Severance Pay Should I Get
When a company downsizes or lays off employees, it’s important to understand the difference between termination pay and severance pay. “Severance pay is compensation that is given to an employee upon being laid off or terminated,” says Muse in-house counsel Eric Kluger. “It’s a package that includes salary through your last day, any accrued vacation and sick time and holiday pay and possibly some other things.”
The amount of severance pay depends on many factors, including how long you have worked for the company, your rank or position in the hierarchy, and whether you were offered an employment contract. It is also negotiable, and the initial number that your employer offers might not be the final figure.
While it is not required, many companies do provide severance packages to departing employees as a way of smoothing the transition and of preventing negative publicity in the wake of layoffs or company closings. Severance pay can also help a company maintain good relationships with former employees, which can be useful for their future job searches and potentially reduce the risk of wrongful termination claims.
How Much Severance Pay Should I Get?
Employers determine whether to offer severance pay and how much to give employees. If your employer is laying off workers due to a company closing or large departmental layoff, they must honor any severance pay promised in an employment contract, collective agreement, or other company policy. However, no laws or government regulations require them to do so.
Most employers offer one to two weeks of severance pay for each year of work, with higher ranking employees or those who have been with the company for longer receiving more than that. It is also common for employers to include some perks in a severance pay package, such as unused vacation and sick days or extended use of the company car.
If your severance pay is a lump-sum, it’s important to remember that you will need to pay income taxes on it. If you are getting a significant sum, it may push you into a higher tax bracket than you are used to, so you should make sure to set aside enough money to cover the additional taxes you’ll need to pay.
Some employers will allow you to spread the payment of your salary calculator Ontario over 2 or more years, which can lower the amount of income tax that you need to pay each year. It’s important to consult with a CPA or lawyer to discuss the specifics of your situation. If your employer is laying off workers due a company closure or large departmental layoff, it’s important to consult with an experienced employment law firm. An experienced attorney can help you negotiate a fair severance pay package and ensure that your rights are protected. Contact us today to schedule a free case assessment.
