With today’s economic uncertainty, many companies are closing or downsizing. The majority of people are so stunned when they lose their job they become confused and make irrational decisions. If the truth were known, most people go on to bigger and better things.
If you find yourself on the roster of the newly unemployed, seek professional advice and make sure someone reviews your package. A good rule of thumb is not to sign a severance agreement until you've had ample time to think it over and do some research. It’s important to understand how this will impact your personal circumstances.
Severance packages normally cover the following areas:
- Salary Continuation
- Pension Options
- and Extended Benefits such as outplacement services and group insurance options.
Salary Continuation comes in different forms, from a guaranteed income to a lump sum payment. The amount offered is usually dependent on the length of service you would have with your employer. The longer you worked the bigger the amount. This salary continuation is fully taxable although a portion may be rolled over tax-free to your RRSP as a retiring allowance if you qualify.
Beware of employer claw-backs !!!!! They may occur if you find other employment during your salary continuation option.
PAY ATTENTION TO YOUR PENSION!!!!! One of the biggest mistakes many people make is to choose the pension option offered to them by their employer. Do yourself a favor and get a professional opinion. There are many options available to you that are available through your pension plan document, unfortunately your human resource department may not know they are available (See Pensions) Some companies will pay for retirement analysis that will include pension option reviews
Upon termination, you may be entitled to any of the following benefits:
Group Health Insurance (medical and dental)
This will expire upon final payment of severance and may disappear if you take the lump sum.
Most progressive companies realize that their employees need help in finding new employment
Outplacement services can help with writing a resume, aptitude tests and in some cases they will send your resume to other companies who may interested in hiring
Being aware of what is usually found in a severance package will help you determine what your best options are for your personal circumstances. With proper financial and tax planning you will minimize your money worries, which will allow you to concentrate on your next career move.