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Severance packages: – What’’s Fair?

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Severance pay is the compensation an employee receives from his/her company upon job elimination, being laid off, or when both parties agree to part ways. Severance pay is a mandatory compensation required by the law. Mandatory severance pay could range anywhere from a week’s wages up to eight weeks of wages. For more senior positions, severance pay is usually agreed upon in the employment contract.

Legal Obligations
British Columbia has a law called The Employment Standards Act, basic requirements set out to ensure the rights of employees. The Employment Standards Act include minimum wages and terms of employment. Severance pay is mandatory under these acts. As stated in the Employment Standards Act, an employee is entitled to one week’s wages after three consecutive months of service with the company. For every year’s service, the employee is entitled to one week’s wages. For example, if an employee has been with the same company for four years, the company must pay the employee severance pay of four weeks’ wages. 8 weeks’ wages of severance pay is the maximum required by law. However, this could vary depending on the terms of the agreed upon contract.

What is a fair severance package?
A fair severance package is more than just a legal requirement, it demonstrates a level of care to the employees.   Providing a fair severance package to a laid off employee not only helps the laid off employee, it also reassures the remaining employees that the company has their best interest in mind. This sense of security in  employees is vital to the performance of an organization.

Keep these factors in mind when drafting a severance pay policy: The BC Employment Standards Act, the employee’s performance, employee’s behavior during his/her term with the company, etc.

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