Things to Consider When Offered a Severance Package

Getting offered a severance package from your employer can be an exciting and nerve-racking situation, all at the same time.  It is important to take a moment and understand your personal situation.  It is essential to carefully consider the terms and implications before making a decision.  Here are some key factors to take into account:

1. Package Details:
   • Review the specific terms of the severance package, including the amount of compensation, the duration of payments, and any additional benefits (e.g., continuation of health insurance, outplacement services, or retirement account contributions).
2. Legal Consultation:
   • Consider consulting with an attorney who specializes in employment law to ensure you fully understand the legal implications of the severance agreement and its impact on your rights.
3. Timing:
   • Determine if the timing of the severance package aligns with your financial needs and career plans. Assess whether you’re ready to leave the company or if you’d prefer to continue working there.
4. Unemployment Benefits:
   • Understand how accepting a severance package may affect your eligibility for unemployment benefits in your jurisdiction. Some states or countries may have specific rules regarding this.
5. Non-Compete and Non-Solicitation Clauses:
   • Carefully review any non-compete or non-solicitation clauses in the agreement. These could restrict your ability to work for competitors or start your own business in the future.
6. Confidentiality and Non-Disparagement:
   • Consider any confidentiality and non-disparagement clauses that may be included, which could limit your ability to discuss your former employer publicly or with potential future employers.
7. Release of Claims:
   • Determine whether the severance agreement requires you to release any legal claims or rights you may have against your employer. This is a crucial point that can impact your ability to pursue legal action later.
8. Taxes:
   • Understand the tax implications of the severance package, as some components may be subject to taxation, and there may be options to mitigate tax liabilities.
9. Existing Benefits:
   • Consider what you may want to do with your existing benefits such as your 401(k).  Will you need these funds immediately or do you plan to roll these over to a new employer’s plan or an IRA?  You may also want to consider maxing out your 401(k) contribution before your termination date.
10. Vesting and Stock Options:
    • If you have stock options, restricted stock units (RSUs), or other equity-based compensation, consider how the severance package may affect the vesting of these awards.
11. Career Goals:
    • Assess your long-term career goals and whether accepting the severance package aligns with those goals. Consider factors like job market conditions, your skillset, and the potential impact on your career trajectory.
12. Negotiation:
    • Depending on the circumstances, you may be able to negotiate the terms of the severance package. This could include requesting additional compensation or benefits.
13. Future Employment:
    • Think about how accepting the severance package might impact your ability to find future employment, especially if there are non-compete clauses or restrictions on discussing your departure with potential employers.
14. Company Reputation:
    • Consider how your departure and the terms of your severance might affect your professional reputation and relationships within your industry.
15. Emotional Impact:
    • Reflect on the emotional and psychological impact of accepting the severance package. Leaving a job can be a significant life change, and it’s important to consider the impact on your well-being.
16. Plan B:
    • Have a backup plan in case you decide not to accept the severance package or if you’re unable to secure new employment immediately.

Remember that each severance package is unique, and the considerations will vary based on your personal circumstances, the company’s policies, and applicable laws. It’s advisable to seek legal, tax, and financial advice to make an informed decision that aligns with your best interests.  We here at Signature Wealth have assisted numerous clients through this exact situation, arming them with information and advice to help navigate this major life event.  You don’t have to go it alone, give us a call, and we’d be honored to help you in the same way!

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