Managing People - Firing Employees
Severance Pay Issues

Severance Pay Issues

When you fire an employee, even if he or she has only been with you for ninety days or less, for any just cause short of confiscating the queen’s jewels, you should pay severance. It is decent, remaining employees expect you to have done it, and it makes you look better in the worst of situations. It also decreases your risk of a lawsuit.

Many firms that pay severance offer two weeks pay. Others pay two weeks plus one week for each year of service the employee has given to the company. Still others are considerably more generous, particularly to employees who held senior positions. In this case, six months’ to a year’s pay is not atypical and is predicated on the assumption that a senior-level employee will have a more difficult time obtaining a new and equal job than will an entry-level employee.

While it is nice to pay out a lot of money to departing employees, if you own a small business, you need to be concerned about staying in business and paying your remaining staff members. But whatever you decide to do regarding severance pay, in all termination situations, severance for similar positions with similar service time should be consistent. If you continually change your severance policies, you are only adding to your legal risks.

You should only pay severance, however, if the employee agrees to sign a document that forfeits their right to sue you for wrongful termination. Don’t be cheap in this lion’s pit of potential danger. Have a lawyer draw up the release document so that it is, as much as possible, bullet proof. You should give the employee twenty-four hours to review, sign, and return the document to you, otherwise it may not hold up in court should the employee decide to sue you anyway. If the employee is age forty or over you must, by law, grant the person twenty-one days to review such a document.