S. News & World Report noted that around one-quarter of Americans had already lost their jobs as a result of the COVID-19 pandemic. Now, just a few months later, tens of millions of people in total have lost their jobs since the coronavirus crisis began.
A big question on anyone’s mind who is facing a layoff situation is whether or not they will receive severance pay or a severance package. Read through this comprehensive guide to severance pay to understand exactly what severance pay is and learn about whether you may be entitled to it.
What Is Severance Pay?
Severance pay is compensation that “is often granted to employees upon termination of employment,” according to the U.S. Department of Labor. It also states that severance “is usually based on length of employment for which an employee is eligible upon termination.”
[Read: Your Guide to Job Searching During the Coronavirus Pandemic.]
What Is a Severance Package?
A severance package includes not only pay but also benefits — such as health insurance, accrued vacation and assistance with outplacement — that employees may receive upon being laid off or terminated.
Why Do Some Employers Offer Severance Pay?
Providing severance “can be a goodwill gesture on the part of the employer and can provide the employee with a buffer between working and unemployment,” according to Investopedia. The reason that some employers may offer severance pay as part of their employee benefits packages is to attract top talent; it can also help protect employers from lawsuits.
Is My Employer Required to Give Me Severance Pay?
The Fair Labor Standards Act does not require employers to provide severance pay or severance packages to their employees in any state, so not all employers offer severance pay. Severance pay “is a matter of agreement between an employer and employee (or the employee’s representative),” according to the Labor Department.
The Worker Adjustment and Training Notification Act may require employers to provide severance pay to all terminated employees unless the company gives them at least 60 days of notice before layoffs occur. The WARN Act may apply to organizations that employ more than 100 people that are terminating a significant part of their staff.
Who Generally Gets Severance Pay?
If you’ve left your job voluntarily, you’ll be less likely to be eligible for severance. The more common scenario for receiving severance is when an employer lets you go from your position — for example, due to downsizing or layoffs.
[Read: How to Show Your Next Employer You’re Excellent in a Crisis.]
Will I Get Severance Pay Upon Termination?
Since employers are not legally required to offer severance pay or packages, you’ll need to check with your human resources representative to determine whether or not you will be eligible to receive any severance.
You can start by consulting your employee handbook to see what the severance pay policy is like at your company. If you signed an employment contract upon joining the company, you can also consult that document to see if severance pay is covered. Your contract will likely specify a certain amount of time that you need to have worked for the employer in order to qualify for severance.
If your company’s policy or your employment contract do state that you will receive severance pay upon termination from the company, then the organization is legally bound to provide you with severance.
How Much Severance Can I Expect to Get?
The amount of severance pay that employees are eligible to receive is often tied to how long they have worked for a company. Employers often use a formula to calculate how much time an employee spent working for an organization, according to HRPS. A common formula allows one to two weeks of severance pay per year that an employee has worked for the employer.
Depending on your specific situation, your severance pay or package might include additional pay corresponding to the number of years that you have worked for the company, compensation for unused paid time off such as accrued vacation time or sick days, health insurance, life insurance benefits, retirement accounts and/or stock options.
[READ: Things You Should and Shouldn’t Do While Waiting to Hear Back From a Job.]
How and When Do I Get Severance Pay?
Severance packages can be paid out in a taxable lump sum at the time of termination or may be provided to employees over time.
If you have a choice in how to receive your distribution, you might want to opt for a lump sum, since receiving severance payment may change your ability to collect unemployment compensation. “When severance pay is distributed over time, employees may have difficulty collecting unemployment compensation or the amount may be lower,” HRPS states on its website.
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The Ultimate Guide to Severance Pay originally appeared on usnews.com
