Evaluate your separation agreement Severance packages are usually given to employees who have signed a separation agreement— a legal document that states the specific terms of the employment separation. It generally details an employee’s length of service and total compensation, and outlines procedures to return any corporate property, such as identification badges and computer equipment. It may also outline certain expectations, such as not discussing confidential company information after employment ends.
Terms are often negotiable, so it is important to thoroughly review your separation agreement with your attorney before signing it. As part of your separation agreement, you may be able to elect severance pay in the form of a salary continuation or a lump sum, Whereas a lump-sum payment is a single amount paid to you upon dismissal, a salary continuation option will pay the agreed upon amount over time in the form of a regular paycheck. The option you choose depends on many factors, like the ones outlined in the chart below.
Deciding how to receive severance pay
If you answered “yes,” consider... Lump-Sum Payment Salary
Ask yourself...
Continuation Plan
Do you need immediate funds?
X
Do you need to establish an end date to your employment in order to collect unemployment?
X
Do you have concerns about your former employer’s long-term financial viability?
X
Do you anticipate finding a new job quickly?
X
Do you need to maintain your benefits at their current cost?
X
Do you wish to maintain a regular, structured income stream?
X
Do you have a small window of time before you can qualify for pension or retirement benefits? Do you want to lower the immediate income tax impact associated with receiving severance pay?
X
X
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