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When is offering a severance package appropriate?

One of the down sides to owning or managing a business is that you may have to terminate employees from time to time. This is seldom an easy process, and it may be difficult to deny the emotions of firing someone from a job that may help to support a family. Nevertheless, you have a business to run, and letting someone go almost always means the alternative is bad for business.

To ease your former employee's transition, you may be considering offering a severance package. This is not something the law requires you to do in most cases. However, before you extend such an offer to your employee, it is always good to learn as much as you can about your options and obligations to protect yourself and your company from mistakes that could lead to legal issues.

What should I offer?

Federal law requires you to extend certain benefits to an employee you intend to fire or lay off or whose position the company is eliminating. Those offerings include:

  • The option of continuing health care coverage for the cost of premiums through your company's group insurance
  • Any unused vacation pay
  • Any wages he or she may earn through the final day of work
  • Any severance stipulated in an employee contract or handbook

You may wish to offer one or two weeks' pay for each year the employee worked for your company, more for someone who has worked in an executive capacity, but the law does not obligate you to do so. If your employee tries to negotiate for a higher severance, you have two choices. You can agree to negotiate, or you can cancel the severance proposal under the grounds that the employee rejected your offer.

What's in it for you?

In addition to feeling better about having to fire an employee, you and your company may benefit in other ways from offering a severance. Perhaps most importantly is getting your employee to sign a release in exchange for a generous severance. By signing the release, your employee forfeits the right to file a lawsuit against you for wrongful termination, discrimination or any other potential claims related to the termination. By New York law, you must allow your employee a certain period of time to consider your offer before signing.

When dealing with the termination of an employee, you have a lot at stake, especially if the termination involves issues of discipline or other delicate matters. Seeking legal advice about employee matters and severance offers is a wise move for the stability of your business.

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