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Careerminds

Voluntary Layoff Severance Package: Everything HR Should Include

Has your organization recently decided to have a voluntary layoff? If so, one of the first things you will need to do is create a severance package for your employees participating in the event.

Voluntary Layoff Severance Package

Severance packages are an important part of the voluntary layoff process. They hold the financial incentives that motivate your employees to participate in the voluntary layoff, and they are responsible for the last touches your organization has with a person.

Because of this, it is important to pay special attention to all of the different components that go into making a severance package for a voluntary layoff.

Here are the things we will be covering:

  • Voluntary layoff severance pay
  • Medical, dental, and vision insurance
  • Vacation, holiday, and sick pay
  • Outplace assistance

But before we dive into each of these, make sure to download our excel calculator to figure out how much severance pay you should be giving your employees:

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Okay, now let’s get started…

Voluntary Layoff Package: Severance Pay

Calculating the severance pay someone should receive in a voluntary layoff is very similar to calculating the severance given to an employee in an involuntary layoff. The only real difference is that the severance pay is generally higher for a voluntary layoff to incentivize employees to participate.

Severance pay is generally calculated based on the time the person has been with the company, and is calculated by salary.

Here is an example of a standard severance payout scheme:

Severance Payout Scheme
Less than 1 year
1 month of base salary (4 weeks)
1- 5 years
2 months of base salary (8 weeks)
6- 10 years
3 months of base salary (12 weeks)
11- 15 years
4 months of base salary (16 weeks)
16- 20 years
5 months of base salary (20 weeks)
20+ years
6 months of base salary (24 weeks)

Your leadership team should decide on how much incentive you should provide above this standard scheme to incentivize your employees to participant in the voluntary event.

Voluntary Layoff Severance Package

This markup could be anywhere from 5-50%. (Or even more if you have a large budget for severances!) It should depend on how urgently you need to reduce your workforce, and how many employees you are looking to voluntarily layoff. The greater the financial incentive you offer, the more people will participate in your voluntary layoff.

Here is an example of a voluntary layoff severance payout scheme that has been marked up for incentive (as compared to the table above):

Severance Payout Scheme
Less than 1 year
4.8 weeks of base salary
1- 5 years
9.6 weeks of base salary
6- 10 years
14.4 weeks of base salary
11- 15 years
19.2 weeks of base salary
16- 20 years
24 weeks of base salary
20+ years
28.8 weeks of base salary

Voluntary Layoff Package: Medical, Dental, and Vision Insurance

In your severance package, you will want to include how your employee’s benefits will be affected by the loss of their employment. Many organizations will offer extended insurance through COBRA regulations.

According to the United States Department of Labor:

“Congress passed the landmark Consolidated Omnibus Budget Reconciliation Act health benefit provisions in 1986. The law amends the Employee Retirement Income Security Act, the Internal Revenue Code and the Public Health Service Act to provide continuation of group health coverage that otherwise might be terminated.”

In short, this law was created to help your employees not face the dramatic and sometimes life altering effects of losing health insurance suddenly. Because of this law, you need to provide COBRA documentation to your employees participating in your voluntary layoff and fully explain the process around COBRA.

Voluntary Layoff Severance Package: Vacation, Holiday, and Sick Pay

If your employees have any paid vacation or sick days that they haven’t used while employed with your organization, you will need to pay them for that time. For example, if you have an employee who hasn’t used 5 vacation days, you would have to include 5 days worth of their salary into their severance pay.

Voluntary Layoff Severance Package

If your organization allows employees to carry over vacation time, you could have employees with several days worth of vacation that you will have to pay out. Since this is a benefit that you have offered, it is a best practice to pay these balances out regardless of their size.

If that isn’t in the best interest of your current financial state, your organization will need to have a policy in place about how much vacation pay they are willing to pay out in the event of a severance. It would be best to have this policy hammered out way before you announce the voluntary reduction in force, and have it visible in the employee handbook and company intranet.

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A best practice is to still offer a generous amount of payoff before you cap out the amount of days your organization will honor. This could be 15 days, 20 days, or even 45 depending on the amount of vacation days built up that your employees generally carry. It is always a good idea to also do research on how your competitors handle this to make sure that you are in alignment.

Voluntary Layoff Severance Package: Outplacement Assistance

Your organization should offer outplacement as a benefit in your voluntary layoff package. This benefit will help your employees find a new job as quickly as possible, ensuring that they will part in a friendly way from your organization.

Offering outplacement has also shown to improve employer brand, and talent acquisition and retention over the long run at organizations.

There are several different types of outplacement programs available on the market. To make sure that you provide the most value to your employees participating in the voluntary layoff, make sure that you find an outplacement service that has the following:

  • Until-placement Support (No Term Limits)
  • Resume Writing
  • 1-on-1 Career Coaching
  • Networking Support
  • Job Search And Matching Technology
  • Cheap or Nonexistent retainer fees

Voluntary Layoff Severance Package

Most traditional outplacement firms only provide support for around three months to the employees you provide with their services. In economies with a low unemployment rate, or for your employees who have very niche skill sets, this might not be enough time to find their next position.

You should also find an outplacement firm that provides resume writing and 1-on-1 career coaching. Having a professional resume writer work on your exiting employees resumes will help them get in the door for more interviews.

And, in today’s workforce having a 1-on-1 career coach is a necessity for building a long term job search strategy. At most traditional outplacement firms your employee will work with a different career coach everytime they visit the office or call in.

The outplacement service you offer to your employee should also have networking support. Since most jobs are found through networking, this should be an important focus of any outplacement firm’s program. At Careerminds, we have our own social networking platform that allows your employees to network with others within the system.

Finally, the outplacement firm that you use for your employees who are participating in the voluntary layoff should have technology that pulls in open jobs listed across the internet into one central location based on their skills and experience. This will make it easy and efficient for them to apply to open positions throughout the process.

Want to learn more about voluntary layoffs? Check out our guides!

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