The In's & Out's of
Severance Packages

 

In today’s current economic climate, many companies are providing employees with a severance package in an effort to downsize their operations.

 

 


While this certainly constitutes a significant change in an employee’s life, it is not necessarily all negative. Severance packages can provide the opportunity to save for retirement, make valuable headway on outstanding debt, or assist with the cost of a child’s education.

 

However, it is integral that the proposal is fair and structured in a way that is most beneficial to you and your unique financial situation.

 

The following are five helpful tips to keep in mind when evaluating any severance proposal:

 

  1. The Employment Standards Act is only the beginning

    Section 57 of the Act stipulates the minimal amount of notice or pay in lieu of notice which by law must be provided to an employee upon termination. However, in practice, a much more generous period is used which takes into consideration the length of employment, character of employment, the availability of alternate employment and the employee’s age, education level and qualifications. To put it simply, the older the employee, the more responsibility their job entails and the harder it is to get another job, the longer the notice period.

  2. Your base pay is not the only thing that should be taken into consideration

    Employees are no longer compensated for their work through base pay alone. Now numerous other benefits are included in an employee’s compensation package. These benefits can include pension plans, bonus programs, medical and dental benefits, car allowances and stock options. These benefits, or compensation in lieu of such benefits should be considered when evaluating a severance proposal.

  3. Pay attention to the way the proposal is worded

    Often severance proposals contain a provision that reduces the amount payable if the employee obtains alternate employment. It is important that you carefully evaluate such a clause. Will your payment be reduced if you obtain any employment, or only if you obtain employment which provides 50% of your previous salary? Will the payment merely reduced or is it terminated? It is easy to see that the precise wording of such a clause can have a drastic impact on the amount of compensation received.

  4. Pay attention to the way the proposal is structured

    Compensation is made either by way of lump sum payment, or by a continuation of pay throughout a defined period. While lump sum payments are advisable when the financial future of the company is uncertain, they can also have significant tax implications. Be sure to consult your financial professional when deciding upon the best method of payment for you.

  5. Ask Questions!

    Many law firms such as ours offer consultations which are immensely useful to employees considering a severance proposal. It is also integral to speak with your financial professional. Taking these steps will ensure that your unique circumstances are considered and you are fully aware of all your rights upon termination.