Severance Packages: 8 Steps to Remain Compliant and Kind

No one likes talking about layoffs. From the HR managers who are responsible for creating severance packages to the employees who have to find a job, the process of initiating layoffs is a bummer for everyone. 

However, layoffs are sometimes a necessary part of ensuring that a company stays afloat. Companies that are considering laying off employees should always make sure they offer fair severance packages to make the employee’s transition to unemployment as smooth as possible. 

In this guide, we’ll walk through the ins and outs of severance packages, as well as 8 steps to remain compliant and kind during layoffs. 

What is a severance package? 

A severance package is a type of financial compensation and benefit that an employer offers to an employee who is being laid off, terminated, or dismissed from their job. 

The purpose of a severance package is to provide some financial security and support to employees who are losing their jobs, often unexpectedly, as they find a new role.

What do severance packages normally include? 

A typical severance package includes several different components such as a lump sum payment, continued health benefits, outplacement services, and a guide to navigating employees pension & stock options (if they were included in their regular benefits package). 

The exact pay and benefits will depend on 1) the company's severance package policies and 2) the individual circumstances of the employee's dismissal.

In many countries, severance payments aren’t required but highly recommended to ease the transition for employees. In the United States, The Fair Labor Standards Act (labor law that governs working conditions like minimum wage in the US) specifically states that severance packages agreements are left up to the employers discretion. Countries like

Canada, Germany, and the Netherlands, on the other hand, require some form of severance package for terminated employees. These three countries are consistently rated as being the best places in the world to be laid off.   

If you need help creating a severance package, using an employer-of-record may be your best solution. For example, a Canadian EOR can help you craft the perfect severance package for terminated employees based on provincial nuances.

How do you remain compliant when laying off employees? 

Compliance rules depend on where you have to lay off employees. For European and Latin American countries, you’ll probably need a strong legal team or to partner with an EOR service like Via to understand exactly what employees are entitled to. 

Although you aren’t required to offer severance packages in the United States, you should still be aware that discriminating against employees during layoffs can result in legal repercussions. You should always give employees equal treatment during layoffs. Employees who had a higher salary should be paid a more extensive severance package. You should never discriminate against employees based on age, race, gender, ethnicity or origin, sexual orientation, or family status. 

When laying off employees in the United States, you should also be mindful of the Workers Adjustment and Retraining Notification Act (WARN).This regulation asserts that if your firm has 100 or more employees, is a plant closure, or if you’re initiating mass layoffs, you may be required to give your employees a minimum amount of 60 days notice before termination. 

Businesses must look into state and federal laws to ensure that all regulations for laying off and informing employees are being followed. 

8 steps to remain compliant and kind during layoffs

Although laying off employees is never an ideal situation, creating a consistent policy that considers your employees' feelings and needs is the best way to maintain your company’s integrity and show kindness towards your workers. 

Here are 8 steps to remain compliant and kind during layoffs. 

1. Create a plan 

Before you even consider laying off your employees, you should have a clear plan in mind. 

You’ll need to consider exactly what positions can be done away with and what positions are mandatory for your business to function properly. 

Make sure that you discuss exactly how much notice you need to give employees, compliance, and what kind of severance packages you want to offer with your HR team, and how they should go about delivering the news to employees. 

2. Be prepared to explain why

Your HR management team should have a clear understanding and plan of exactly why you’re having to downsize. 

Outline the market, economy, business needs, or related revenue position that drove you to have to make the tough choice to lay people off. 

Being prepared allows you to protect your company’s reputation and comply with any regulations surrounding layoffs.

3. Determine a clear strategy 

HR will need to determine exactly who they’re laying off and the number of employees this adds up to. 

When you decide who you’re laying off, you need to have a clear and fair approach. 

Decide if you’re laying off based on performance, job classification, skill, remuneration, or attendance. Make sure that you don’t discriminate and the choices you’re making are fair. For instance, you might need to lay off one person from each department or do away with an entire department. 

You’ll also need to notify other employees that are being kept on if there are any additional tasks they’ll have to take on, as well as how the transition will affect their day-to-day work.

4. Evaluate employees 

After you’ve decided on criteria for laying off employees, you’ll want to evaluate each employee based on their performance, as you won’t want to lay off one or two of your top performers if you can avoid it. 

5. Approach layoff discussions with care

Your HR department's duty is to maintain trust and respect during the entire employment cycle. They should handle layoffs with the same level of care that was used during the hiring and onboarding process. 

Help your HR department create a proper communication plan on how the layoff is a necessary but unfortunate economic choice. This will help you protect your business as well as show kindness to your employees. 

6. Create severance packages

Once you decide what employees you’ll have to lay off, you’ll need to create severance packages. You should consider exactly what benefits were part of your regular compensation package and determine how many weeks of severance you think is equal to what was promised to them in their employment contract. 

Try to figure out what is most immediately important to your employees as they transition to unemployment. Most employees are going to be concerned about their health insurance and 3 months of paid salary.

7. Provide employees with transitional benefits

For employees that are being laid off, you should still show they have value by offering transitional benefits and incentives. 

Employees are likely to quit right away if you don’t offer incentives, retention bonuses, and additional perks during the period they’ll be working before the layoff. 

Although you should already be offering severance benefits, providing additional transitional incentives before your employees' last day will further demonstrate your commitment to upholding your company’s integrity. 

8. Offer outplacement services

For employees who are laid off, try to help them as they transition to unemployment or put them in contact with other companies that are hiring for similar positions.

Job hunting can be an overwhelming and discouraging experience, so offering services that help with career counseling or resume updates is key. 

Make sure you let them know if you’re available as a reference as they begin the job search. This is the easiest way to demonstrate kindness while also ensuring that laid off employees don’t leave your company with a bad taste in their mouth. 

Why companies partner with Via

Companies want to hire talent abroad and build local HQs, but are unsure how to open an entity abroad, maintain compliance, and navigate tricky HR situations like offering compliant severance packages during layoffs. 

Via makes hiring talent around the world and building your global team seamless. With our easy-to-use platform and payment tools, Via helps you manage local HR processes for direct employment such as work visas & permits, employee data privacy compliance, benefits, global payroll solutions, background checks, and other legal products. Our team of local labor lawyers and on-the-ground experts ensure that your company remains compliant while expanding abroad. As your employer-of-record/entity abroad, Via assumes responsibility for employment liability, so that you can focus on what matters: recruiting and managing your team. 

With Via’s transparent pricing, you can pay full-time employees or contractors across borders with no hidden set-up fees, no foreign exchange or transaction fees, and no minimums–start with 1 employee and scale up at your own pace.