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Parting Gifts Give to employees when they leave, so you'll get more while they're here.

By Jacquelyn Lynn

Opinions expressed by Entrepreneur contributors are their own.

When employees resign or are terminated, you don't have togive wages or benefits beyond paying them for the time they worked.Even so, most entrepreneurs offer some sort of severance package todeparting employees.

An attractive severance policy can benefit your company in twokey ways, says Wayne Hersh, a labor relations and employment lawyerwith the firm Berger, Kahn, Shafton, Moss, Figler, Simon &Gladstone in Irvine, California.

It can aid in hiring andretention. A severance policy that offers, for example,one week's salary for each year of service departing employeeshave put in may be an attractive benefit. Of course, you can exemptemployees who are terminated for cause. You may also include otherrestrictions, such as disqualifying employees from the severancepackage if they go to work for competitors or disclose confidentialinformation.

It can be used as a tool to obtaina release or waiver of claim. For example, you may offera severance payment on the condition that the employee agrees notto sue you for any real or alleged employment-practices violations.Employees don't have to sign such agreements, but if theydon't, you won't have to pay any severancecompensation.

Hersh says severance packages grew out of negotiations betweenlabor organizations and employers in the last century. Today,severance compensation may include cash (paid in a lump sum or ininstallments), continued benefits or even stock purchasearrangements.

In putting together a severance policy, Hersh suggests you takea look at your marketplace. Are similar companies offeringseverance packages? If so, make yours competitive. If not, considerputting those dollars elsewhere. Then think about what you want toaccomplish with your policy. Do you want a benefit that attractsnew employees, a program that promotes longevity, a tool thatdiscourages workers from going to competing companies or a devicethat reduces employment-related litigation? You also have to decidewhether to offer a standard package to every employee or negotiateindividually based on specific circumstances.

Depending on how it's set up, your policy may fall underERISA (Employee Retirement Income Security Act); if so, you'llneed to be sure it meets federal requirements. Before you implementany general severance policy or specific agreement, have anattorney review it to be sure it meets any applicable statutes andis not discriminatory.


Jacquelyn Lynn left the corporate world more than 14 yearsago and has been writing about business and management from herhome office in Winter Park, Florida, ever since.


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