Severance Package

posted by Neil Klingshirn  |  Jul 7, 2008 08:25 AM [EST]  |  applies to Ohio

A severance package describes the pay and benefits an employee receives when involuntarily separated from a company.

Severance packages are voluntary in the United States, so employers do not have a legal obligation to offer severance benefits. Instead, employees are eligible for unemployment compensation benefits if they are separated for reasons other than voluntary resignation, cause or other disqualifying reason. Employers may offer severance packages as part of an established severance plan, to build or maintain goodwill within the workforce or to a promise not to sue from the employee. 

Severance packages payable under a severance plan are governed by the federal law known as ERISA. It requires employers to pay beneficiaries of the plan severance under the terms and circumstances required by the plan. If the employer fails to pay a participant once the participant qualifies for severance under the plan, ERISA provides the employee a remedy in federal court.  Employers are free to modify or terminate the severance plan's terms.

A severance package may include:

  • Salary continuation, often based on an employee's years of service
  • Payment for unused vacation time or sick leave.
  • A payment in lieu of a required notice period.
  • Stock options
  • Outplacement (new job search) assistance.

Severance agreements typically require the employee to release the employer from any claim he or she may have. .

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posted by Neil Klingshirn  |  Jul 7, 2008 08:25 AM [EST]  |  applies to Ohio

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