The best time to negotiate severance pay is when you and your employer don’t think you will need it: when you have been offered the job. “It’s a little bit like a prenuptial agreement,” says Wayne Outten, the founding partner and chair of Outten and Golden LLP, an employee-side law firm. “It’s not very romantic, but you want one just in case things don’t work out.”
Employees are less likely to stay with one company for life than they used to be and it is important to plan for the eventual moment when you and your employer part ways.

What is severance pay and how does it work?

Severance pay is a sum of money or other benefits that an employer offers a worker who leaves the company under certain circumstances. You might receive severance pay if you are being laid off, your job is eliminated, or if you and your employer mutually agree to part ways. In most cases, severance pay isn’t required by law, but some companies have established policies for offering it. The typical formula for a severance package is one or two weeks of pay for each year of service. It can be paid in one lump sum or over a period of time. If paid all at once, it is important to understand the accompanying tax liability. While it may be more difficult to qualify for unemployment benefits if your severance is paid over a period of time, this payment structure has advantages, such as lowering your tax burden or allowing stock options to vest. In addition to pay, you can also negotiate other benefits, such as health insurance or employee placement services. In all instances, severance packages are negotiable.
Keep in mind that employers may ask you to sign a noncompete or nondisclosure agreement. Some may ask you to sign a waiver not to pursue legal action against them, in order to receive severance pay. “Some industries will have a noncompete that can be oppressive,” says Roy Cohen, author of “The Wall Street Professional’s Survival Guide: Success Secrets of a Career Coach.” “It can keep you out of the market for an extended period of time if you want to get your severance.”

Who gets severance pay?

Severance pay is typically reserved for salaried employees who are laid off or whose jobs are eliminated. There are some situations in which you can argue for severance pay even if your employer hasn’t asked you to leave the company. For example, depending on your employer’s policies, if your position is eliminated and you are not immediately reassigned to a new one, this can trigger a “severance eligible event” that qualifies you for severance pay, even if your employer would prefer to retain you. Employees who have been at a company for many years or those who hold senior positions in the organization typically have more leverage to negotiate a severance package than those who have recently joined the company.

“The time to negotiate a severance, especially in this climate, is when they love you, when they’re in the honeymoon period and they’ll never think they’d have to use it.”
— Tessa White, The Job Doctor

Be aware of an employer’s severance package policy before accepting a job offer.

While many employers provide severance packages, they are not legally required to do so. Because of this, it is important you determine what, if any, an employer’s severance package is before accepting a job offer. Ask the HR contact you have been working with directly or ask to see the employee handbook, where most of the information on severance packages is typically laid out. Often the employee handbook is included with the job offer.

Negotiate your severance package as part of your job offer.

Severance is one important variable that you can and should negotiate as part of your job offer. Tessa White, a career-navigation expert and founder of The Job Doctor, says she negotiated a six-month severance package for herself upfront in a previous role. Although she and her employer didn’t think they would ever use it when she accepted the job offer, the agreement ended up coming in handy when she negotiated her departure amid a headquarters relocation. “The time to negotiate a severance, especially in this climate, is when they love you, when they’re in the honeymoon period and they’ll never think they’d have to use it,” says Ms. White.
Be creative when negotiating your severance package. If the job requires you to relocate, for example, you can ask the employer to pay to move you back home if things don’t work out. Depending on how far you have to move, this could be a huge benefit and make you feel a lot more secure about moving across the country or internationally for a new job.

Severance negotiation is all about leverage.

How successful you are in negotiating a severance package upfront depends on how much leverage you have. If you are planning to leave a secure job that you like, then it is in your best interest to negotiate a proper severance package for the new job. You are taking a substantial risk by going from a situation that you know well to one that you don’t. In this case, you have more leverage than you might think. “If you’re thinking of moving from one company to another, you want to get an idea of the risk associated with the new position,” says Mr. Outten. “Get some protection.” If the employer approached you with a job, you have even more leverage to negotiate a proper severance package. “No matter how much research or due diligence you do about the new job, it may not work out,” says Mr. Outten.

Source: Wall Street Journal April 04, 2021 | By Deborah Acosta