Laid Off? 4 Things to Know About Getting Severance


The coronavirus pandemic has had a profound impact on the U.S. economy, and in the course of the past year, millions of jobs have been shed. If you’re laid off through no fault of your own, you may be entitled to a severance package from your employer upon your termination. That package could, in some cases, include a generous payout. Here are a few important things you should know about getting severance.

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1. It’s not required

While severance can be a nice parting gift for a laid-off worker, employers aren’t required to provide it, so don’t assume it’s a given. But even if you aren’t eligible for severance, you may still be entitled to a certain payout based on the terms of your employment contract. For example, if you normally accrue 1.5 vacation days a month and you’re laid off three months into the year, you may be entitled to 4.5 days of pay, even if there’s no severance package presented to you.

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2. It’s negotiable

When it comes to severance pay, there’s no preset amount employers have to offer. Your company may decide to calculate severance pay based on how long you’ve been an employee. Or, it may simply pay a flat rate — say, one or two months of wages, regardless of salary or time employed. That said, you can also look at your initial severance offer as just that — an offer. If you feel you’re entitled to more money, there’s no harm in asking for it.

Say you worked for your company for 10 years and your employer offers three months’ pay as severance. You might point out that based on your decade of loyalty and hard work, you’re entitled to more money — say, six months of pay — and your company may agree to do it. Part of that may be due to your good relationship, but it may partly be so the company can protect itself, which we’ll discuss next.

3. There may be strings attached

Companies don’t just give out severance pay to be kind — they also do so to cover themselves and avoid bad press or other negative repercussions that could come in the wake of layoffs. Generally, to receive your severance pay, you’ll be required to sign a separation agreement that dictates certain things you can and can’t do in the weeks or months following your termination. You may, for example, be barred from publicly badmouthing your employer or attempting to recruit former colleagues to come work for a competitor that hires you. You may also have to give up your right to sue your employer for wrongful termination.

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Be sure to read the terms of your agreement carefully before signing it. But also, don’t hesitate to use it as a negotiation tool. It’s in your employer’s best interest that you sign that agreement, and if it takes a higher payout for you to get on board, that’s something your company may concede to.

4. It could impact your unemployment benefits

When you’re laid off through no fault of your own, you’re generally entitled to unemployment benefits. But some states will force you to wait to apply for unemployment while you’re collecting severance pay, so keep that in mind when you go to file a claim.

Now, the way states treat severance agreements varies. But in some states, your unemployment benefits will be delayed based on the number of weeks of wages your severance pay covers. For example, say you used to earn $800 a week at your job, and you’ve been given a lump-sum $6,400 severance payout to cover eight weeks of wages. While it would be nice to stick that cash into your savings account, you may also have to wait eight weeks to begin collecting your weekly unemployment benefits.

Severance pay could be just the thing that helps you get through a layoff, financially speaking. But it’s important to understand how it works and how it might affect your eligibility for unemployment benefits. If you’re worried your job is on the line, it pays to learn more about your company’s severance policy and also to research how severance impacts unemployment benefits where you live.

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