How to Make Your Severance Last
Leaving a job isn’t always easy — especially if it isn’t by choice. With 54 percent of working adults worried they could be axed in the coming year, now is a good time for all of us to start thinking about what we’d do if placed in that position.
A severance package can certainly help soften the blow of a sudden job loss. While severance pay can provide a much-needed financial cushion if you’re being terminated, it isn’t required by law. That means not all companies offer severance, and among those that do, the terms and conditions can vary widely.
Managing your severance comes down to negotiating the best deal and making those benefits last until you’re reemployed. Here are some tips for making the most of your severance package.
What’s in a Typical Severance Package?
Before accepting a severance package, the first order of business is getting clear on what your employer is putting on the table. According to the Society for Human Resource Management, the following things may be included in your exit package:
- Pay: How much is the employer offering, and for how long? Maintaining your current salary is ideal, though the specific amount offered is typically determined by your length of employment. For example, your employer may offer something like 1-2 weeks of pay for each year of service.
- Health insurance: Your employer may offer COBRA coverage in your severance package. This provides continued access to your health benefits for a specified amount of time. You’ll likely have to foot the bill for the full premium, which could get pricey, but this may be negotiable.
- Assistance in your job search: Some companies provide employment resources. This could take the form of granting you additional time off to help you lock down a new job before making your final exit.
Benefits aside, you’ll also want to zero in on any restrictions that may be baked into your severance package. You might come across a prohibitive nondisclosure agreement or a noncompete clause that hinders your ability to continue advancing in your career.
Check out the latest issue of Recruiter.com Magazine for more career advice and recruiting trends:
How to Negotiate Your Severance Package
Negotiation is often associated with the hiring process, but it’s a skill that could also prove valuable when exiting a company. When presented with an initial severance package, know that you aren’t necessarily bound to its terms. Your employer may be open to working with you and making reasonable concessions to protect themselves against a potential lawsuit down the road. This is especially true if you suspect you’re being wrongfully terminated.
Think in terms of what’s most important to you. If, for example, health insurance is top of mind, you may try to convince your employer to bump up your compensation to cover the cost of COBRA. If you know you can lower or eliminate debt payments, like student loans, you may feel secure enough financially to accept a lower monetary payout in exchange for a more favorable non-compete agreement. It really all comes down to your individual situation.
With that said, consulting an employment attorney could help point you in the right direction. A attorney may even be able to spot labor law violations that could pave the way to a stronger severance package.
Managing Your Severance Pay
Once you’ve buttoned up your exit package and signed on the dotted line, you’ll need to manage your severance pay until you secure a new job. Stretching these dollars begins with updating your budget. Look to discretionary expenses you can temporarily cut, like nonessential subscriptions or your cable bill. Scaling back in the short term can give your budget some breathing room until you start your next position. A recent survey found that spending too much on restaurants and takeout was one of the most commonly regretted expenses of 2020 — a fate you can avoid with simple acts like meal planning and eating at home.
If you made out with a particularly strong severance package, you may not be feeling too much financial pressure — especially if you already have a solid emergency fund or live in a dual-income household. Those who are in this boat could think about using their severance pay to shore up their overall financial health. Paying down costly high-interest debt now, for instance, could save you money in the long run.
Bolstering an investment account may be another wise move, depending on your unique financial situation and long-term goals. The right financial advisor should be able to guide you in a way that mitigates risk while you’re job hunting.
In the end, a severance package can be a nice perk that alleviates some of the stress of losing a job. Negotiating the terms can pay off, especially if it takes longer than expected to find a new position.
Marianne Hayes is a longtime freelance writer and content marketing specialist.