Who Is Eligible for Severance?

"When do I qualify for severance?" As a global leader in talent solutions, this is one of the most common questions we hear from both employees and HR leaders. And it's a great question - severance policies can be complex, and they vary significantly across organizations. Let's break down data from LHH’s 9th Severance & Separation Benefits Benchmarks Study to learn when employees typically qualify for severance packages.

The most common reasons for offering severance are:

• Reduction in force (65%)
• Retirement (63%)
• Disability (57%)
• Involuntary termination (48%)
• Death (46%)
• Termination for Cause (44%)
• Voluntary Termination (39%)
  
  

The Big One: Restructuring and Reductions in Force

The most common circumstance that qualifies employees for severance is termination due to reduction in force (RIF) or corporate restructuring. This shouldn't come as a surprise given how quickly things change in the business and geopolitical spheres. As organizations adapt to changing market conditions, technological advances, and shifting competitive landscapes, they often need to reshape their workforce. During these transitions, companies recognize their responsibility to support displaced employees through comprehensive severance packages.

Retirement Considerations

Retirement represents another significant qualifying circumstance for severance benefits. Some organizations use severance packages as part of their retirement strategy, often incorporating them into voluntary separation programs. This approach allows companies to manage their workforce demographics while providing long-term employees with additional financial support as they transition into retirement.

Supporting Employees Through Disability

When employees face disability situations that impact their ability to continue in their roles, many organizations provide severance benefits as part of their support framework. This practice reflects companies' commitment to supporting employees through challenging life circumstances, even when the employment relationship must end.

Death Benefits

While it might seem counterintuitive to think about severance in relation to an employee's death, many organizations include death benefits in their severance policies. These benefits typically support the deceased employee's family, providing financial assistance during an already difficult time.

Changes in Corporate Control

Corporate mergers, acquisitions, and other significant organizational changes can trigger severance eligibility through what's known as "change in control" provisions. These come in two forms:

• Single trigger situations, where the change in control itself activates severance eligibility
• Double trigger situations, which require both a change in control and another qualifying event, such as a significant change in job responsibilities or location

Involuntary Termination Provisions

Beyond specific circumstances like RIFs or corporate changes, many organizations provide severance benefits for general involuntary terminations, provided they're not for cause. This practice helps companies maintain positive relationships with departing employees while protecting their employer brand. Forbes provided a nice summary of how this helps.

While employment contracts often specify the level of severance pay an employee is entitled to receive, eligibility for severance can arise from various situations. The amount typically depends on factors like position level, years of service, and company policy, with the specific terms and conditions outlined in the original employment agreement.

Summary

Severance eligibility can arise from various circumstances, including reductions in force, retirement, disability, and involuntary terminations. Companies offer severance to support employees through transitions and manage workforce changes. While terms vary, the level of severance typically depends on factors such as position, tenure, and company policies.

If you’re interested in learning more about how your severance policies compare to your peers, get in touch!