Severance Pay: What you need to know

Severance benefits are payments made to employees upon termination of employment caused by events that are beyond their control, such as workforce reductions, plant closings, company takeovers, and mergers. Severance benefits are sometimes offered to encourage early retirement or voluntary resignation, or to discourage terminated employees from suing an employer. Severance benefits are not required by federal law and are required only by a handful of states. However, most companies offer severance pay. The payments themselves may be a one-time occurrence or spread over a period of time. These benefits are usually calculated by the employee's length of service with the company (e.g., one week of severance pay given for every year employed with the company).
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Another severance benefit often offered by companies is outplacement counseling. This can be provided in the form of résumé assistance, job placements, and career counseling. Outplacement counseling is designed to help terminated employees prepare themselves for a new job or a new career, to lend assistance in providing outside resources to provide training, and to generally help employees cope with leaving the company. Larger organizations may hire outplacement services to assist employees, whereas smaller organizations may hire a single counselor or use existing resources to assist employees.
Employers may offer a voluntary severance program in lieu of laying off employees. This allows an employer to encourage employees it does not want to retain to accept a severance package. However, a risk associated with a voluntary severance program is that more valuable employees that the employer would like to ...

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