On to the Next One...

Imagine a typical nonperforming employee. Often somewhat dissatisfied and disengaged, spending a bit of time on job search engines, talking with recruiters, sending out the resume, chatting with others and decreasing workplace productivity, not performing job functions adequately. Because this employee has potential, and the performance is not a disaster, the poor behavior is tolerated for a long period of time. When this employee is finally terminated, often to the relief of colleagues, and offered a “go away” package, a new job opportunity may be waiting right around the corner. Out the door, on to the next one, an eight-week termination bonus in the bank.

“Severance” is typically thought of as a fixed dollar amount, based on tenure and salary, provided to employees who are involuntarily separated. An amount paid to support individuals financially while unemployed and to mitigate the risk of potential wrongful termination suits.

Severance is often used to smooth the departure of employees asked to leave because they don’t fit or are underperforming. Monetary separation awards offered to employees terminated in a force reduction may be distributed under a Supplemental Unemployment Benefit (SUB) Plan, because such employees may apply for and receive State Unemployment Benefits from their state of employ. Separation benefits offered under a SUB Plan protect the income of terminated and unemployed employees far more efficiently than traditional severance.

Use of a SUB Plan in a force reduction situation has proven to deliver companies substantial savings. Monetary separation benefits offered by a company to employees severed due to nonperformance are not eligible to receive payments under a SUB Plan, as IRS regulations on SUB Plans limit recipients to those terminated due to a reduction in force. Yet just because an individual is ineligible for SUB pay does not mean that a similar plan cannot be used to achieve similar savings. Should a company want to provide richer benefits to underperforming employees than those whose positions were involuntarily eliminated?

In all but 23 states, the unemployed may collect State UI and severance simultaneously. A company can therefore require that fired individuals file for State UI and use that amount as an offset to the company-paid portion. In addition, by managing the duration of the actual period of unemployment, a company may monitor when a fired person returns to work and realize further savings by stopping benefit payments when that person starts a new job.

Reducing severance costs is such an easy way for a company to save immediate and significant expense. Packages awarded for lack of fit terminations are a regular part of the modern business cycle. Nonperforming employees often find new jobs before being terminated from old ones – why would it be anything other than bad business to continue to pay severance to once unhappy employees who have moved into new and, presumably, paying positions?