Severance Question

hr92175 · April 2007

I work for a small (about 90 ee's) private company that does not typically offer severance in the event of a termination. Well, we are getting ready to do a risky term, and to metigate the chance of him suing us, we have decided to offer 2 months of severance and 1 month of paid COBRA. In return, the ee has to agree not to sue us.

Now get this...even though the ee will be termed, the CFO wants to keep him on the payroll and give pay his severance every 2 weeks and continue to pay his benefits for a month rather than give the guy a lump sum severance. Has anyone ever heard of such a thing? I think this is crazy.

ACU Frank · April 2007

So, ask your CEO if your employee can be 1/4th severed each two weeks. Let the CFO know what that answer is.

hr92175 · April 2007

That's a good one:) I don't even know if this is legal

ray a · April 2007

We did something like that a few years ago, but we gave only 2 weeks of severance for each year of service. The longest anyone stayed on the books was one month. But, we did it when downsizing due to workload, not for an ee terminated for performance reasons.

First off, I'm not sure even if you give that healthy severance and get him to sign a waiver that he still won't be able to sue or at least make an attempt. Your "bribe" could backfire because he could show how generous you were when terminating him indicating maybe you had something to hide.

hr92175 · April 2007

Well, it's not that we have anything to hide. He's completely taken advatange of the system and failed to communicate with us while out on leave (and he's not even eligible for FMLA.) The attorney tells us it's risky because the idiot jury will feel sorry for him - the big bad employer fired him while he was sick.

marc · April 2007

I have had this severance arrangement more than once. It is not so unusual, bad idea or not.

It just helps with cash flow. Spreads out the pain, and for some companies, this can be a burden to have to pay out several thousand dollars at one time.

sonny · April 2007

Crazy maybe. . I am not a fan, but it has been done here as well.

Paul in Cannon Beach · April 2007

If he is on the payroll, is he still considered an employee? Could he file for worker's comp during this time period?

I am not sure how you would hurt yourself on the job if your job is to "not work".

Personally I like a clean break. I dont like these messy endings. They always seem to come back in some way and bite you.

Dutch2 · May 2007

We have only given a severance package to one ee that we have terminated. And it was all paid out at once. We had the same concerns as Paul mentions, we wanted to ensure a clean break in employment.
Goog luck...

gingerflwrs · May 2007

[font size="1" color="#FF0000"]LAST EDITED ON 05-03-07 AT 07:25AM (CST)[/font][br][br]I've also seen this done at a company. Not only does it help cash flow, the employee doesn't get "socked" with a huge tax hit when giving paying over time as opposed to a lump sum. Plus or minus, they get a little more in the end.

Wildsporty · May 2007

This arrangement is done often. It helps the employee find another job and also helps with the withholding taxes. It is not illegal at all. The only downfall for the employee is he cannot draw unemployment until this arrangement is finished. We had someone on this arrangement for a year once.

There was a big discussion about how to tax these types of settlements in some of the IRS memos a couple of years back. You might want to go in and take a took at the IRS site and see what is there.

They were calling them supplemental unemployment payments. I remember it was big for a little while and than died down.

These installments are used a lot for Reduction in Force when a large number of employees that have been with the company for a long time are laid off. We did a lot of them when we laid off 30 employees a few years back.

Shirley

mbeam · May 2007

We have done this in the past - the con is as you mentioned. The pro to doing it this way is that if the person violates (am assuming you have some legal document that you'll be having them sign off on) it then you can stop payment.

davids · May 2007

[font size="1" color="#FF0000"]LAST EDITED ON 05-02-07 AT 08:32AM (CST)[/font][br][br]I have done severance agreements that way (keeping the employee on the payroll for the agreed upon time). Although it is not the preferred way, it is workable. You just need to make sure that your settlement agreement is clear that the employee is not to perform duties or represent himself as being an agent of the company.

E Wart · May 2007

This is the only way I have ever done severance, pay it out just like someone was still employed, regular pay period.
Most of the time employee cannot collect unemployment during this time. Also helps him prepare for his termination since will be "as normal" for a couple of more pay periods... Often employees get a lump sum and it is gone in 2 days.
However, employees on COBRA are shown as "absent with pay" in our system and documentation. Our 401k plan plainly states that they are not elibgible to participate while on severance as does our group medical document (so that these 2 would not be in affect during severance). If he wanted COBRA he could elect it.

What I would worry about is paying his COBRA for a month. This would probably be a taxable benefit that you might need to "work into his W-2". I would have preferred to "pay him" what one month of COBRA and leave it to him to get his payment in if he wanted to.

Wart

hr92175 · May 2007

Thanks everyone. As it turns out we didn't offer the guy anything due to his recent behavior. Guess I was worried for nothing!

ray a · May 2007

Ah... even more betterer. If you are positive you did the right thing, no sense in offering a bribe for his acquiescence.

hr92175 · May 2007

We've been working with an attorney the whole time so I hope I'm right. It's still a risky term, but if he sues, I guess it just depends on the makeup of the jury. How are things in NY? Can't you just hear my TN twaaaaang??

Severance Question

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