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How to negotiate severance pay successfully

Lydia Smith
Writer, Yahoo Finance UK
Although it’s tempting to take the first offer and leave as quickly as possible, it’s important to think about your options first. Photo: Getty

It’s a scenario nobody wants to find themselves in. You’ve been working at the same company for several years, but you’ve noticed things changing. The firm is downsizing and employees are beginning to be laid off left, right, and centre ⁠— and you know you might be next.

Eventually, it’s your turn to be called into the manager’s office to be given the bad news and suddenly, it’s time to think about the reality of redundancy.

Losing your job can be one of the most difficult challenges you have to face in life, but negotiating a good severance package can help you get back on your feet. Although it’s tempting to take the first offer and leave as quickly as possible, it’s important to think about your options first.

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“Severance pay is the pay you get from an employer after the employment has been ‘severed’, usually when you are dismissed or involuntarily leave a job role,” explains Nikki Thomas, a career coach.

“Entitlement varies by country and is usually stipulated in your contract so read it carefully! Also read your country’s lawson this (usually on the government website) so you know your rights. Always negotiate. Never just agree to the first offer. You have nothing to lose and asking for more cannot harm your working relationship at this stage.”

Work out what you are entitled to

In the UK, you’ll normally be entitled to statutory redundancy pay if you’re an employee and you’ve been working for your current employer for two years or more. You’ll get half a week’s pay for each full year you were under 22, one week’s pay for each full year you were 22 or older but under 41, and one and half week’s pay for each full year you were 41 or older.

Your employer can’t pay you less than the statutory minimum, but they may pay you more if your contract stipulates this. This might mean you get more money or a payout, even if you’ve worked at the company for less than two years. If there’s no mention of redundancy pay in your contract or staff handbook, you should assume you’ll get the legal minimum.

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“Some companies have a formal severance policy that states the conditions by which severance is offered, such as when and the amount, which is often based on tenure,” says Shelley Piedmont, a job search coach.

“Other companies have a more informal policy based on past practice or management discretion. Others may not offer severance at all. If you are facing job elimination and are not automatically offered severance, you should ask the HR representative whether the company would be willing to offer severance.”

In addition, if you have any holiday owed, your employer has to pay you for it or let you take it before you leave. If your employer goes out of business, you will have to claim your statutory redundancy pay and holiday pay from the state rather than your employer.

What to remember when you negotiate

If you are offered a severance package, Piedmont advises to read through the terms and conditions first so you understand the details.

“Ask questions to clarify anything that you do not understand. If you do not feel what is offered is satisfactory, you can ask to negotiate aspects of the package offered,” she says.

“Whether you are negotiating the terms of a severance agreement given to you or trying to get severance when none was offered, make sure you think through what items are most important to you ⁠— additional money, health insurance, outplacement services, etc. Prioritise your negotiations on what will be of most value to you.”

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It’s also helpful to think about your value to the company, your performance, and how long you have been working there. If you have been in a revenue-generating role, you should be able to put a number to your contributions.

It’s also worth considering how easy or difficult it will be for you to find a new job in the current economic climate. Having these details to hand may help you put your case across for a better severance package ⁠— and it can help to go into a meeting with a reasonable figure in mind.

In some cases, however, it won’t be possible to negotiate a better redundancy offer. If a number of other colleagues have been laid off too, it’s likely you’ll all be offered the same package.

“Depending on the company policy and what has been offered to others, you may or may not succeed in bettering the terms of the offer or getting anything at all,” Piedmont says. Saying that, she adds, the old adage still applies ⁠— if you don’t ask, you don’t get.