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Virtual General Counsel LLC

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Contracts: Should small businesses offer severance packages?

| Jun 2, 2020 | Contracts |

Severance packages are usually associated with massive corporations, but small business owners may also benefit from offering severance agreements. Sometimes, employers and employees agree on severance packages after employment begins or when a termination occurs. Other times, severance provisions are addressed in employee contracts signed at the beginning of the working relationship.

If you are reading this, you probably don’t run a massive corporation but are a small business owner operating in Colorado. As such, you may not be able to afford to offer all your employees severance pay. However, offering severance packages may be worth your while.

Small business contracts addressing severance pay typically offer the exiting worker benefits other than money. For example, you could offer the employee extended health insurance coverage instead of a lump sum payout.

In another example, you may choose to offer two weeks of income in addition to a month or two of insurance coverage. Either package would help the exiting employee manage the hardships that typically arise after the loss of a job.

As far as the benefits you might acquire by offering severance contracts, there are several. Three of these benefits include:

  • Attracting skilled and dedicated workers when you are ready to hire
  • The possibility of rehiring the exiting worker if your circumstances change
  • Offering severance in exchange for an agreement not to sue you can reduce potential legal issues

It is wise to consider your situation carefully before you decide to offer severance contracts. For example, you will have to decide whether to offer severance to all workers or only those in certain positions. You should also make sure you can fulfill your side of any severance agreements you put in place.

If you are still uncertain about whether to offer severance, consider working with a legal advocate. This provides you with legal guidance about all your business contracts going forward.