Many former employees have misconceptions regarding severance pay. Some employees may not receive any type of severance, some may have clear terms written into a contract, and some may only receive a small amount per state requirements. You can make informed choices during the review process and obtain fair severance packages when you understand your rights to severance pay.
Severance Pay Review Considerations
After termination, your former company may approach you with a severance package for review. Many employees quickly sign this deal without thinking about their rights. Here are some steps you can take to avoid this mistake:
Many employees think they have a certain amount of time to review a severance package. The Age Discrimination in Employment Act (ADEA) only protects employees over 40. If you are over 40, you have the right to a 21-day review period. In mass layoffs, the ADEA may provide every employee with 45 days for review if at least one worker involved was over 40. Always ask your human resources representative about your review period to make sure you address any concerns within the stipulated timeframe.
In some cases, an employer may offer a higher severance package in exchange for a release. This may prevent an employee from taking legal action against the company in the future. If you accept a higher value severance package and sign a release, that contract will stand in court. You may not need to sign an agreement at all if you do not accept a higher value package.
Employees may feel they have no opportunity to negotiate after a termination. You can almost always negotiate your severance package, particularly if it contains unfair terms. While you may negotiate dollar amounts, many former employees also negotiate other benefit extensions, such as disability or health insurance.
Under federal law, most former employees have access to the Consolidated Omnibus Benefits Restoration Act (COBRA), a supplemental insurance available for a limited time after termination. After that time period, a former employee may continue those benefits and pay the premium or move to an Affordable Care Act (ACA) insurance policy.
Can Your Severance Pay Be Taxed?
In 2014, the U.S. Supreme Court ruled that severance pay can be taxed. This article from Forbes explains the ruling and its implications: “The Court ruled that severance is subject to tax under the Federal Insurance Contributions Act tax. FICA consists of Social Security tax and Medicare tax. Employers pay Social Security tax of 6.2% and employees also pay 6.2%, or 12.4% total. Add to that the 1.45% employers pay for Medicare and another 1.45% for the employee.
With over 15% of pay at stake, employers and employees both care. Severance pay is sometimes defined as gap pay to cover a period after the employee finishes rendering services. Severance can be paid by company policy, required by state or federal law, or by agreement. It could be paid willingly or only after a lawsuit.”
Contacting an Attorney
If you believe your severance package does not accurately reflect your rights under your contract or state law, reach out to an attorney to facilitate negotiations or outline what rights you may sign away after accepting a severance package. Your attorney can also help you determine whether further legal action makes sense. For more information about severance pay review, contact the Law Offices of Brian I. Vogel at 626.796.7470 today.