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What is the Most Common Severance Package?

All you need to know about severance packages.

By William PowellPublished about a year ago 4 min read
Top Story - September 2022
What is the Most Common Severance Package?
Photo by Shipman Northcutt on Unsplash

Lately, the economy has been rough. Perhaps your company is beginning layoffs and downsizing, and you are frightened that you may be next. Maybe you should start your research now.

While companies are not required to offer severance packages, many do. So, what are the elements of a “good” severance package? What are the most common benefits included? Should you sign the severance agreement immediately? There are several things to consider so that you are best prepared to negotiate.

What is a severance package?

A severance package is offered to employees who are let go from their current employers. The circumstances of the termination may stem from many factors, but the result is still unemployment. In an effort to make that transition as easy as possible, employers may offer severance packages that include things like severance pay (this is in addition to your final wages), continued insurance coverage, and other benefits. We can be generous to say that the purpose of these benefits is to help the employee, but quite often employers act to protect their own interests. In exchange for these benefits, employees may waive their right to future litigation.

What should a severance package look like?

The actual package you may be offered will greatly be contingent on the number of years worked at the company as well as your job duties. For example, if you work in management, you can expect a greater severance package than a front-line worker. However, there are common benefits that are included in severance packages, which each employee should expect.

Most Common Severance Benefits

There are five common items included in a typical severance package. As mentioned above, the amount or length of time the benefits will last will likely vary based on your role.

Continued Wages

Often when employers are dealing with layoffs, they try to make the process as painless as possible, both for them and you. This means they will likely offer additional wages for an extended period after you are let go from the organization. This may be paid through the end of the month, or it could be six months of severance pay. Additionally, the organization may pay out any unused vacation and sick time.

Maintaining Insurance Coverage

Typically, the organization will continue to provide insurance coverage throughout the severance pay. The types of insurance will likely vary based on organization, but at a minimum, they will usually keep your medical insurance active for the same duration of time as the active severance payments.

Letter of Recommendation

Now that you may be facing unemployment, you will need references. To help you land your next job, severance packages will often also include a glowing letter of recommendation from your direct superior. It’s common for employees to feel the letter is insincere—after all, why would the company let you go if they valued your work so much?—but this recommendation may be useful in future interviews to explain the circumstances of your termination.

Uncontested Unemployment Benefits

Anyone who has faced unemployment before knows that obtaining unemployment benefits can be an excruciating process. From phone calls to forms, getting the benefits started can take quite some time, especially if the employer is contesting eligibility. As part of the severance package, many organizations offer uncontested unemployment benefits, allowing those who were laid off the ability to obtain unemployment at a faster rate.

Continued Retirement Plans

While you are receiving severance pay, the organization may also allow you to continue contributing to the organization’s retirement or pension plan. Once the severance pay is concluded and contributions cease, the organization then offers their match contributions. From there, you can move the plan over to another retirement option, such as an IRA.

Should you sign the agreement right away?

More often than not, employers will present you with a severance package and expect you to sign off on it right there. This does not allow for the employee to conduct any type of research, understand if their package is fair based on length of service and job roles, and eliminates the ability to properly negotiate severance. Please, do not make this mistake.

The organization may try to create a sense of urgency, making you feel pressured into signing, but—more often than not—they do this because it benefits them. More than just checking something off their to-do list, the severance agreement may protect them from a future lawsuit or include a non-disclosure agreement (NDA). If you’re unhappy with the circumstances surrounding your departure, especially if you feel that you may have been discriminated against, consider the implications carefully before waiving your right to take future legal action. It may be in your best interest to obtain legal counsel before signing anything.

Top Takeaways

Layoffs are an ugly part of business. No matter how angry or impatient you feel, it is important that you understand what exactly you are signing, what benefits are included, and the duration of time in which those benefits are active before you say yes to any severance agreement. If for any reason you are not comfortable signing off on the package, consult with an attorney. Despite any pressure you may feel from your employee, you do have time to carefully consider your options.


About the Creator

William Powell

William Powell is a writer and educator with a passion for marketing. He enjoys learning about the latest business trends and analyzing how global events impact domestic and international economies.

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Comments (43)

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