How Do I Know If I’m Eligible For Severance Pay?

Posted by Sessions & Kimball |

Understanding whether you’re eligible for severance pay is crucial when transitioning from one job to another or facing the challenges of a layoff. Severance pay serves as a financial cushion and offers a bit of security during these uncertain times. To determine if you qualify for severance pay, it’s helpful to understand what exactly it is and reach out to an Orange County employment lawyer to help make sure you’re getting everything you’re entitled to.

What Exactly is Severance Pay?

Severance pay is compensation provided by employers to employees upon termination of employment that goes beyond any final salary owed. It’s typically an amount paid based on length served in the company or set out by negotiated contract terms outlining what should happen if your employer ends your employment.

Who is Eligible For Severance Pay?

There is no requirement that employers in California make a severance payment upon the termination of employment. Being eligible for this form of payment depends on contractual agreements between you and the employer, company policy regarding layoffs, and how long you’ve been employed at the organization, among other factors.

How is Severance Pay Calculated in California?

There is no one-size-fits-all formula, so calculating severance pay in California largely depends on employer policies and any agreements you may have had with your employer. Some factors that are often considered include length of employment at the company, your position or rank within the organization, salary, and individual circumstances relating to termination.

Some employers adhere to a written contract or employment agreement or policy that was outlined previously. If this doesn’t exist, other employers simply decide on what they believe to be a fair amount.

Another common approach is for employers to relate severance pay directly with how long you’ve been working for them; this could be a week or two of pay for every year worked, a month of pay for every year worked, or something else.

Severance pay may also include valuable extended benefits such as health insurance continuity and prorated bonuses.

Severance Pay is Taxed

It’s important to highlight that severance pay is not “free money.” Rather, like any other wage or salary you earn during your employment, it is subject to taxes; it is taxed as regular income.

Payroll deductions will still occur just as with regular wages. This includes standard costs such as federal income tax, Medicare tax, social security tax, state income withholding tax, and Federal unemployment tax (FUTA).

It’s common for employers to include your severance pay on a W-2 form and withhold the taxes as they normally would on a regular paycheck.

How a Lawyer Can Help With Severance Pay

Contacting a lawyer can be incredibly beneficial when it comes to navigating severance pay. They will be able to provide expert guidance and can potentially help you in various ways. Two of the most important ways they can help you is to review your agreement and negotiate better settlement terms.

If there is language you don’t understand, your lawyer will explain it to you so you know exactly what you’re agreeing to. Additionally, if there are terms you find unfavorable, a lawyer can negotiate on your behalf for a better package before finalizing the agreement. They may be able to persuade your employer to increase severance pay or coverage based on performance history and other factors.

If you need help, don’t hesitate to contact us to schedule a free consultation.