Severance Policies

I have been asked to see what the PRO/CONS are of having a Severance Policy. Does anyone who has a a severance policy have any insite on this or if you don't have one why not?

Thanks for your help,


  • 11 Comments sorted by Votes Date Added
  • Ellie, we have a Severance Policy that pays out according to years of service. I think it is very beneficial, we had to let go an employee due to budgetary constraits and she was here for 11 years, we paid her severance. I think it is a good policy to have especially for people that have dedicated many years of their lives to one organization. We only give severance if the ee is terminated through no fault of their own and leaves on good terms. It has to be defined in you employee handbook.

    Good luck.
  • Thanks Elle for the info. Are you an "at-will" employer?
  • My current employer does not provide severance, which I disagree with. I think that company breeds good will by having a severance package based on years of service, available to eligibel employees only. Those that quit or are terminated for cause should not receive any severance.
  • LE:
    Having lived in both worlds, my preference is to not have a formal severance plan. Doing so, will likely require you to comply with ERISA and other asst'd reg's and it's just too much busy work for its infrequent application. I much prefer to have a severance plan avail to employees on a discretionary basis when it makes sense to offer it. You can offer the separation payment and get a release from the employee as the quid pro quo, or you can avoid the severance issue altogether by varying advance notice period or transition period. If your organization views severance as an unalienable right, then it probably s/b formalized; otherwise I'd view it as something to consider when deemed necessary.
  • I agree with DTM, paying severance and haveing a policy are not mutually exclusive. When we think appropriate, we offer severance - sometimes based on years of service - but not always. In exchange we get a release. If severance is a matter of policy, you will get no release. Now, the flip side of what we do is someone claiming they didn't get severance based on some protected status. So we look very carefully at the issues. We don't have that much call for it either, which may be the biggest reason it works ok for us the way we do it.
  • We don't have much call for it either, but when we do we also go on a case by case basis. And we get a signed relaease.
  • We just converted our severance pay practice into an ERISA plan based on recommendation by our employment attorney. Our severance pay policy gives us the discretion to award severance to other terminations (outside of RIF's) and gives us discretion to determine amount for those.

    The reason we converted it to an ERISa policy is because we tended to follow the same formula for determining severance for RIF's and having it be an ERISA plan means that any claims or lawsuits against us are moved into the federal courts where the hurdle for a plaintiff to overcome is much higher than in state courts.

    Yes, we have to file a 5500 annually now, but we maintain good records so this will be relatively easy to do.
  • We do not have formal severance policy, but we do make provision in our handbook for "pay in lieu of notice", at the discretion of our CEO. This handles employees who are terminated or who have given notice but we'd rather they didn't hang around for two weeks. We've never had to lay off an employee.
  • lhill:
    While pay in lieu of notice is a variation of "severance",keep in mind some states few a "pay in lieu of notice" as a discharge for unemploy/comp purposes and prohibit shortening the pay in lieu of notice period (e.g. employee is required to give 3 wks notice, but employer says we'll pay you 2 wks and you're done today). Your state will undoubtedly have an opinion on that and presumably you're already aware of it.
  • Interesting take. Do you get releases for severance? Surely there must be some standards - it can't be totally discretinary - can it?
  • Yes, of course we do get releases for all severances paid. The discretion is not with RIF's - we tend to give those the standard amount regardless - but is with other kinds of terminations. For example, an employee who is terminated due to performance/not a good fit. We may give severance (with a signed release) to help the ex-employee move on to a new job and company. This may not work for others who work for employers with different philosophies, but it works for us.
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