Tweet

What Are You Legally Required to Pay Employees at Termination?

Guest post by: Allison Grace

Article Overview: Quick summary of what is commonly paid at termination.

What Are You Legally Required to Pay Employees at Termination?

Severance Pay
The law generally does not require you to provide severance pay to departing employees. However, many employers do agree to provide such payments as part of company policy and in exchange for a release of claims against the company. These benefits can be determined in accordance with your company's written severance policy, or may be negotiated on a case-by-case basis. Severance benefits may be comprised of a lump-sum payment, continued salary for a certain period, payment for health coverage, and/or job search assistance through an outplacement program.

Many employers use a formula for calculating severance based on how long the employee worked for the firm, such as a week, two weeks, or a month of pay for each year of service. Paying in a lump-sum vs. installments over a period of time usually comes down to whether you have the cash to pay in a lump-sum. If you're laying off a number of workers at one time, paying in installments may be the way to go so you can better manage your cash flow. However, the government agency that handles unemployment benefits in your state may determine that your former employee is still receiving wages and therefore, ineligible for unemployment benefits. Check with your state's unemployment agency when making the decision whether to pay severance in a lump-sum or installments.

(The Instant HR Solutions "Next Steps" Corrective Action & Termination Toolkit includes a Separation Agreement & Release that can be used when paying severance to a terminated employee).


Health Benefits
Under the federal law called COBRA, employer must offer terminated employees and their dependents the opportunity to continue health insurance at the employee's own cost, unless the employee was fired for gross misconduct. COBRA does not apply to employers with less than 20 employees. Some states have comparable laws that apply to companies with less than 20 employees, so make sure to check the law in the states where you operate your business.



Unemployment Insurance
Employees who are laid off are considered eligible for unemployment compensation so you should not contest their claims. Benefits are paid by the state from the insurance fund you have paid into as an employer. Your payroll tax rate is affected by your claims experience so you may see some increase. If you are paying severance benefits, some states view severance as continuing wages and will not pay unemployment benefits until severance pay is exhausted. Other states only restrict unemployment benefits if the individual is barred from working for another company while receiving severance pay. Check with your state's unemployment agency to determine how severance pay may impact unemployment benefits.



Vested Retirement Benefits
Check your specific plan documents, but in general, employees who are terminated remain entitled to any pension, profit-sharing, or retirement benefits that are vested at the time of termination.



Unused Time Off
Federal employment laws do not require that you pay for unused vacation, sick or personal time at termination, but some states do, so you will need to check the law in your state. If you have an employee handbook or company policy that states you pay for it, then you must comply with your own policy. Even if you don't have a written policy but your practice has been to pay it upon termination, then you risk a discrimination claim if you pay it to some but not all. Be consistent!

Related Articles
  “Strategic Business Tips When Firing Someone From Your Strategic Thinking Business Coach”
  Find the Best PEO Advice in Terminating or Hiring Employees?
  The Psychology behind Wrongful Termination Claims or Rodney Dangerfield was Right
  How to avoid Employment Litigation Risks when Terminating or Firing Employees
  Seven Steps To Downsizing

Article Tags: case basis, cobra, corrective action, dependents, employee health benefits, government agency, gross misconduct, health coverage, health insurance, hr solutions, installments, job search, lump sum payment, outplacement program, search assistance, separation agreement, severance benefits, severance policy, unemployment agency, unemployment benefits



Related Forum Posts
Re: Subject line Etiquette - [quote="jvprosperity":b50c4a20]Another email rant: Is there some place on the internet that outlines proper "Subject line" headings? There mus be a system out there that people use to be more efficient email senders. Not everything that comes into my mail box requires my immediate attention. I would love to educate myself and the people who send me emails on proper subject lines. Maybe something like: "Urgent Review: <<Title of document>>" "Decision Required: "<<Subject matter>>" just something for me to quickly scan the subject lines and decide which ones need my immediate attention. Anyone know of such email standards that exist out there?[/quote:b50c4a20] The only messages I get that say Urgent or Decision Required etc are spam. I tell people to put something relevant to their business with me in the subject line - this is especially important for the people who fall into my junk mail. Chris
Re: Ways to Boost Productivity - 1. Give Employees More Than a Paycheck 2. Provide Better eSupport Channels to Promote Self-Service 3. Complete your most dreaded tasks first thing in the morning. 4. Outsource as much as possible 5. . Turn off the TV.
CEOs and Email - Slaves? - I wonder if the emails they are responding to are filtered thru their assistants first 'cos they seem to spend a lot of their off hours responding to them. True they are successful but I'm not sure I'd be willing to pay that price. I'd be interested to know what's the in the typical day planner of Entrepreneurs on the Forum. Entrepreneurs are a different breed than Paid Employees- so it would be interesting to view the contrast.
Subject line Etiquette - Another email rant: Is there some place on the internet that outlines proper "Subject line" headings? There mus be a system out there that people use to be more efficient email senders. Not everything that comes into my mail box requires my immediate attention. I would love to educate myself and the people who send me emails on proper subject lines. Maybe something like: "Urgent Review: <<Title of document>>" "Decision Required: "<<Subject matter>>" just something for me to quickly scan the subject lines and decide which ones need my immediate attention. Anyone know of such email standards that exist out there?
Where I want WSI to be in Dec 31 2007 - Here are my goals for end of 2007 Employees - SEO specialist - admin assistant - sales rep - designer/data entry - copy writer (may be outsourced) Target market (client base) manufacturers 10-50 million in revenue looking for integrated marketing solution ranging from 10k - 30k Systems - crm fully utilized - project management smooth process - sales and marketing to continuously generate leads SALES (My big Goal to focus on ) Last years sales revenue was $220K This year we want to hit $500K - approx 40k per month


Share this article with your friends. Fund someone's dream.

Leave a comment below or share on the left and you'll help support entrepreneurs in Africa through our partnership with Kiva. Over $50,000 raised and counting - Please keep sharing! Learn more.

Tweet

Newsletter

Get advice & tips from famous business
owners, new articles by entrepreneur
experts, my latest website updates, &
special sneak peaks at what's to come!

Name:
Email:

Popular Articles

Bootstrapping Your Start Up Business.

Too Many Sales Reps Are Wimps

Mistakes Made by New or Inexperienced Sales Staff

Suggestions

Email us your ideas on how to make our
website more valuable! Thank you Sharon
from Toronto Salsa Lessons / Classes for
your suggestions to make the newsletter
look like the website and profile younger
entrepreneurs like Jennifer Lopez.