What is a Voluntary Severance Package?
A Voluntary Severance Package (VSP) is a financial package offered to employees as incentive to quit or retire. It is usually used by companies to reduce their workforce, and therefore salary and benefit obligations, during times of economic downturn. Unlike a regular severance package, employees have the option to either accept or decline the offer. Sometimes referred to as the ‘golden handshake’ as it can benefit both parties – when done right.
What to do when offered a Voluntary Severance Package
After being offered a Voluntary Severance Package you’ll probably be feeling a mix of emotions. Feeling excited, nervous, confused and uncertain is perfectly normal and to be expected.
The first thing you should do when offered a VSP is to take a moment. Don’t make a snap decision about accepting or refusing the offer. Your employer should give you time to consider the offer and you should use this time to consult with an employment lawyer. They can help you understand what you are getting – and what you are giving up – should you accept your VSP.
A voluntary severance package could be a windfall or a bust. What’s right for you will be different from what is right for others. To decide what it is for you, you will need to compare the offer to what an involuntary termination would look like. Sometimes, an involuntary termination could be better for you financially given your length of service as well as statutory, severance and common law entitlements.
Things to consider before accepting a Voluntary Severance Package
- Is your job likely to be eliminated in the near future?
When a company is offering VSPs, it likely means that things aren’t going super well for the company and that lay-offs or terminations are ahead and that they won’t likely offer you as sweet a deal as the VSP. In such a situation, accepting a Voluntary Severance Package may be a chance to get out while the going is good.
- Your age and how close you are to retirement
If you decide to leave your job for a VSP, you should evaluate your prospects for gainful long or short-term employment. If you are close to retirement age, a VSP could be a great opportunity to retire early. If you aren’t so close to retirement, you should be realistic about the ease with which you are likely to find new employment based on the current market for your skills and experience.
- Your financial circumstances
Can you afford to maintain your current standard of living and all the costs associated with it if you accept a Voluntary Severance Package? Will it give you enough of a financial cushion to find new employment or carry you along until your pension kicks in?
- The tax implications of a lump sum payout
Taking a VSP can mean a large deposit in your bank account – one that can boost you into a higher tax bracket meaning that less of your settlement money will stay in your pockets come tax season than you may expect.
If you have been offered a Voluntary Severance Package by your employer, the employment law team at KCY at LAW can advise you of your rights and options and make sure that you and your financial interests are protected. Call us today to book your consultation at 905-639-0999 or connect with us online by filling out a consultation request form.