40% of Employers Don’t Have Severance Policies

The Bureau of Labor Statistics recently reported the national unemployment rate dropped to 8.3 percent in January 2012, the lowest it’s been in three years. Although the rate of unemployment continues to slowly trend downward, it remains important for employers to have a defined set of post-employment practices in place. The Compdata Surveys BenchmarkPro 2011 survey results found 60.5 percent of companies currently have a severance policy.

This rate varies by industry as 71.2 percent of insurance companies report having a severance policy in place, compared to 62.4 percent in healthcare. Services employers have severance policies at a rate of 58.5 percent. Organizations in not-for-profit report having them the least, 45.6 percent.

“Employees at many organizations are under a great deal of stress, dealing with increased workloads due to staffing deficiencies coupled with the fear of another economic downturn,” said Amy Kaminski, director of marketing for Compdata Surveys, a leading pay and benefits survey data provider. “Employers can help alleviate a little of that angst by implementing a clear set of post-employment practices, providing employees with an added sense of security in the event they are separated from their job.”

The formulas used to pay severance differ from company to company. Nearly 43 percent of companies base severance on years of service. A combination of a fixed number of weeks and years of service is used by 35.3 percent of companies, while employer discretion is used by 14.9 percent. Using only a fixed number of weeks is the least common severance formula at 4.1 percent.

Differences in how severance is paid out can also be seen across regions. For example, 18.9 percent of companies in the Midwest use employer discretion to determine severance. Organizations in the West utilize this method at a rate of 14.6 percent, compared to companies in the Northeast, 13.7 percent. More than 11 percent of South Central companies use employer discretion to pay out severance, while companies in the Southeast region of the country use this method the least at 10.2 percent.