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4 tips on negotiating severance agreements

Severance agreements are sometimes offered to employees who are terminated or laid off. The severance offered is usually payment or other benefits, such as continuing the employee's health insurance for a period of time after termination.

Employers are not required by law to offer severance unless they promise it through their employee handbook, policies, or a contract with you. Many employers ask terminated or laid-off employees to sign a contract waiving all legal claims they may have against the company. When looking at your options and negotiating a severance agreement, here are 4 things to keep in mind:

1. A legal claim may be far more valuable than a severance payment.

If you were wrongfully terminated or may have any other legal claim against your employer, think very carefully before signing anything and make sure to read the fine print. It might also be advisable to talk to an employment law attorney about your situation and see whether you could have a case against your employer.

You are not obligated or required to sign a contract waiving legal claims. Many employers offer severance in hopes that it will deter employees from suing. However, the compensation you could receive from a legal claim, if you have one, could be worth far more than the severance they offer you.

2. Severance payments can be taxed.

If you are considering accepting a severance payment, know that it can be considered income and taxed as such. If you want to avoid this, you can negotiate for a payment to be spread out over a couple of tax years instead of being paid as a lump sum.

3. Pay attention to time limits.

Most severance offers have a time limit to accept the payment/benefits. If you do not accept or negotiate an agreement by then, you could lose severance altogether. After termination or a layoff, it's important to make decisions in a timely but wise manner. You can also consult an attorney with questions about best steps to take next. You do not want to miss an opportunity for severance but you do not want to sign something that could negatively affect you either.

4. You can negotiate more than just payment amounts.

When negotiating a severance agreement, there is more you can get out of the deal than just a different payment amount or method. It's possible to negotiate terms of benefits, a change in your reason for termination, a positive reference for future employers and more. An employment attorney can assist you in the best methods of severance negotiation and how you might negotiate these other benefits into the agreement.

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