Severance Pay
It feels like every other day we hear of another company announcing layoffs. With many Americans worried about losing their jobs, it’s important to know what to expect if you are laid off or made redundant and how to make the most of your situation. Severance pay isn’t a requirement, but some employers choose to offer it in the event of a workforce reduction to help employees find new jobs and cushion the blow of job loss. Severance packages typically include compensation for things like salary continuation, payment for unused vacation or sick time, extended health coverage and other benefits. The specifics are usually included in your employment contract.
A severance package can add up to a significant sum, depending on how long you’ve worked for the company and your position. However, it’s important to remember that severance pay is taxable income. You’ll need to factor in your federal income tax bracket, which is based on your total income, and state income taxes, which vary by state. You’ll also need to take into account any deductions from 401(k) contributions or other company-sponsored plans.
The best way to determine how much severance pay you should be entitled to is to use our free severance pay calculator. The first step is to enter the average gross monthly salary for your last year of work. This can be found on your latest payslip or, if you are not sure of the exact number, you can estimate it by adding up any outstanding special payments (Christmas and/or vacation pay, supplements, bonuses, etc.), the amount of vacation leave and sick days you have left to use, any unused holiday pay, and the remaining salary for your current month. This value is then multiplied by 12 to obtain the average gross monthly salary over the past year.
Severance Pay – What You Need to Know
While no U.S. law requires companies to offer severance pay calculator packages to their employees, most will honor any promises in an employment contract or collective bargaining agreement that spells out such an arrangement. In addition, some states have laws requiring employers to continue paying their employees for a certain period of time after termination, such as during plant closings or mass layoffs.
If you are unsure what your employer should be offering, it’s always worth checking the industry norms to see what similar companies in your sector are paying their workers. You should also consult with an employment attorney to get a better sense of the legal requirements and regulations in your area.
No matter what your situation is, if you’re offered severance pay, it’s important to create a budget for it and stick to your plan. Whether you’re planning to spend it all on a trip or using it as a down payment for your next home, creating and following a budget can help you stay on track for your short- and long-term goals.