Can Severance Pay Be Used to Offset Wages?
Severance Pay
Unless you work for a unionized company or have an employment contract that specifically calls for severance pay in the event of layoffs, your employer isn’t required to offer you severance pay when you get laid off. However, if you’re being let go as part of a larger reduction-in-force that involves mass layoffs, federal law requires your employer to provide 60 days notice under the Worker Adjustment and Retraining Notification Act, which gives you time to find another job or make arrangements for unemployment benefits. Some companies will even offer severance packages to help ease the blow of being laid off.
How much severance pay you receive depends on how long you’ve been employed by the company, your salary and how high up in the hierarchy you were. Generally, employment lawyers say a company can expect to offer a few weeks of pay per year of service. In addition, a bonus that was not part of your base salary or that you received during the year could also be included in your severance package. If you haven’t already, you may want to consult with an accountant about the tax impact of your severance pay and the effect it might have on your federal and state income taxes.
Severance pay is typically taxed the same as regular wages. That means your employer will withhold federal and state income taxes, Social Security and Medicare from the lump sum amount before you ever see it in your bank account. It’s possible that this windfall will put you into a higher tax bracket, and it could affect the eligibility for certain income-based tax credits and deductions you normally would have.
Can Severance Pay Be Used to Offset Wages?
When negotiating for more severance pay, it might be helpful to research what other companies in your industry are offering. This can give you a sense of whether your company is fair or not in its severance pay Toronto offering. You might also find out what other employers of your size are offering by asking around or contacting former co-workers.
It might also be helpful to think of a compelling argument that might sway the company in your favor. For example, if you recently turned down an offer from a competitor to move closer to your family, you might argue that the company should increase your severance pay because of your loyalty.
Before signing a severance agreement, you should always thoroughly read it and have it reviewed by a lawyer. In some cases, the severance package will include non-compete and non-disclosure agreements. You should never sign such agreements without a legal review because it can lead to lawsuits in the future if you’re unable to find new work due to a clause you signed. Your lawyer can discuss your options for negotiating these documents to be more lenient. They can also talk to the company about your rights regarding reemployment insurance and severance pay. If the company doesn’t agree, you may be able to file a complaint with the Ministry of Labour for unfair practice.