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Payroll: Severance Agreement vs. Severance Package

Although severance packages and agreements are often coupled together there are differences that may be important to you.

Although severance packages and agreements are often coupled together, there are differences that may be important to you. The package refers to additional benefits or a monetary ‘gift’ from the employer to a terminated employee. The agreement is a written contract where the departing employees agree to specific promises made to the employer.

Severance Agreement: Professional Promises

Most of us have heard the term ‘non-disclosure agreement’ which basically means you cannot share certain information. But these severance agreements include even more depending on the type of business and the climate of relevant markets and competition. These agreements are usually for the purpose of releasing employers from certain claims.

  • Non-Disclosure – this provision restricts employees from sharing vital business information or data.
  • Non-Compete – this is a promise from the employee to not compete with the employer for a given amount of time after departure.
  • Non-Disparagement – this agreement prohibits slander or discreditation of the employer or company by the employee.
  • Non-Solicitation – this agreement prevents departed employees from trying to poach and hire staff or current clients from the employer.

Severance Package: Money, Benefits, Insurance, Support Services, and More

Many businesses do not offer severance to their employees as it is not required, but those that typically include this benefit include the following:

  • Money – Most typical in severance packages is a monetary payout, usually a lump sum or a scheduled distribution over a specified amount of time. The amount of money usually depends on years of service and position.
  • Unemployment Insurance – if an employee is released from employment and seeks unemployment compensation, the employer can challenge the claim. However, if the employer does not challenge it, it increases the likelihood of securing the benefits.
  • Continued Benefits – many employers offer continued benefits after employment although they are not required to do so. Many offer COBRA for continued health, life, and disability insurance which they may partially or fully contribute to.
  • Job Search Services – one of the most valuable benefits a company can offer to a laid-off employee is help with placement at another job. If a former employer can help you by lessening the gap between paychecks, it can make an immeasurable difference.
  • Other Possible Inclusions – there are some nontraditional items that companies may include in their severance such as: equipment, tools, pay out of accumulated vacation time, extending employment-related discounts, and waiving negative vacation or dues. 

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Michael Callahan

CEO of Intentional Accounting

Financial Advice

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