The Top 5: Why Should Severance be Outsourced? Part 1.

The severance plan model, oft dismissed as the benefit is used en masse typically only during turbulent times, remains untouched and archaic even today – strange, since the collective cost of the benefit over the past 24 months may well have surpassed the multi-billion mark. Companies are slowly recognizing the need to update this model, yet seem hesitant to do so.

A way for companies to revisit and update their severance plan models without overburdening a stretched HR staff is to outsource severance programming. While this offers a company a huge array of benefits, this five-part series is a discussion of five primary reasons why outsourcing severance makes sense for a modern business in our recovering economy.

Perhaps one of the more important of these five reasons is the significant expertise a boutique severance management firm maintains over a company's internal Human Resource group – a group very often consumed with hiring, medical benefits, payroll, etc. In a country where each of the 50 states follows a different set of regulations governing separation pay and unemployment benefits, and where potential durations of available State Unemployment benefits in some states dwarf those in others, expertise is necessary. In-depth State regulatory knowledge consistently tracked by a firm specializing in severance management reduces the potential risk a company faces, not only from employees who want to be treated equally as those in other states whose benefits are different due to different rules, but also from state governments, who can crack down on an employer if their often strange rules are not followed precisely.

A boutique firm also has the ability to offer companies alternatives to separation benefit design not already widely in practice. This is in part enabled by the aforementioned regulatory expertise. Furthermore, due to the objectivity of an outside firm and to such a firm’s recognition of practices used by comparable companies throughout various industries, a severance management partner will often allow a company to structure a new plan more equitable than an older, outdated one which follows the old overused and overlooked severance model.

Our next topic, partner infrastructure, discusses another huge reason why severance outsourcing should become an HR trend.

TSI spent the week with World@Work and a gathering of some of the biggest names in Employee Benefits at World@Work's 2010 Annual Conference. It seems more and more businesses have caught on to the severance redesign trend. Far too many HR executives expressed concern over their own inequitable layoffs of the Great Recession and many have come to understand their separation benefit plans, like most of their other benefits, need a major revamp.

One of the key concerns TSI recognized among a good percentage of the W@W group was that during the height of the crisis, separation packages were slashed. Some employees were turned out with nothing, other with tiny severance, still others with those big ones still making the news. These inequities can not only be addressed with a SUB Plan, but available monies stretched to provide support to employees who otherwise walk out empty-handed.

Looking at the structure of severance during this recovery period is finally starting to become an attractive idea. Having a scaffold in place in case the economy takes another trip has become the new trend, one key executives realize is necessary to protect the bottom line in the future.

What's the Point of Separation Pay?

The New York Times recently reported a surge in company hiring and cross-industry job postings. Somewhat good news for the unemployed, yet with so many people in the job market, companies may acquire talent far overqualified for open positions at very low costs. Grim, yes. Hiring in the near future might allow companies to offer fewer perks to those coming in primarily because unemployed workers need new jobs.

But what about the employee who remained after the huge layoff? Those who became parts of skeleton survival crews are also free to take advantage of this hiring spree, a fact of which more companies are slowly becoming aware. How might companies retain these employees? Benefits, and one quite salient to workers who survived recent layoffs, separation pay. Separation benefits were a nonentity to some who lost jobs in 2008 and 2009. Conversely, others received huge severance packages, insulting those employees left to pick up the extra work left by their laid-off colleagues.

SUB Pay allows an employer to ensure meaningful separation benefits to employees, even in times of crisis, by slashing the employer's benefit cost. SUB Pay also meets the typical severance-related needs of an employer, mitigation against legal retribution, and, as is critical right now as employee options open up, maintenance of employee morale. Separation pay is, in fact, a benefit, and the forthcoming turnaround should prompt companies to examine strategies which use its promise not merely to recruit new workers, but properly to retain critical and valuable employees in the case of another recession period.