Employers are not obliged to give severance pay. The law only requires an employer to give severance if it has been promised in a contract, or stated in an employee handbook, or if there is an established pattern of giving severance to other employees in similar circumstances.
Some employers choose to offer severance pay to employees who are terminated, either involuntarily or voluntarily. The primary reasons for offering a severance package are to soften the blow of an involuntary termination and to avoid future lawsuits by having the employee sign a release in exchange for the severance.
Common benefits in severance packages include:
- Salary continuation—usually an amount based on years of service and/or position.
- Insurance benefits—while a company’s insurance plan may not allow a terminated employee to remain on the group health plan, COBRA benefits may apply and the company may pay the COBRA premium (or a portion thereof) for a specified period of time.
- Uncontested unemployment benefits—an employer may agree to not challenge a departing employee’s application for unemployment benefits.
- Outplacement services—assistance with finding a new job.
- References—an agreement on what information will be disclosed to future employers.
According to a 2009 survey by Hewitt Associates, more than half (51 percent) of companies offer a standard one-to-two weeks of pay for every year of service and another third (33 percent) vary their payouts based on a formula that typically combines years of service, salary level and/or grade.
Want access to resources on budgeting, financial policies, personnel policies, and risk management? Join the Standards for Excellence Institute. Located in Maryland? Join Maryland Nonprofits for these resources and more!
From the Standards for Excellence®: An Ethics and Accountability Code for the Nonprofit Sector. The Standards for Excellence code, developed by the Standards for Excellence Institute, includes specific benchmarks and measures that provide a structured approach to building capacity, accountability, and sustainability in your nonprofit organization. The code identifies 6 major areas of nonprofit governance and management: Mission, Strategy, and Evaluation; Leadership: Board, Staff, and Volunteers; Legal Compliance and Ethics; Finance and Operations; Resource Development and Fundraising; and Public Awareness, Engagement and Advocacy.
The Standards for Excellence® Institute, a program of Maryland Nonprofits, provides the best possible resources to nonprofits nationwide, helping build their capacity to effectively and efficiently meet the needs of their communities. Members of the Standards for Excellence Institute gain access to an online community with an expansive library of resources and customizable templates. The Institute also offers nonprofit accreditation and recognition, a national network of consultants licensed to provide training on the Code, and professional volunteer opportunities.