Three Trends in Severance Pay & Benefits During the COVID-19 Pandemic

It is as if “the economy as a whole has fallen into some sudden black hole,” said Kathy Bostjancic, chief U.S. financial economist at Oxford Economics. Like most businesses given the current climate, Onwards HR clients are facing financial pressures and having to make tough workforce decisions.

Onwards HR helps organizations manage furlough and severance events smarter, faster, and in compliance with employment laws. Because of our unique position, we see trends in workforce reductions firsthand. To help guide employers facing similar financial pressures, we have summarized three trends in workforce reductions.

1. Furloughs preferred over workforce reductions

With temporary financial pressures, which is hopefully the case with the COVID-19 pandemic, both employers and employees may prefer furloughs. Employers can save on payroll costs and recall experienced employees when business needs returns. Furloughed employees can still collect state and expanded unemployment and potentially receive health benefits and 401(k) contributions until they are recalled.  Since furloughed employees are still technically employees, WARN Act requirements don't apply. However, for furloughs lasting more than 6 months, employers may have to meet WARN Act obligations (depending on your state) and make some tough decisions at that point.

2. Severance packages include outplacement services

According to CareerPartners International, companies that provide outplacement support as part of their redundancy program often find that it can lower the ‘emotional temperature’ across the organization. By fully supporting exiting employees, employers demonstrate that, despite the current challenging circumstances, they are committed to individual wellbeing. Employees who remain are reassured knowing that, if they find themselves in a similar situation, they are likely to receive the same support and consideration.

3. Raising & sometimes doubling minimum severance benefits

Severance pay is typically calculated using an algorithm that factors in length of service, management level, and/or whether an employee is exempt or non-exempt. A minimum and maximum are typically applied to the severance pay as part of the severance guidelines. Due to COVID-19, more employers have chosen to raise their severance pay minimums to help soften the impact of the job loss.

Next Steps

Now more than ever, it is important for employers to use severance automation software to deliver a quick response to the changing landscape while staying in compliance with employment laws. Learn how our product works.