Wednesday 22nd January 2020,
Grm Law Firm

Things you should know about severance packages

Things you should know about severance packages

Losing a job has the immediate consequence of loss of income. If you don’t receive a generous severance package or have significant savings, it can cause stress, damage to your credit and other negative consequences. In some cases, the employer will provide a severance package equivalent to several weeks or months of pay, but if you are fired for a fault of yours, you may not be eligible for severance pay. In some states, if you lose your job due to firing, you may not be allowed to collect your unemployment benefits.

If you got laid off or let go due to reasons that had nothing to do with your performance, you may be wondering how do severance packages work or, more accurately, when you get it. But just who receives it and how much is received isn’t black and white; in fact, the “rules” surrounding this post-employment compensation or gap pay are rarely standard.

The main consideration the company expects to obtain from making severance payments is a general release by the employee of any and all claims the employee may have against the company, known or unknown. This release language will be quite long and attempt to cover any and all liabilities, complaints, promises, causes of actions, in law or in equity, against the company and its officers, directors, shareholders, employees, subsidiaries, parent companies, affiliates, successors, and assigns.

Who are eligible for severance?

As per the  W.A.R.N. Act (Worker Adjustment and Training Notification), if  an organization has over 100 people and is preparing to lay off a lot of people, the employer is required by law to give 60 days notice of a company closing or a large departmental closing. In case the employer fails to give the notice, you become eligible for severance. In case the company fails to do so, you may sue the company for things like discrimination, unpaid wages, or wrongful termination.

A number of key legal and economic issues should be taken into consideration, before negotiating an employment severance agreement. If you are over 40 years old and the company offers you a severance package, the company must give you at least 21 days to consider it and 7 days to revoke after you sign the package. It is advisable to consult with a lawyer who is an expert at resolving these issues. Your ability to get additional severance pay or benefits will depend on any negotiating leverage and potential claims against the company you may have.


The severance agreement also covers any unpaid PTO or vacation pay, which is typically payable on the last day of employment or within a few days thereafter. The employer’s policies or Employee Handbook should be reviewed to determine what might be owed.

Medical Benefits:

As per the act of 1995 under the Consolidated Omnibus Budget Reconciliation Act (COBRA), one gets entitled to continue medical/health coverage under the company’s plans for up to 18 months after termination. However, unless negotiated, the premiums must be paid by the employee.

One major point that all employees who are wondering how do severance packages work should remember that severance packages are also taxable in spite of the fact that employees receive it after service for a company has been completed. The gap pay is responsible for payroll tax, Social Security tax, and Medicare tax. The amount that you’re taxed will depend on how much you receive.

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