With the increasing likelihood of layoffs due to the predicted rise in the jobless rate to 7% this year, severance payouts may become more common. Clients need to know what constitutes a good severance package, when to reject an offer and negotiate, and how to adjust their financial plan. Julie Petrera, the senior strategist at Edward Jones in Toronto, says her firm is helping advisors prepare for such discussions with clients. There are two main scenarios in which a person may receive a severance: expected and unexpected. Advisors should ask about the severance package offer as soon as possible, as the client may have the option to choose a lump sum or salary continuance. Petrera advises advisors to not let their personal biases affect the conversation, as each client's priorities and preferences will be different. Some clients may want to minimize taxes, while others may prefer immediate access to the funds.
Key Considerations When Evaluating a Severance Offer
Additionally, clients must also consider items like benefits, insurance, and other forms of protection. When a person loses their job, they also lose the life and disability insurance coverage provided by their employer, says Petrera. Clients need to know what steps to take in such situations. Advisors must also be aware that some clients may view a layoff as an opportunity for a new start, such as starting their own business or having a new job lined up. Hence, advisors must approach the risk differently for each client. Petrera emphasizes the importance of considering the impact of a layoff not only on a client's financial goals but also on their non-financial goals.
Stuart Rudner, an employment lawyer, and managing partner at Rudner Law is shocked by the number of clients who take a severance offer without fully considering all the possibilities. They often think they got a good deal, but in reality, they left money on the table. Clients often hesitate to consult with Rudner because they fear the legal fees, but Rudner points out that they might end up losing more by not seeking proper guidance.
Common Misconceptions About Severance Pay
When evaluating a severance package, bonuses should not be overlooked as they may not always be included if the client has not completed the full year with the employer or the calculation of bonuses has not been done yet. However, fighting for bonuses is worth it, says Simon Kent, founder, and attorney at Kent Employment Law in Vancouver.
"From the employee's point of view, it's, 'I didn't quit, I didn't resign, and I didn't do anything wrong. It's your decision to let me go. Why shouldn't I at least receive a portion of the bonus?'" Mr. Kent says.
"Although this issue may be written in a contract, it's not always the case. And even if it is, it's not set in stone."
According to Mr. Kent, the employer may decide not to pay the bonus if the employee did not meet the deadline on December 31. "It then becomes something that needs to be negotiated," he adds.
