How to Establish a Severance Plan
No business owner or manager wants to think about letting employees go. Unfortunately, it is a part of doing business that your organization should be prepared for. Help your business prepare for the unexpected by setting up a severance plan with the tips below from Prescott HR.
What is a severance package?
A severance plan includes a set lump sum payment that a terminated employee receives when they are let go from a company through no fault of their own. You may have seen this in the news recently as tech companies like Meta and Twitter laid off large numbers of their staff. Companies typically have to lay off employees for reasons like economic hardship or when they downsize. It’s important to note that severance packages are not required by law. However, establishing a severance package is a gesture of goodwill as an employer that you want to take care of your staff in the event that unforeseen layoffs or downsizing.
What’s included in a severance package?
Your organization’s severance package can include a variety of different benefits. It should be designed to help carry a terminated employee through several months of unemployment while they search for a new job. Here are some considerations to include in your organization’s severance package:
- A lump sum of money, usually based on the salary and number of years the employee has worked at the company
- A continuation of insurance benefits, including health, vision, dental, or life insurance
- A lump sum payout of any unused sick days or paid-time-off days
- Stock options, if your organization has them
- Assistance with finding a new position for the terminated team member
Document your organization’s severance package
When you’re ready to form a severance package for your organization, it’s essential to put the plan in writing to keep your team on the same page. A severance package should be a legal document that clearly states the terms of the agreement the organization is taking with any future terminated employees. Discuss your options for drawing up this legal agreement with a lawyer or your organization’s legal team. The purpose of creating a legal document for your organization’s severance package is to prevent a terminated employee from filing a future lawsuit. This agreement should include why the employee was terminated, the conditions the terminated employee must meet to receive the severance package, and the right of the organization to end or change the severance package. You can even include a non-disclosure agreement that the terminated employee must sign to receive the severance package.
Work with Prescott HR
Does your organization need help with establishing a severance package? We are here to help! Prescott HR offers a wide range of services that can help your organization evaluate your current policies and incorporate new ones, as needed. Our unintimated HR practices allow us to be focused and effective, providing your business with precisely what you need. Give us a call today at 443-351-8818 or contact us online.