If you're waiting to receive severance pay, you likely heard one of the following reasons for why your old company let you go:
- The business is going through a restructuring, and your position didn't make the cut.
- The company is being acquired by someone else, making your position redundant.
- The division is heading in a new direction, creatively and structurally, forcing management to absorb your position into another department.
No matter the reason, some companies hold severance pay over employees' heads like a carrot, promising extra cash in return for assistance making transitions.
If you're in a similar situation, should you take your company up on the offer? Consider these seven things when evaluating your decision.
1. Examine the Current Job Market
If you're in an in-demand market like healthcare, consider “waiting it out” and taking the extra settlement, especially if it likely won't be too challenging to find a new job. If you need to line something else up because of uncertainties in the market, protect your financial future by starting your search right away.
2. Set a Realistic Budget
Make a list of all of your expenses, from monthly payments, to gas expenditures, to groceries. Resolve to eat at home rather than going out, and minimize entertainment and travel expenses.
3. Calculate Your Assets
Get a realistic picture of your nest egg by examining the amount you have in savings and investment accounts like IRAs and 401(k)s. Determine what penalties you would pay if you had to withdraw from accounts in the event of an emergency or crisis.
4. Read the Fine Print
If you're contemplating holding out for extra severance, weigh the decision carefully, and understand the nature of the arrangement and how and when you will be paid. Ask a qualified California employment attorney to review any agreement before signing.
5. Think About Tax Ramifications
Accepting your severance in a lump sum can catapult you into a higher tax bracket, increasing your tax burden. Spend time with a calculator and consult your financial advisor to determine the best, most efficient way for you to receive your severance.
6. Choose Tax-Free Investments
If you're losing health benefits, and you have to enroll in a high-deductible plan, stow away some cash in a health savings account (HSA). Contributing to an HSA not only reduces your taxable income, but the amount you invest also grows tax free.
7. Hire an Accountant to Budget Your Severance Pay
It may sound counterintuitive to spend extra money for the purposes of saving money long term, but a quality, qualified accountant can give you advice that provides a significant return on your investment.
Call our thorough and skilled California employment attorneys for more insight into how to advocate for yourself after being terminated, especially if you believe the employer violated your rights or will not pay you all the money you deserve for services rendered.