Can Severance Pay Be Provided For Contract Workers?

If a company decides to lay off an employee, it may have a policy of offering that person a certain amount of severance pay. The amount of severance pay is usually determined by how much the worker makes at the company, though it can also depend on the state in which the worker lives and whether or not that worker has a union contract. While severance pay is a common practice, it can be confusing for workers to understand whether or not they’re eligible for this type of compensation.

Many companies have a strict “take it or leave it” approach when it comes to severance packages and don’t negotiate with employees. Others, however, may be more willing to discuss a package with departing contractors. “It’s not necessarily a ‘take it or leave it’ situation,” says employment lawyer Sahara Pynes, who notes that the law in most states is clear that contractors can receive severance pay just like other employees.

The severance pay offered to workers will typically be one or two weeks of salary for each year of work, though upper management and executives generally receive more than this amount. The total amount of severance pay is also likely to be tied to the worker’s performance, with high performers receiving higher amounts than those who aren’t. However, if the termination takes place just before the end of a bonus period, the amount earned might not be included in severance payments.

Can Severance Pay Be Provided For Contract Workers?

As a lump sum, severance pay will be taxed at the same rate as regular income. Employers will withhold the usual taxes, including federal income tax, provincial or territorial income tax and Social Security and Medicare, from the payment. If the amount of severance pay is substantial, it might push the former worker into a higher tax bracket, in which case they might want to ask their employer to divide up the sum into installments and take it over two years.

severance pay Ontario can also include other benefits, such as continued insurance coverage, career consultation services (sometimes called outplacement) or the option to keep unused vacation and sick time. This can make the termination more financially benign for the former worker, as it gives them more money to use toward living expenses until they find a new job.

Another consideration when negotiating a severance package is how the worker will manage to find another job. Depending on the amount and the terms of the package, the worker may need to find a new position in a very short timeframe, or they might have enough savings to get by without taking a job until they’re able to start looking.

The final consideration when negotiating a severance agreement is what kind of support the former employer will provide to help the worker find a new job. This can be in the form of resume writing assistance or help navigating job boards and LinkedIn. It can also include career coaching, or paying for the cost of professional memberships that help the worker stay current with industry trends.