How to Negotiate for Employment Severance Packages
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The best time to negotiate an employment severance package may be before you actually start working. Effective justification for negotiating a severance package can include the stability -- or instability -- of the industry or field, what you intend to contribute to the organization and the value of your talents and qualifications. In addition, if you are in a position to negotiate an employment agreement, then by all means, negotiate a severance clause as part of the contract.
When you receive a conditional job offer, your future employer still has a few more steps to complete before it issues a final written offer of employment. Many organizations conduct background investigations, reference checks and drug screening. While the recruiter is handling the post-offer steps, ask the hiring manager if the company will include severance pay in your final job offer in case your job is eliminated or if the company goes through a reduction in force. You don't want to appear greedy -- asking for money for your departure before you've even begun working for the company -- but you do want to ease the transition into unemployment should you suddenly be faced with losing your job.
Severance payments aren't required by law, but many employers provide compensation for employees whose jobs are eliminated or employees subject to permanent layoff. When you inquire about severance policies, ask the company representative how it has handled layoffs and job eliminations in the past. Even for employers who do have severance policies, the details may not be published in the employee handbook because many packages generally are negotiated on a case-by-case basis. Ask whether the company calculates severance based on tenure, salary or other factors. Generally speaking, many employers offer one or two weeks' pay for every year of service.
High-level executives who negotiate employment contracts often negotiate their severance pay at the same time. Some executive severance packages are quite lucrative, so if your salary is typical for a chief executive-level position, ask for the golden parachute to make your landing less of a shock. Even if you're not a high-level executive, suggest that you and the employer agree to secure your future with the company by negotiating severance pay upfront. Your argument may be particularly convincing if you're in a volatile industry, such as the dot-com businesses that had to lay off so many workers in the early 2000s.
Losing your job can mean having to give up a comprehensive benefits package, including group health coverage that your employer subsidized. Negotiate continuation of your benefits -- continuation as in the company continuing to pay the larger portion of your premium. Granted, you are likely eligible for continuation of your health care benefits through COBRA for 18 months after you leave. But aim for your employer's continued subsidy for at least a year. Other benefits, such as long-term disability coverage, long-term care insurance and life insurance also might factor into your negotiations.
Depending on your current tax bracket, you might not want your severance in a lump sum. A structured payout won't thrust you into a higher tax bracket if you're in the top range of your current bracket. Negotiate the payout so that you receive payments in the same manner you would receive your regular paycheck. In addition, if you accept a lump sum, the rate at which you're taxed could increase, meaning you take home a lower percentage of your earnings than you would for your regular paycheck amount. A May 2012 "U.S. News & World Report" article, titled "3 Severance Pay Questions Every Employee Should Ask," cautions workers to consider the tax implications of various payout structures.
Ruth Mayhew has been writing since the mid-1980s, and she has been an HR subject matter expert since 1995. Her work appears in "The Multi-Generational Workforce in the Health Care Industry," and she has been cited in numerous publications, including journals and textbooks that focus on human resources management practices. She holds a Master of Arts in sociology from the University of Missouri-Kansas City. Ruth resides in the nation's capital, Washington, D.C.
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