While severance pay is not federally-mandated, about 60 percent of companies provide this payment to laidoff workers to lift their "morale" and reduce their likelihood to file lawsuits and claims.
According to lawyers, companies that provide severance packages should have an employment contract stating the conditions and requirements for workers before they qualify for this assistance.
These are some of the most common provisions in the severance package:
1. Workers who are qualified for this payment.
Most employers provide severance pay to workers who have at least spent more than a year in their companies.
Usually, this monetary assistance is only for employees who are laidoff due to workforce reduction or changes in the operation. This means that employees who are terminated after doing a fraudulent act or those who resign will not qualify for severance pay.
The employment contract should also include the specific groups who are qualified for the severance pay such as hourly workers, part-time employees, executives, and other high-ranking employees.
2. Circumstances in which the severance pay is applied.
Companies define what circumstances the severance package can be applied such as work reduction, change of company ownership, and adjustment in the operation.
3. The computation of the severance pay.
The computation for this payment will depend on the number of years a worker has spent in the company and his specific position.
For example, the severance pay for a key employee is computed by multiplying his monthly salary to the number of years he spent in his company.
Also, the employment contract should include on how the severance package will be paid. For example, some companies pay this in a lump sum or in regular pay periods that will last for a specified duration.
4. Provision showing if the company can modify or terminate the severance policy.
Employers should clearly state this provision in the employment contract can be amended or terminated as they have to consider the financial situations and the practicality of giving severance package to laidoff workers.
This provision is also important to companies especially in a highly-volatile market when merger and change of ownership are likely to happen.
5. Other benefits included in the severance package.
Aside from a monetary assistance that will help workers while they are still looking for a new job, some companies include health care benefits that will last for a certain period of time.
Also, some employers provide outplacement benefits and return the accrued vacation leaves to laidoff workers.