How To Maximize Your Severance Package If You’ve Lost Your Job
If you are among the millions of Americans losing a job during the coronavirus pandemic, you may also be dealing with a severance package.
Severance is not guaranteed, unless a state law, employment contract or collective bargaining agreement says otherwise. But when it is offered to you, you should know that the agreement you are entering may be negotiable.
If so, don’t leave money on the table. Recognize that these unusual times may call for unusual requests you should feel empowered to ask for.
“These are unprecedented times, so impacted individuals should definitely try to brainstorm with their employers to devise creative situations that might be mutually beneficial,” said Lori Rassas, a human resources consultant, executive coach and author of “The Perpetual Paycheck.”
Study how severance will impact your ability to get unemployment insurance.
Before you sign a severance agreement on the dotted line, consider what the payout is going to do to your long-term finances, including your ability to get unemployment insurance. Depending on where you live, severance pay might prohibit you from qualifying for unemployment insurance.
“Most states will say that severance pay is disqualifying,” said George Wentworth, senior counsel with the National Employment Law Project. “Most states will allocate it to whatever number of weeks it represents, so if you are given four weeks of pay in a lump sum at the time of your termination, most states are going to say you are ineligible [for unemployment insurance] for the first four weeks you are unemployed.“
In Texas, for example, residents cannot get unemployment benefits while receiving certain types of severance pay. But in California, severance pay is not considered to be wages when it comes to unemployment insurance, so unemployed workers can receive both at the same time.
Some states, including Massachusetts and Connecticut, will take into account whether you had to forfeit a right or claim against your employer in order to receive your severance pay, Wentworth said. He noted that in those two states, “That kind of payment is not going to be treated as a dismissal payment and it will not be a bar to [unemployment] benefits,” Wentworth said.
Even if you know you will be receiving severance, experts agreed that you should still file for unemployment insurance as soon as possible because of known delays with the process during the pandemic. “I would say yes that you should apply right away, because we are seeing many states taking much longer than usual to calculate eligibility and get people paid,” Wentworth said.
The timing of the payout can impact your taxes this year.
Typically, your severance payout is taxable in the year that the money is received, so it may matter if your payout takes place in a lump sum or in incremental payments over multiple tax years.
That’s why Rassas recommends conferring with a tax advisor or other financial planner to evaluate the tax implications of the timing of the severance payments. “Depending upon an individual’s income in the current year and projected for the coming year, it might make sense to negotiate the acceleration of the payment or a delay,” she said.
In some cases, employees may want to request installments rather than a lump sum to avoid paying more taxes and to stretch out the severance money. When a lump sum is a large amount of money, it may put a person “in a higher tax bracket and they may have to pay more in taxes, whereas, if they’re doing it in installments, which is lower, they may not have to owe as much,” said Amber Clayton, the knowledge center director at the Society for Human Resource Management.
Consider negotiating for severance benefits beyond money.
Just because your company is doing layoffs for financial reasons doesn’t mean you shouldn’t negotiate for a severance deal in your favor. Retirement benefits, health benefits continuance, outplacement services and commission payouts were among the benefits HR professionals said they offered employees after an involuntary job separation, according to a 2019 RiseSmart survey.
Because some employers contest unemployment claims and delay the process, getting a commitment your company won’t take such an action could also be helpful.
Getting your employer’s commitment to help you land a new job is another type of non-payment benefit you can ask for.
“The pandemic is placing a financial strain on employers of all sizes, but individuals should attempt to negotiate for some time of outplacement assistance,” Rassas said. “This can include assistance from a career coach, interview coach or résumé writer who should be able to review not only an individual’s résumé, but also their cover letter, selection of references, and other job-search tools.”
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